Download - Governing within the Tax Cap
HUDSON VALLEY
PATTERN FOR PROGRESS
Improving Hudson Valley Quality of Life Through Regional Solutions Since 1965
June 2012
GOVERNING WITHIN THE TAX CAP
A DISCUSSION BRIEF ON PUBLIC FINANCE
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
Bond Rating: Upgraded from Aa1 to Aaa Tax Cap: Tax levy was below the cap, with a 1.75 percent increase
Orange County Government
What the Bond-rating Agency Said:
When the county’s bond rating was upgraded in 2011,
Orange County was lauded for its strong reserve fund,
which provided “a satisfactory cushion to absorb
projected near-term operating losses.” The county was
also given a positive outlook based on its effort to
promote development at its 25 business parks, relatively
strong property values and the anticipated economic
expansion by the Port Authority at Stewart Airport.
However, the rating agency also warned that Orange
County might depend too much on sales tax and
declining state and federal aid. The agency also
cautioned that the county’s reserve levels could decline
more in the short term.
How the County Met the Cap:
To get under the tax cap, Orange County cut many
expenditures and spent more than half of its reserve
fund. The most noteworthy cut came at the county’s
nursing home, the Valley View Center for Nursing Care
and Rehabilitation. Orange County defunded the 360-
bed nursing home for half the year, saving $8 million.
It’s currently attempting to sell the home. The county
also cut 90 positions from its budget, most by attrition of
vacant positions. It also cut appropriations to contrac-
tors by 3 to 4 percent. Those contractors provide various
services ranging from mental health to economic devel-
opment. The county also cut its entire budget for travel.
Orange County expended more than half its reserve fund
to get under the 2-percent cap. The budget office said
county officials spent roughly $40 million in reserves,
leaving a balance of roughly $31.5 million. Since then,
county budget office said the reserve fund has already
grown to more than $50 million, backed by stronger-
than-expected sales tax performance, especially at
Woodbury Common Premium Outlets.
The Challenges Ahead:
Many of Orange County’s costs continue to rise annually
by double-digit percentages. For instance, health care
increased by 10.6 percent and liability insurance rose by
32 percent, according to the budget office. The county’s
share of mandated social-service programs increased by
4 percent.
The county budget office noted that it will be difficult to
meet the cap in years ahead, especially because cuts
from previous years have left Orange with little remain-
ing to trim. The sale of its nursing home is also tenuous,
with the County Legislature recently calling for a panel to
examine the issue. And as the bond rating agency
pointed out, the county cannot make a habit of spending
the majority of its reserves. Service delivery systems will
have to change to achieve the goals of the tax cap.
For the past year, our conversation about public finance in New York has been dominated by the 2 percent tax cap.
That’s why Hudson Valley Pattern for Progress decided to survey a select number of Hudson Valley communities to
determine how the cap affected them. How has the cap changed our local governments? What challenges lie ahead
and what lessons have been learned? Pattern asked these questions and more to local governments in Orange and
Rockland counties. Pattern chose to examine these counties because their county government finances appear to be
headed in opposite directions – Orange standing on solid financial ground, and Rockland slipping toward crisis.
The state’s 2 percent tax cap is a relatively complex formula that limits the property-tax levy increase to 2 percent or
the rate of inflation, whichever is less. However, there are a number of exemptions that make the cap more compli-
cated. Local governments and school districts get exemptions for any lawsuit settlements that exceed 5 percent of
their levy, and for pension contributions that exceed 2 percent of their covered payroll. Capital projects are exempted
for school districts, but not for municipalities. Both receive an incentive if they go below the cap. A carryover of up to
1.5 percent can be used in following years if their increase is less than 2 percent.
THE COUNTY
“Counties are consolidating, privatizing and eliminating
public services. This, combined with spending down
any remaining fund balance, has enabled most coun-
ties to stay under the state-imposed property tax cap.
The trend, however, is unsustainable over the next few
years.”
