Tue September 10, 2013
Mayors in 2014 Face Big Fiscal Challenges
Whatever the outcomes of Tuesday's primaries, most mayors who win a new term in cities across the state will face a similar big challenge - how to get their municipalities back on secure financial footing.
The next political leaders of New York City, smaller cities upstate , and even large suburban counties like Nassau County, will all face a big test once they take office- how to solve mounting fiscal difficulties.
EJ McMahon, with the Empire Center, a fiscally conservative think tank, says the recession, which began five years ago this week, has not caused the budget problems plaguing many of New York’s municipalities, but rather has worsened already existing structural weaknesses.
“The recession exposed the unsustainable tendencies in the finances of local governments throughout the state, especially the cities,” said McMahon.
He says many had “structural budget deficits” and were routinely spending more than they could possibly collect in permanent revenues.
McMahon believes that cities need the “tools”, to make the hard choices, and he says union concessions are part of the answer. He recommends easing contract restrictions that, for instance, allow workers to keep to the terms of their present contracts, including raises and benefits, if they fail to agree on a new one.
But so far, politicians including Governor Andrew Cuomo and members of the legislature, have been reluctant to pick that fight.
McMahon says financial control boards have helped somewhat. He says for instance they’ve improved the fiscal health of the cities of Yonkers, and Buffalo. But he says they aren’t the long term answer.
He says maybe some cities should just be allowed to declare bankruptcy, as some have in California.
“You should cut to the quick and just back off and take a laissez fare attitude,” said McMahon. “Then we’ll let the bond markets straighten it out and we’ll see how it goes.”
Former State Assemblyman Richard Brodsky, now with Demos, a progressive leaning think tank, agrees with McMahon that bankruptcy might be what Brodsky terms “the best of a series of very bad options”. He says at least in a bankruptcy proceeding, everyone is treated fairly, including the bondholders, who currently don’t suffer when a municipality borrows more money or relies on increased state aid to solve its problems.
Brodsky says the City of Detroit, which declared bankruptcy over the summer, may set a new precedent.
“There’s been a tendency to take the solution out of the hide of the municipal workers, the tax payers and the people who use city services,” said Brodsky.
He says bankruptcy “legitimizes the notion that everyone is going to be treated equally”, including bondholders, who he says so far have been able to “collect 100% of what they’re owed”.
“When you do that, you change the politics,” Brodsky said. “Powerful forces which have been insulated from the consequences of the municipal crisis are now knee deep in it, and that is going to cause political people to respond in ways that they haven’t so far.”
The New York Conference of Mayor’s Peter Baynes says many of New York’s cities are in a fiscal vise that has led some other municipalities to declare bankruptcy.
“All the factors are there,” Baynes said.
Baynes says municipal leaders are struggling with fast rising pension and health care costs, a shrinking property tax base and declining state aid.
Baynes says rather than declaring bankruptcy or submitting to a state takeover by a financial control board, cities would like to see state government restore funding to local governments that has been cut in recent years. But says cities need freedom from many state rules and regulations s that they can make the hard choices.
He says the “solutions are out there”, cities just need the “power” to act.
Brodsky says mayors, as well as state leaders, have to look at the bigger economic picture. He says cities in New York represent “pockets of insolvency” in the midst of what is a comparatively wealthy state. And he says the economic model that cities have operated under is broken.
“Syracuse had Carrier, Yonkers had Otis Elevator, Rochester had Kodak, and they’re gone,” he said. “And they’re not coming back.”
The grim picture painted by Brodsky and other experts may mean that after mayors celebrate their elections, or in some cases reelections, they’ll have some serious hard work ahead.