As discussions on the city’s 2013 budget begin in earnest, some city lawmakers say that a combination of state-mandated expenses, rising health care costs and contractual obligations to municipal employees may leave them with no choice but to break a state-imposed 2 percent cap on property tax levy increases.
“It’s not a pretty picture when you have four or five items that are major impacts on your budget that are pretty much out of your control,” said Common Council President Jim Noble. “They’re squeezing us so much that [a tax cap override] is definitely an option.”
According to several council members, Mayor Shayne Gallo is already meeting with department heads and going line by line over budget items, seeking potential savings. Gallo, who has until October 15 to present a budget for approval, has not indicated whether or not the proposed spending plan would include layoffs or service cuts. But with state-mandated expenses alone running well above the city’s $400,000 tax cap cushion, either or both may be necessary — unless the council votes to override the limit with a supermajority vote and the mayor approves the resulting spending plan.
Currently, roughly 76 percent of the city’s $36.8 million budget is consumed by obligatory expenses, including mandatory payments into the state pension fund and the Safety Net welfare program. Mandated expenses also include employee salaries, benefits and health insurance, set in pre-existing contract agreements. Another 6 percent of the budget goes towards serving the city’s debt. According to City Comptroller John Tuey, the remaining 18 percent, which pays for operating expenses, includes a number of fixed costs like heating oil, electricity and fuel for city vehicles.
Mandates: Killing us
But for Gallo and city lawmakers it is the state mandates that are the most galling and daunting obstacles to a tax-cap compliant budget. Safety Net payments, which are calculated monthly, have already reached $1.96 million this year, compared with a total bill of $1.18 million for all of 2011. According to Tuey, the city is also bracing for increases in mandated payments into the state retirement fund. In addition state environmental officials have ordered the city to institute new flow control procedures to prevent sewage discharge into the Rondout Creek.
According to Gallo, the city’s fiscal dilemma is a direct result of the indifference ofAlbanylawmakers who last year saddled municipalities with the 2 percent tax cap, then failed to follow through on pledges to curb unfunded mandates. As a result, Gallo said, many communities would be forced to choose between overriding the cap or making deep, in some cases impossible, cuts in services.
“The [state] legislature is literally disconnected and totally out of touch with the fiscal circumstances of municipalities,” said Gallo. “And it’s that indifference which is going to eventually start driving cities likeKingstoninto Chapter 9 municipal bankruptcy.”
Employee costs on the rise
Along with the mandates, workforce costs are expected to continue to grow in 2013 putting further strain on the city budget. Tuey declined to put a number on expected health care cost increases. But Gallo has said that he believed the city’s bill for health insurance would climb by at least $600,000 next year. The mayor has promised to take a tough stance in negotiations — just getting under way — with the unions representing city workers, including seeking increased employee contributions for health insurance and changes in work rules at the police and fire departments which push up overtime costs. But Alderman Bob Senor (D-Ward 8) said he expects the talks would end up in arbitration, a process that will not be concluded until sometime next year, well after lawmakers finalize the 2013 budget.
Gallo and the council will also have to deal with the impact of the 2012 year’s budget on the city’s reserve fund. Last year, over strenuous objections from then-Mayor-elect Gallo, the council voted to take nearly $1 million from the city’s fund balance to push down the tax levy. The result was a tax hike of just 1.3 percent, but at the cost of a dangerously depleted reserve fund that, according to Noble will have to be replenished next year to keep the city on a sound financial footing.
So what’s to be done?
There are few bright spots in the city’s budget picture. According to Tuey, sales tax revenue is running slightly ahead of last year’s predictions and departmental spending has remained in line with the budget. But neither factor is likely to offset rising expenses. Gallo could try to cut the budget by negotiating immediate cost-saving givebacks from the unions. In 2010, the city’s police and fire department unions voluntarily deferred raises and some other benefits in exchange for a promise of no layoffs. The same year, the union representing Department of Public Works employees refused to offer contract concessions and the department was slashed by about 15 workers. But with DPW and Parks and Recreation already cut down to the bone and layoffs in the public-safety sector perennially unpopular with voters the city has lost some of the leverage of the layoff threat. Additionally, the city’s pool of long-serving highly paid employees has been largely drained by two rounds of retirement incentive programs in recent years, cutting off another potential avenue of savings.
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