- Stephen J. Acquario, Executive Director, NYSAC
Tax Cap: A Reflection of Year One
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
General Observations: How the Localities Did
Many local governments in Orange County only got under
the 2-percent cap because they spent from their reserve
funds. For instance, the City of Port Jervis would have
seen a 7 percent increase and Tuxedo would have posted
a 3.25 percent tax increase if both didn’t spend reserve
money. The Town of Deerpark used $200,000 in reserves
to get under the cap, even though that money came from
a bond used to pull it out of deficits from previous years.
Dwindling reserves can hurt municipal bond ratings and
leave local governments without a “rainy day fund” for
emergencies. Spending money from reserve funds to
meet the tax cap is not a sustainable solution.
Most local governments said they feared that large
increases in health insurance, liability insurance, and
gasoline would challenge their ability to stay under the
2-percent cap.
The vast majority of municipalities passed a resolution
to override the cap, even if they had no intention of
exceeding 2 percent. Government officials said they
feared penalties from the state or criticism in an audit
if they miscalculated the tax-cap formula.
Many government officials are cracking down on over-
time to whittle costs. For instance, the Town of War-
wick is now scheduling fewer police officers on its less
busy shifts to eliminate overtime.
Several officials said they are using the tax cap to aid
union negotiations, telling their union workers that big
raises are unrealistic.
Capital Projects:
Because capital projects are not exempted in the tax-cap
formula, local government officials said they are left with a
difficult choice: override the cap to maintain critical infra-
structure, or eliminate some projects altogether. The
following are examples of this dilemma:
The Town of Newburgh is under a consent order from
the Federal Environmental Protection Agency to build
a new water filtration plant that will cost roughly
$21.8 million. Supervisor Wayne Booth said the
project could also force Newburgh over the tax cap.
The Village of Monroe could need to raise more money
to fix a cracked dam at Mill Pond, which will cost
roughly $1.2 million.
The Village of Montgomery wanted to bond $500,000
to fix some of its buildings, sidewalks and roads. But it
could not make
it under the
cap, so it re-
duced the
amount of work
to $200,000.
The Village of
Woodbury went
over the cap in
2012 because
it spent more than $1 million to get additional sewage
capacity from the county and to cover capital projects
to address inflow and infiltration in its system.
Tax Cap Driven Changes: The Dialogue is On
In year No. 1 of the tax cap, some municipalities have
already begun to change the structure and functions of
their governments. Some are sharing or eliminating
services, while others have begun substantive discussions
with their neighbors. The following are some examples
given by municipal leaders:
The Town of Chester consolidated its assessing with
Orange County, saving roughly $100,000.
The Village of Monroe said it saved money by paving
more roads with its in-house DPW crew, rather than
contracting the work.
The Village of Warwick is negotiating with labor unions
to pay a larger share of health costs.
The Town of Crawford cut back on police dispatching
and administrative workers.
The Village of South Blooming Grove chose to forgo
roadside leaf and Christmas tree pickup.
The Town of New Windsor eliminated its Dial-a-Bus
service, saving $350,000.
The Town of Wallkill eliminated full-time police
dispatchers and seasonal staff at its parks.
Village trustees in Goshen started paying 20 percent
toward their health insurance, in hopes of convincing
village employees to follow their lead next year.
The Town of Deerpark cut its senior citizen shuttle
from five days to three, privatized its building depart-
ment, and changed its police chief, assistant assessor
and building inspector from full time to part time.
