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Kingston Times - Features | 11/19/2009 |
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A tale of three cities
Lessons to be learned from comparing Kingston, Poughkeepsie and Newburgh's budget situations |
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by Jesse J. Smith
The agonizing budget process currently working its way through the Kingston Common Council was not created in a vacuum. Across the New York State municipal governments are dealing with an ugly confluence of declining revenue fueled by the real estate bust, the financial sector meltdown, unemployment and anticipated declines in state and federal aid.
In the Hudson Valley, two cities, Poughkeepsie and Newburgh, with populations and demographics roughly similar to Kingston's, are in the midst of their own budget crises. Looking at the roots of their problems and the potential solutions highlights the similarities and differences between the three sister cities on the Hudson. Jonathan Drapkin, President and CEO of the regional policy research group Pattern for Progress, said cities across the region are struggling to adjust to a new fiscal reality after a period of relative prosperity.
"We can't predict how long this period will go on or when revenue will return to what we had been experiencing over the past five years," said Drapkin, who crunched numbers for New York City during the epic budget crisis of the mid-1970s. "[Poughkeepsie, Newburgh and Kingston] have not experienced large growth in the past 20 years and they're all doing the same thing as cities throughout New York State, trying to find the right formula to improve their economy."
Kingston - slimming down
In Kingston, Mayor James Sottile predicted as early as this spring that the city would face layoffs and major budget cuts in the 2010 budget. Sales taxes, which the 2009 budget predicted would remain flat, instead fell by about 7 percent and mortgage taxes fell 50 percent. Unpaid property taxes and an anticipated major increase in payments into the state pension fund (which in better times is padded with Wall Street dividends) added to the pain. Sottile also criticized the Common Council for restoring some jobs he'd cut in the 2009 budget and using $280,000 in reserve funds to push down the tax levy.
Going into the 2010 budget season, Sottile said that based on his calculations the city could see a roughly $4 million gap between projected revenues and expenses. To close it, Sottile has made shrinking the city workforce a major focus of his budget cutting effort. According to the fiscally conservative think tank the Public Policy Institute, Kingston's annual per capita spending on employee benefits stands at $470, ranking second in the region and fourth overall in New York State. Poughkeepsie spends $335 per capita on employee benefits while Newburgh spends $395.
Sottile began cutting positions in June when he laid off a code enforcement officer. He also asked the Common Council to approve two retirement incentive programs which offered senior employees $12,500 and $10,000 to step down. Twenty-five city employees took advantage of the program and the majority of those posts remain unfilled. But in his proposed 2010 budget currently under review by the common council, Sottile proposed an additional 28 layoffs in the police, parks and recreation and public works departments. Sottile has also introduced new work rules, including an end to "stint work," which allowed DPW workers to go home once their assigned tasks were completed and the merger of laborers for the parks department into the DPW labor pool.
"We're just going to have to learn how to do more with less," said Sottile, who has said that he intends for the workforce reduction to be permanent, not just a crisis-year stopgap measure.
The Common Council is looking for ways to reduce both the layoffs and the tax hike. Aldermen have suggested asking city employees to accept a voluntary pay cut or holding back raises from some senior department heads.
Kingston's financial crisis has also spurred renewed interest in a proposal in Kingston would make residents buy garbage bags from the city, something supporters say would force tax-exempt properties to pay their share for trash pickup and reduce tipping fees.
Poughkeepsie - head start eases the pain
While residents in Kingston and Newburgh are looking at large scale layoffs and possible double-digit tax hikes, in Poughkeepsie there will be no layoffs and a 5 percent tax hike. With decreased property values and no increase in the total tax levy, Mayor John Tkazyik said that 83 percent of city residents will see their tax bills go down.
Like Kingston, Poughkeepsie is running a leaner operation with a smaller municipal workforce. The difference, however, is that Poughkeepsie began the reduction 18 months ago. In June 2008, facing a $1.85 million deficit, city officials implemented an incentive program which allowed workers to trade unused sick days and vacation time for cheaper post-retirement family health insurance and moved nine firefighters who were drawing pay while out on long-term disability into retirement. Tkazyik, working with City Administrator Mike Long, the Common Council, union leaders and department heads, reduced the city's workforce from 413 in 2008 to 387. The cuts were accomplished through attrition with no layoffs. In addition, several long-serving employees who took the retirement option were replaced with cheaper new hires.
"The key factor [in the 2010 budget] is that a year and a half ago we had a significant budget deficit so we put the clamps on a lot of things, we stopped filling positions as people left," said Long. "You can't do it all at once, you have to make little tweaks that when you put them all together have a bigger impact."
In addition to the hiring freeze, Poughkeepsie saved money by shifting and consolidating some city offices to save money on real estate costs, placed some contracted services in the hands of city worker and shifted responsibility for the city's gardening work from the Department of Public works to a youth jobs program.
"It was a collaborative effort we had to work with department heads and division heads to cut costs across the board and really have a discussion about wants versus needs," said Tkazyik who served on the Common Council for six years before winning the mayor's office. "I know the budget and I knew where we could cut expenses while preserving the level of service that our residents want and deserve and expect."
