McMahon: Cuomo can help save ailing local governments

Over the past 37 years, starting with the near-bankruptcy of the Big Apple, serious fiscal crises in New York local governments have unfolded at a rate of one or two per decade. The state has responded on a case-by-case basis, creating separate public authorities, commonly known as control boards, to oversee local financial workouts in six different localities. After New York City, there was Yonkers (twice), Troy, Nassau County, Buffalo and Erie County.

But what if a dozen or more counties and cities go broke more or less all at once? That's entirely possible in the next few years. At least two -- the City of Long Beach and Rockland County -- have reached the edge of a fiscal precipice. Nassau County has already tripped over it, and others may not be far behind.

According to state Comptroller Thomas DiNapoli, almost 300 local governments in New York ended one of the last two fiscal years with a deficit, 100 lack enough cash to pay even three-quarters of their liabilities, and 27 have depleted their rainy-day reserves.

Occupants of the Empire State's fiscal sick ward range from economically struggling upstate cities to affluent Hudson Valley and Long Island communities. What they have in common are the high tax burdens endemic to New York, and recurring expenses that are further and further out of line with recurring revenues.

These problems didn't arise overnight. They took years to develop, but were fully exposed when the recession hit, revenues dropped and expenses -- mainly employee salaries and benefits -- continued rising after the 2008 financial crisis.

The latest round of increases in state and local pension bills, announced by the comptroller on Aug. 31, will only add to the pressure on localities. Looming in the background: The state, its localities and public authorities combined have amassed nearly $250 billion in unfunded liabilities for retiree health care, as documented in a report issued last Wednesday by the Manhattan Institute's Empire Center, the nonprofit think tank for which I work.

If the traditional ad hoc response to fiscal emergencies won't suffice, what's the alternative? A California-style wave of municipal bankruptcies may be appealing to some conservatives, if only because it sounds like appropriate punishment for fiscal irresponsibility. But federal bankruptcy courts are actually limited in their ability to force structural changes on local governments -- which is why at least one prominent liberal Democrat, former Assemb. Richard Brodsky of Westchester County, keeps talking about it as a real possibility. Brodsky's rationale -- that bankruptcy would leave local pols in charge while forcing bondholders to "share the pain" of eliminating deficits -- also highlights the risk that multiple bankruptcies would lead to higher borrowing costs for all New York localities.

DiNapoli, whose office oversees local finances, is reportedly considering a more comprehensive system of state response, including an early-warning system to head off emerging crises and the creation of a state-level financial control board. A "super" control board could be a good idea, if only because it would bring a more uniform approach -- but it's no panacea.

In the end, the buck must stop with Gov. Andrew M. Cuomo. For all practical purposes, he alone combines the institutional authority and the political clout to ensure a local financial oversight process actually does some lasting good. After all, there is no spare cash in the state's cupboard -- and even if there were, local bailouts would only perpetuate bad habits.

Since the State Legislature will come up with a patchwork of remedies in any event, Cuomo might as well get out ahead of the curve now and introduce some order to what threatens to become a disorderly situation.

The place to begin is Nassau County, where County Executive Edward Mangano is resisting pressure from the Nassau Interim Finance Authority to make deeper cuts in his unbalanced budget. NIFA has rejected Mangano's attempt to parlay a long-term sewer privatization into an upfront payment of $750 million, which is clearly just another form of borrowing. Yet Mangano keeps pushing the idea -- obviously convinced he has a chance of persuading the governor to side with him.

Cuomo needs to publicly dispel any doubts that he stands behind NIFA. This would send the right message to Nassau's leaders and set a good pattern for future financial control efforts around the state. Local governments in trouble need to know the state Capitol will not be a detour around tough decisions.

Step two is for the governor to appoint a state local finance review board to serve as a clearinghouse of information on what's really going on in municipalities, to screen local pleas for help and to recommend a comprehensive statutory framework for dealing with them.

Last but not least, Cuomo has to finally embrace a mandate relief plan, with teeth, to benefit all local governments. That agenda must include repeal or modification of the Triborough Amendment, which preserves salary hikes even after the contracts of public employees have expired, and of compulsory binding arbitration, which further locks in unaffordable deals for police and fire unions.

Cuomo has said that his goal is to "transform" government in New York -- and in at least a couple of key respects, he's off to a good start. His property tax cap, coming on the heels of the local consolidation reform he championed as attorney general, can be a game-changer in the long run. But he will risk squandering those accomplishments if he lets local finances devolve into chaos.

E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.