“It’s a driver of change, without a doubt. Nobody can
stay for five years below that 2 percent without mak-
ing major, fundamental, structural changes in their
government.” - Steve Neuhaus, Supervisor,
Town of Chester
“This tax levy cap, when you have things like health in-
surance continuing to go up and pension costs continu-
ing to go up, is eventually going to force service reduc-
tions.” - Richard Herbek, Manager, City of Newburgh
Under the
38 /42 Municipalities
Tax Cap
90 %
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
Rockland County Government
What the Bond-rating Agency Said:
When the bond rating agency downgraded Rockland in
May 2012, it focused on the county’s operating budget
gap of roughly $40 million. It noted that Rockland’s plan
to close the budget gap, including an increase to sales
and mortgage taxes, had not received support from its
state representatives. The county also failed to get con-
cessions from labor unions. Analysts also criticized the
county for failing to sell or make “financial improvements”
to its county-owned nursing home.
The agency’s report noted the county may experience dif-
ficulty when trying to access short-term credit from the
capital markets, and any borrowed money would likely
come at higher interest rates. Rockland has already
asked the state to issue $80 million in deficit reduction
bonds.
Analysts said Rockland could improve its rating by imple-
menting realistic revenue enhancements, reducing expen-
ditures, and acting decisively to
close the operating gap at its nursing
home.
Why it Exceeded the Cap:
According to Rockland County
officials, the county exceeded the
cap for many reasons connected to
revenue and expenditures. On the
revenue side, Rockland missed its
sales-tax projection in 2011 by roughly $3 million,
creating a deficit that had to be closed the following year.
The county-owned Summit Park Hospital and Nursing
Care Center requires significant taxpayer subsidies to op-
erate. The county finance office said taxpayers would pay
as much as $15 million this year to keep the center open.
To meet the state’s 2-percent cap, they said Rockland
would have needed to lay off roughly 540 workers. This
year it eliminated 50 jobs, and county leaders are cur-
rently examining the reduction of another 150 positions.
Rockland County did relieve the taxpayers of two costs–
its methadone clinic and a portion of its mental-health
services were privatized this year.
The Challenges Ahead:
Rockland County’s finance office said it’s projecting a
deficit of roughly $90 million by the end of 2012. To close
that gap, the county finance office said Rockland will care-
fully analyze the future of its nursing home and hospital.
The county is also examining the idea of outsourcing all
its highway work to towns and villages, contracting with
local governments to maintain county highways with their
own crews. Rockland will also explore whether a local hos-
pital can take over its inpatient mental health beds. The
county also noted that significant layoffs will be the only
way it reaches the state’s 2-percent cap.
Other Emerging Strategies:
There is concern about the county’s response to its fiscal
crisis with the creation of an “energy tax.” Pattern has
written before about the practice of shifting taxes rather
than directly accepting responsibility and adapting service
delivery. Further, Rockland County objected to this very
practice when the Metropolitan Transportation Authority
shifted the true cost of its service by creating fees and
taxes for unrelated services. Should the county find it
necessary to raise taxes, Pattern believes it should be in
the form of the property tax to create greater transpar-
ency that it is the county raising the funds. This will lead
to a clearer debate about whether this
was the best way to achieve fiscal
stability. We also strongly urge consid-
eration be given to the Deficit Reduc-
tion Plan proposed by Assemblyman
Kenneth Zembrowski. We believe the
size of the projected gap, the downgrad-
ing of the bonds and the stagnant econ-
omy supports the creation of the Deficit
Reduction Task Force for a defined period of time. As New
York City learned from its fiscal crisis in the 1970s, aus-
terity measures do not last forever and if the economy
rebounds they can be revisited.
Bond Rating: Downgraded from A3 to Baa3 (lowest ranking for any county in New York State)
Tax Cap: Tax levy was above the cap, with a 31 percent increase
“The public knows about the cap, and
government has been under attack
for the past several years about over-
spending. With the political climate
being what it was, it was best to work
within the cap and make the hard
choices.” – Carl Wright, Mayor, Village
of Sloatsburg
The dilemma of PILOT agreements:
Several local governments have complained that the tax-
cap punishes them for attracting businesses through pay-
ment in lieu of taxes agreements (PILOT). The cap does not
allow municipalities to include the increases in property
value that resulted from PILOTs in their growth factor, and it
forces them to subtract PILOT payments from their tax-levy
limit. As a result, governments and school districts in grow-
ing regions have faced levy-increase limits below 2 percent,
and some are now rejecting PILOTs because of their affect
on the cap. New York must address this problem during a
period when the tax cap and jobs are priorities.
