The Times
  • Could bankruptcy become an option for more communities?

  • The village of Prospect is not alone.
    When news broke last month that the 1,107-person community in Oneida County might have to dissolve itself or file for bankruptcy, one expert said it could be a "canary in a coalmine" boding similar fiscal disasters in municipalities across the state.
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  • The village of Prospect is not alone.
    When news broke last month that the 1,107-person community in Oneida County might have to dissolve itself or file for bankruptcy, one expert said it could be a "canary in a coalmine" boding similar fiscal disasters in municipalities across the state.
    With Detroit's fiscal woes making national news, a spotlight is shining on the finances of local governments across the country, but particularly in areas that have been in a long-term economic decline, such as Upstate New York.
    "There is no wiggle room in municipal budgets to contend with unexpected situations," said Albany Law School Professor Christine Chung, who has a focus on municipal finance.
    Earlier this year, state Comptroller Thomas DiNapoli released a list of fiscally stressed municipalities for 2012, and though no Oneida County or Herkimer County governments were on it, some — including Oneida County, the town of Trenton and the city of Little Falls — were approaching the designation.
    Some municipalities, including many villages and also the city of Utica, however, don't follow the calendar year for their budgets, so their numbers weren't included.
    In the case of tiny Prospect, a single workers' compensation claim might bring down the village, which was incorporated in 1890.
    In the current economic and fiscal climate, it's possible that more municipalities are just one lawsuit, one incompetent leader, or one factory closing away from insolvency. Others, meanwhile, are living closer and closer to the edge.
    • Oneida County: As financial pressures from state mandates and other rising costs mounted in 2010, Oneida County laid off about 70 workers and eliminated another 70 vacant positions. Since then, other increased costs and reductions in state aid have forced cuts in services and curtailed public projects.
    • New Hartford: In 2009, it became public that the town had burned through 90 percent of its $2.8 million savings account in just three years. The cause? Deficit budgets and overly optimistic projections for sales tax revenue. The result? Staff reductions and a period of sharply increased taxes.
    • Canajoharie: After the village's major employer, Beech-Nut, pulled up stakes in 2010, the community went into a fiscal death spiral. With its biggest tax and utility payer out of the picture, village officials are working to find new ways to make ends meet.
    • Whitesboro: In early 2011, the village escaped dissolution in a public referendum after officials admitted the village had racked up $498,000 in debt.
    • Utica: The city has faced its share of troubles as it ran repeated deficit budgets and spent down its rainy day fund. In 2012, the city cut dozens of police and fire positions and increased taxes nearly 10 percent.
    The impact on local residents? Taxes and fees might increase, services might suffer or be eliminated and important infrastructure projects might be put on hold.
    Page 2 of 3 - Prospect is considering closing its fire department and contracting with one that is farther away. Village offices also may close.
    In July, Prospect officials informed village residents that a workers' compensation claim by a firefighter injured at a fire department function.
    The village's annual property tax take is about $28,000, but the claim could result in annual bills far higher than that, possibly reaching $72,700 in a single year even if an offered settlement is accepted.
    Former state Assemblyman Richard Brodsky, who is now a senior fellow at New York University's Wagner School for Public Service and the think tank Demos, said Prospect would likely have faced insolvency in the face of such a claim even in better times.
    "There never would have been enough money in Prospect to pay that claim," he said.
    And after Detroit's bankruptcy, Wall Street is primed to watch for other municipalities that could default on their bonds. In bankruptcy, any bonds Prospect had taken out to pay for capital projects could be in jeopardy.
    Historically, bonds have been viewed by investors as low-risk, and average people, not just banks, have invested in them.
    Prospect officials also are considering dissolving the village and selling the assets. If they did that, any debts not covered by the sale could fall on the backs of the taxpayers living within the former village borders.
    While Prospect's situation is unique, and might not be linked to the larger stresses municipalities in New York are facing — increasing costs coupled with a diminishing tax base and an exodus of industry — it still comes at a time when towns, villages, cities and counties are increasingly plagued by them.
    Chung called that combination a "toxic stew" as "fewer people have to pay for greater obligations."
    "It's a bit of a perfect storm," she said.
    The circumstances in the Montgomery County village of Canajoharie more closely mirror what's happening in the state's cities and larger towns. Though the village hasn't declared bankruptcy or dissolved, times have been tough.
    In 2007, Canajoharie's major employer, Beech-Nut, announced it was moving to the nearby town of Florida. At the time, revenue from Beech-Nut accounted for 49 percent of the village's revenue, including water and sewer fees and property taxes. Though the company didn't depart until 2010, it wasn't enough time for the village to come up with a long-term plan to cope with the exit.
    Beech-Nut is still paying property taxes, but that won't last forever.
    "That's when the other shoe drops," village Mayor Francis Avery said.
    To cope with the immediate shortfalls, the village briefly doubled its water and sewer rates. Those have since come back down as the water and sewer facilities' capacities have been reduced to reflect the village's new size, Avery said.
    Page 3 of 3 - The village workforce also has been reduced through attrition. The Department of Public Works went from 12 staffers to four, the sewer facility once employed eight and now has three, and the water plant staff went from six to two, he said.
    Smaller governments straining
    In late 2012, the non-partisan independent State Budget Task Force released its report on New York's fiscal woes.
    The group, which includes New York's former Lt. Gov. Richard Ravitch, outlined the ways the state's lower levels of government, from counties to villages, were struggling to cope with increasing fiscal stresses.
    Those include, skyrocketing pension costs for government employees, declining or stagnant sales tax revenues, a 2-percent cap on property tax increases and a dwindling base of residents and businesses to support government.
    The report called the state's local governments "badly strained."
    Nassau and Suffolk counties, as well as the cities of Syracuse and Yonkers were cited as particularly troubled. Monroe County had the highest fiscal stress level in the Comptroller's office report. The city of Niagara Falls and the towns of Genesee Falls and Colonie also were deemed significantly stressed.
    "These pressures call into question the ability of local governments to make communities safe and attractive and to support economic growth," the report said.
    As for Canajoharie, Avery said he will do everything in his power to keep the village solvent. He has negotiated changes to the health plans of his remaining employees, and he tries to share services with other municipalities when he can, never borrows and buys only second hand machinery.
    "There is no way we are going broke," he said.
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