Newburgh - more money, now problems
Newburgh is no stranger to fiscal hard times. The city spent much of the late 1990s with a state-appointed control board looking over the shoulders of elected officials after it was forced to resort to deficit spending. But the middle years of this decade were relatively flush. City officials adopted a "pay as you go" approach, using operating funds to pay for projects instead of bonding and using reserve funds to keep taxes down.
On Sept. 1, Acting City Manager Richard Herbek's first day on the job, he took a look at the books and to his horror discovered that there was virtually no money left. Newburgh, with a $450,000 weekly payroll, had just $300,000 in a checking account and another $800,000 in an investment account.
"By the time I walked in the door the general fund, the sewer fund, the water fund, the self insurance fund were all wiped out," said Herbek. "I didn't know how we were going to pay people."
Mayor Nick Valentine, who served on the state control board overseeing Newburgh in the '90s, blamed the budget crisis in large part on a state mandate that the city build a new courthouse. The city bonded $12 million for the project, but it ended up costing about $20 million. The overruns were paid out of operating funds. Another $600,000 went to pay for cost overruns in a state-mandated brownfield cleanup at the old Consolidated Iron plant.
"What happened to us this year was expenses which were not normal expenses," said Valentine. "Any other year we would have slid through and said, 'OK, it will be a little bit bumpy but we'll be all right.'"
But Valentine acknowledges that the "pay as you go" approach - as well as inexact revenue and expense estimates by previous city managers - played a role in Newburgh's current crisis.
"In a year like this, everything caught up to us. In the early, mid 2000s, we had some good budgets, 1 to 4 percent tax increases and a decent fund balance we were doing all right," said Valentine. "What we didn't do was the kind of long-term financial planning that puts you in an even better position."
Having borrowed money and received an advance on state aid to get through the end of 2009, Herbek and the City Council are now faced with the dire prospect of closing a projected $7.2 million gap in the 2010 budget. Herbek put forth a budget that called for a blood-curdling 82 percent tax hike and 33 layoffs. The cuts include layoffs of police officers and civilian employees of the department, something which seems inconceivable in a city whose reputation for violent crime has hurt efforts to capitalize on its downtown waterfront and attract new residents.
"When you lose cops, crime goes up, that relationship is there on every graph I've ever seen," said Valentine. "These are people that we need."
The Herbek and the council are now wrestling with the budget in a series of closed-door meetings. But Valentine said the final document, while not pretty, will not be nearly as harsh as Herbek's initial proposal. He believed that the final budget would include seven to 10 layoffs and a tax hike in the "mid teens."
But to do that, the city will have to resort to borrowing and, possibly, a return to deficit spending. The council has approved a revenue anticipation note for $7 million secured by unpaid tax bills carried by the city between 2005 and 2009. The council also authorized bonding for $27 million on capital projects which are ongoing or in the works. About $5.2 million of that will take the form of retroactive bonding for the cost overruns on the courthouse, which can be returned to the general fund and used for operating expenses. Valentine said that the city is also looking at shopping around for health insurance - something he said could save the city $1.2 million, if the unions go along with the proposal.
"It doesn't take a lot of moves, it takes smart moves," said Valentine.
Herbek, who is the sixth city manager to take on Newburgh's fiscal troubles this year, said that the council would need to be conservative with revenue estimates, generous about anticipated costs and realistic about the true state of the city's finances to avoid backsliding into deficit spending and state oversight.
"I'm hoping that we come up with a budget that is fiscally responsible and structurally sound," said Herbek. "There will be cutbacks, but basic services will be maintained. But it's going to be very difficult."
Hard times, hard choices
While city officials in Kingston, Newburgh and Poughkeepsie fight to balance their 2010 budgets some are already looking ahead to 2011. Mike Madsen, the Ninth Ward Alderman who's leaving city government to serve in the county legislature, said that he believes next year will be even worse. Outgoing Ward 5 Alderwoman AnnMarie DiBella, meanwhile, has said that the council's reluctance to make tough choices last year had compounded this year's budget agony.
"It really takes good leadership by the executive. Every time you put off a hard decision regarding municipal finances, the impact ends up being compounded," said Drapkin. "It comes down to a series of bad options. Nobody wants to lay people off and nobody wants to raise taxes and [elected officials] are caught in the middle."
If there's an upside to the gloomy outlook of municipal finance, it's that the current budget crises have forced cities to make those hard decisions, or come up with new solutions to old problems. In Poughkeepsie, city officials moved services which had been contracted out back into the hands of city employees. A proposal floated in Newburgh would charge nonprofits fees for fire and police services. In Kingston "Pay as You Throw," which was first suggested by Sottile three years ago to a chilly reception, is back on the table. Unions meanwhile are working more closely with elected officials to find savings and stave off job cuts.
"In hard times, new policy concepts and ideas are given a real hearing which they typically aren't when there's more revenue," said Drapkin, though he declined to give his opinion on specific proposals. "That is the tiny silver lining in this horrible situation."
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