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
General Observations: How the Localities Did It
Several local governments in Rockland County used re-
serve funds to get under the 2 percent tax cap. Spending
this money to meet the tax cap is not a sustainable solu-
tion, and alternatives should be considered.
Most local governments responded that double-digit
increases in health care threatened to put them over the
tax cap in years ahead.
Some municipalities said they were exploring
user fees as a way to offset taxes. User fees are com-
monly applied for trash pickup, but the Village of Kaser
was also researching whether a user fee could be applied
to public safety.
Local officials are concerned that Rockland County’s
budget problems could trickle down to local governments,
making it harder for them to meet the tax cap. Town and
village officials feared that Rockland might take away the
portion of sales tax that is shared with municipalities, and
charge the towns for election services.
The Town of Ramapo recently saw its bond rating
downgraded for operating deficits and taking on debt for
“non-essential enterprises,” further proving the need for
long-term fiscal planning at every level of government.
Tax Certioraris Hurt :
Rockland County has been hit several times in recent
years with large tax challenges that forced local govern-
ments and school districts to pay back millions of dollars.
These multi-million dollar settlements also have forced
municipalities over the cap, or currently threaten to push
some to the brink. The following are some examples:
The Palisades Center mall recently filed a court action
that seeks to reduce its $253 million assessment by two-
thirds for the years 2008 and 2009. If the mall owners
are successful, the Town of Clarkstown, school district
and county could have to pay back millions. They could
have to break the cap to make those payments.
The Town of Orangetown will also be facing tax in-
creases due to a tax certiorari. Pfizer, the pharmaceutical
manufacturer, won a $2.4 million settlement that will
have to be paid back by the town.
Ignoring the Cap:
A few local governments in Rockland have decided to
ignore the cap in favor of giving raises to their employees
or keeping services. Here are some examples:
Montebello Mayor Jeffrey Oppenheim admits that the
village had no interest in the cap when it was passed. Af-
ter zero tax increases for a few years, Montebello chose
to raise taxes higher than the cap to fund a number high-
way and infrastructure projects.
West Haverstraw gave raises to its 17 full-time em-
ployees instead of going under the tax cap. Mayor John
Ramundo said the
village could have
gone under the
cap without the
raises but he
“didn’t think it was
fair” to freeze his
workers’ salaries.
Several mayors
and supervisors
expected to exceed
the tax cap in coming years. They indicated it was politi-
cally important to meet the cap in the first year, but it will
likely become more important to keep critical services in
the years that follow, even if that means going over a 2
percent increase on the property tax levy.
Tax Cap Driven Changes:
The tax cap has forced several local governments in Rock-
land County to think differently about the services they
offer, and whether it’s more efficient to partner with
neighboring municipalities. The increased dialogue is one
of the important outcomes of the cap. The following are
some examples of changes driven by the cap:
The Town of Orangetown has decided not to fill posi-
tions in its court, tax receiver’s office and building depart-
ment. It also has contemplated the closure of its munici-
pal golf course and is exploring whether to consolidate its
tax receiver, assessor or finance departments.
The mayor of West Haverstraw wants to convince tax
payers that privatizing garbage pickup will save money.
The village’s current user fee is $290 per household, but
privatization would bring it down to $210, the mayor said.
West Haverstraw has also been talking with the Village of
Haverstraw about shared road paving.
The Village of Hillburn asked its employees to contrib-
ute to their health insurance this year for the first time.
The villages of Hillburn, Sloatsburg and Suffern have
talked about combining fire companies and sharing DPW
services, officials said.
The Village of Haverstraw said its open to consolidat-
ing courts, shared highway services and combined con-
tracting to pave sidewalks.
