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Local governments across New York are increasingly turning to local tax revenue to make up for sluggish growth in federal and state aid, according to a report issued today by State Comptroller Thomas P. DiNapoli. The report is the latest in a series of reports DiNapoli will issue to highlight the causes of fiscal stress in New York’s local governments.

From 2001 through 2011, total federal and state aid has grown at an average of 2.2 percent annually, slower than the 2.4 percent rate of inflation. The relative share of federal and state aid as a percentage of total local government revenues diminished from 22 percent of revenues in 2001 to 20 percent in 2011. In comparison, revenue generated from sales taxes increased 5.9 percent and property taxes by 4.2 percent over the past decade.

“Federal and state aid have slowed at a time of rising local costs,” said DiNapoli. “What’s more troublesome, however, is that New York’s municipalities and school districts have been forced to rely largely on sales taxes and property taxes to make ends meet. These revenue sources can swing widely depending on the economy. When this model breaks down, it causes fiscal shortfalls and hits the pockets of local taxpayers.”

The Comptroller’s report found that from 2001 through 2011, federal aid to New York’s local governments grew by $932 million, roughly 3.5 percent on an average annual basis. Much of the recent growth in federal spending was attributable to temporary funds from the federal American Reinvestment and Recovery Act (ARRA) from 2008 into 2011.

During the same period, the state’s funding to its communities grew by only 1.2 percent on an average annual basis. The majority of New York’s funding increases were the result of the Aid and Incentives for Municipalities (AIM) program.

DiNapoli also noted that a large amount of the aid to local governments comes with strings attached.

State aid revenues largely represent reimbursements and aid for a variety of social service and public health-related programs. DiNapoli estimated that 65 percent of state aid is earmarked for these programs. Similarly, more than 60 percent of federal aid is distributed to a few targeted programs that do not provide local governments with discretion over spending.

Additional findings in the report include:

• New York’s AIM program provides 74 percent of state aid revenue to cities;
• Funding for the AIM program has been reduced or held flat since 2009 and, according to the state’s financial projections, will continue to be held flat through the state’s 2015-16 fiscal year;
• Through 2011, local governments in New York have reported receiving more than $1.6 billion in ARRA funding; and
• Population decline in New York’s cities will continue to further reduce aid revenues that are distributed based on population.

In an effort to highlight fiscal stress issues, DiNapoli plans to issue fiscal profiles on select cities across the state to further inform officials and residents on some of the demographic and systemic pressures facing municipalities.

DiNapoli’s office will soon implement a new fiscal monitoring system that will calculate and publicize an overall score of fiscal stress for municipalities and school district across the state. The ‘early warning’ system will identify those headed toward fiscal crisis and give local officials and the public sufficient time to consider options for turning things around.

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