New York City leads the list of municipalities in danger of exceeding the state constitutional tax limit, according to a report by New York State Comptroller Thomas DiNapoli.
The report, "New Fiscal Realities Challenge Local Governments," said the city has exhausted 95.1% of its limit for fiscal 2012.
In addition to the tax levy limit, counties, cities and villages are subject to a constitutionally mandated tax-rate limit, or CTL. It is the maximum amount of real property tax that may be levied in a given year.
This little-known provision has been in effect since 1894, a DiNapoli spokesman said. "The more complex aspect of the process is determining whether the tax levy required by an annual budget stays within the limit," said an instructional document for cities prepared by the comptroller's office.
As a city pushes toward its tax limit, its revenue structure is less flexible. "Even routine cost increases can pose serious budget difficulties if there is no corresponding growth in non-property tax revenues," DiNapoli's office said.
The report said and Cortland County and six other municipalities, Binghamton, Gloversville, Jamestown, Lackawanna, Herkimer and Lyons, are near their limit, based on preliminary data for 2012.
According to the comptroller, if a local government exceeds its CTL, the state withholds aid. "More local governments will likely be facing this dilemma over the next few years, because the CTL is calculated as a percent of the five-year average of property value, which has been declining," Wednesday's report said.
"Just as a general matter, it gives you a moment of pause. It's not a healthy sign. It doesn't mean that New York City is on the edge of default, but it means the mayor has to watch the budget more carefully," said Anthony Sabino, a law professor at St. John's University.
The study found that nearly 300 local governments had deficits in 2010 and 2011 and more than 100 had insufficient cash on hand to pay their current bills.
Among the other findings were county sales tax collections dropping by 5.9% during the recession, and property values in nine counties, including Long Island's Nassau and Suffolk, declining since 2008.
Additionally, state payments under the Aid and Incentives for Municipalities program have dropped by $50 million and eliminated for New York City.
While DiNapoli acknowledged the recession's effect, he added: "How well any municipality has dealt with these challenges is a matter of how fiscally healthy they were to begin with."
DiNapoli urged local governments to implement multi-year financial planning processes to identify structural imbalances between revenues and expenditures, and to use excess fund balances for immediate needs such as paying off debt.