Suffern applied for a grant to examine sharing its wa-
ter with Hillburn, which currently buys water from a private
company.
“It’s going to become more difficult to stay within 2 percent
as time goes on. There will be a time when (local govern-
ments) won’t be able to use surplus or take advantage of
early retirement programs. They’re not going to have the
luxury of downsizing anymore.” - Alexander Gromack,
Supervisor, Town of Clarkstown
Under the
17 /24 Municipalities
Tax Cap
71%
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
Tax Cap forces staff and program cuts in School Districts:
School districts across the Hudson Valley had been cutting
staff and programs because of the Great Recession, but
the state’s tax cap gave those cuts new urgency.
If school districts wanted to exceed the cap, they needed
approval from more than 60 percent of the voters in their
district. If the school budget failed twice, the district would
have to operate with a zero-percent increase, forcing huge
cuts.
That scenario was seen as too risky for many. According to
the New York State School Boards Association, 623 dis-
tricts statewide, or 92.8 percent, proposed budgets that
were below the new tax cap. Of those, 99.2 percent
passed.
Of the 48 districts that proposed budgets above the cap,
only 60.4 percent passed, suggesting that voters thought
of the tax cap as an important benchmark.
To get under the tax cap, school districts in Orange and
Rockland counties had to eliminate several hundred posi-
tions, including administrators, teachers, teaching assis-
tants and staff. They also had to make cuts to popular but
optional programs. The most common cuts include:
Changing full-day kindergarten to half-day. Because its
budget failed, East Ramapo is one of a growing num-
ber of school districts that must consider eliminating
kindergarten altogether.
Foreign language classes at the elementary and sec-
ondary levels.
Summer school course offerings.
The elimination of sports, especially modified and
freshman athletic teams.
Honors classes, including Advance Placement
courses, as well as music programs.
School districts are facing many of the same pressures as
local governments, including rising health, pension, liability
and other costs. Meanwhile, many districts are seeing a
reduction in state aid because their student enrollment is
declining.
To offset the loss of aid and meet the tax cap, 99 percent
of school districts statewide chose to spend money from
their reserve funds, according to NYSSBA. However, that is
a dangerous trend. A study by the Cornell University Center
for Rural Schools found that high-needs rural schools will
deplete all their fund balance in the aggregate by 2014.
There are also signs that the stresses of the tax cap and
recession have forced some thoughtful changes. For in-
stance, six school districts in Orange County are now shar-
ing a bus to bring children with special needs to out-of-
county facilities. Each district used to run its own bus. The
annual savings from that alone are estimated to be
$300,000.
Pattern’s Position
The tax cap dialogue will hopefully open a wide variety of
discussion about K-12 education, its cost and its out-
comes. Pattern sees great opportunity for innovation and
redefining how education services are delivered. There is
a great opportunity before us if education leaders and the
community can realize it and craft smart, efficient changes
for the future.
“It’s being spent somewhat desper-
ately and there is no mechanism to
refill the fund balance.”
John Sipple, Director of the Center
for Rural Schools “There are new ways of looking at things by require-
ment of the tax cap, that absent this compelling
reason would not take place. The challenge is to have
that change be a thoughtful change.” - Terry Olivo,
Chief Operating Officer, Orange-Ulster BOCES
“With the tax cap, the question will eventually become when does a school district get to a point and place where
it cannot provide, according to the constitution, “a free and appropriate public education?” - Bryan Burrell,
Rockland County School Boards Association
Orange County:
Every school budget passed in 2012. Only
two school districts, Tuxedo and Kiryas
Joel, exceeded 2 percent and required 60
percent approval from their district voters.
Rockland County:
Every school district proposed a budget that was less
than the 2 percent levy limit. However, the East
Ramapo district budget, which proposed a budget be-
low the cap, failed and will be subject to a second vote
on June 19.
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
Municipal Bond Rating:
Importance of Reserve Funds:
Reserve funds are critically important to all local govern-
ments and school districts, regardless of current fiscal is-
sues. Reserve funds provide a cushion for fiscally demand-
ing times, reduce the dependence on bor-
rowing, and are part of the formula for bond
ratings. Reserve funds must be accompanied
by a plan that clearly states their purpose,
when it is appropriate to use them, a plan for
replenishing them, and they must be trans-
parent to the public.
According to the New York State Office of the State Comp-
troller, “Towns, villages and counties are permitted by law
to retain a reasonable amount of any remaining estimated
unappropriated, unreserved fund balance for each fund,
consistent with prudent budgeting practices, necessary to
ensure the orderly operation of their government. School
districts, however, are limited to retaining 4 percent of the
current school budget in unreserved, unappropriated fund
balance.” Additionally, reserve funds must also be in-
vested and all interest must “follow the princi-
pal,” which includes separate accounting re-
cords for each reserve fund.
Reserve funds have traditionally been used by
governments to cover important and unforeseen
costs, such as emergency infrastructure repairs,
cleanup efforts following natural disasters, and
tax certiorari settlements. However, the past several years
have seen governments and school districts spend reserve
funds to keep taxes low during the Great Recession, and
to get under the tax cap. If that pattern continues, the
money might not be there when other emergencies arise.
Cities throughout the Hudson Valley
and across New York are experienc-
ing great fiscal difficulties. The chart
on this page shows that bond rating
agencies have recently altered the
ratings of seven Hudson Valley cit-
ies to include a downgrade or a
worsened outlook for the future.
In New York State, the discussion
about struggling cities used to cen-
ter around Buffalo, Syracuse and
Rochester. But as we have feared,
they are not the only cities that
need attention. The municipal fiscal
crisis has hit the Hudson Valley.
Pattern proposes four action steps
to understand the fiscal strain on
our cities and help them improve:
1. The State of New York needs to recognize this is a statewide problem. There should be a statewide commission to
look at the fiscal plight of cities, which tend to be inherently different as they include a multitude of issues that
range from crime to insufficient housing, and substantial unemployment to higher levels of poverty.
2. We recognize that the state does not have a lot of money to throw at the problem as it tries to stabilize its own fiscal
issues. Yet more must be done. The original intent of the Empire Zone Program was to help the most economically
distressed parts of New York. A new, very limited, targeted program must be created to help
cities.
3. Through programs offered at the Department of State, counties, towns and villages should be
encouraged to share services and even consolidate functions with cities.
4. Each city should be required to do four-year financial plans and potentially multi-year
budgeting.
CITIES OF THE
HUDSON VALLEY
CURRENT
RATING MOST RECENT ACTION-
Newburgh Ba1 Downgrade (2010)
Middletown A1 Upgrade (2011)
Port Jervis A1 Steady
Beacon Aa3 Upgrade (2011)
Poughkeepsie A2 Downgrade / Negative Outlook (2011)
Kingston A1 Steady / Positive Outlook Removed (2010)
Yonkers Baa1 Downgrade / Negative Outlook (2011)
White Plains Aa1 Steady / Negative Outlook (2012)
New Rochelle Aa3 Downgrade / Negative Outlook (2011)
Mount Vernon A1 Downgrade / Negative Outlook (2011)
Peekskill Aa2 Steady
Rye Aaa Steady
Source: Moody’s Investors Service
HUDSON VALLEY PATTERN FOR PROGRESS PROMOTING REGIONAL, BALANCED AND SUSTAINABLE SOLUTIONS THAT ENHANCE THE GROWTH AND VITALITY OF THE HUDSON VALLEY.
LONG-TERM FINANCIAL PLANNING AND RESERVES
Hudson Valley Pattern for Progress is the policy, planning and advocacy organization
that creates regional, balanced and sustainable solutions to quality-of-life issues
by bringing together business, nonprofit, academic and government leaders
to collaborate on regional approaches to affordable/workforce housing, municipal sharing
and local government efficiency, land use policy, transportation and other infrastructure issues
that most impact the growth and vitality of the regional economy.
Become a member of Pattern and be part of the solution!
3 Washington Center, Newburgh, NY 12550 (845) 565-4900 www.Pattern-for-Progress.org
HUDSON VALLEY PATTERN FOR PROGRESS
What is Long-Term Financial Planning:
Long-Term Financial Planning (LTFP) is a proactive ap-
proach to budgeting, and it establishes goals and direction
for a municipality or school. At the most fundamental level,
LTFP primarily deals with operating budgets and projec-
tions for the next two to four years. LTFP, specifically multi-
year budgeting, assesses costs and savings over time.
It is crucial that elected officials practice LTFP with full in-
volvement from department staff and residents, creating a
sense of ownership. There are many external factors and
variables to consider during the process of LTFP that are
out of the control of government officials, such as natural
disasters, property values, gas prices and population and
employment changes.
Why Plan:
Understanding long term implications of budgeting and the
impact of decisions made today is critically important to
the fiscal health of local governments. Budget decisions
based upon short-term goals lead to potentially disastrous
implications that can impact long-term strategies. For ex-
ample, all local officials face union and labor contracts.
Avoiding these issues or prolonging the difficult decisions
drastically increases the potential for fiscal crisis. Con-
versely, local officials who project budget outcomes, pro-
vide background and demonstrate actual financial data as
a proactive approach, will benefit. Additionally, presenting
the financial impacts and the likelihood of fiscal stress bol-
sters the argument for additional state aid to local govern-
ments and potential mandate relief.
In the past, many local governments used property taxes
as the stabilizing force to eliminate fiscal shortfalls. The
establishment of the New York State Property Tax Cap
curbed the practice of balancing budgets by raising local
taxes. However, LTFP allows local governments to create a
strategy for future years and at least creates a fact-based
rationale for overriding the tax cap when it’s necessary.
The Office of the State Comptroller (OSC) provides both
online training and hands on training for municipalities and
school districts regarding LTFP. The OSC website,
www.osc.state.ny.us/localgov/myfp/index.htm, offers a
tutorial and computer-generated spreadsheets that assist
local governments and school districts with long term
financial planning.
Benefits:
Despite volatile fiscal conditions that make it difficult to
project costs and revenues, there are definite benefits to
LTFP. Budget projections help government officials predict
budget shortfalls and adapt to them. It also reduces the
potential for large, unforeseen tax increases or budget
cuts.
Impacts of the Tax Cap:
The tax cap forced local governments and school districts
to initiate very difficult conversations about potential
budget cuts, layoffs, reductions in services and whether or
not to override the tax cap. LTFP can help a municipality of
any size plan and adjust for the budget years ahead. Still,
relatively few local governments use LTFP as a tool to pre-
dict their expenditures and adjust their budgets.
Of the 32 local governments in Orange County surveyed by
Pattern, only nine used a long-term plan. And of the 14
surveyed in Rockland County, only two planned for multiple
years.
CITY OF NEWBURGH
Newburgh has been using LTFP to forecast budget short-
falls and make revisions. City Manager Richard Herbek
used LTFP to project budget deficits over the next three
years of $1.2 million, $1.7 million and $2.2 million. Her-
bek reported to the state that increasing health care
costs are largely driving the deficits. In response to the
deficits, Newburgh has already renegotiated some union
contracts and anticipates new hires to contribute to their
benefits in future years.
TOWN OF DEERPARK
Deerpark began LTFP after a deficit forced the town to
borrow $600,000 for operations. Supervisor Karl
Brabenec began forecasting expenses four years out to
determine where the budget was quickly growing. Health
care was a trouble spot. The town changed to a less
expensive plan, for both employees and retirees. The
town also changed some of the highest paid positions,
such as police chief and bookkeeper to part time, thus
reducing expenses.