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For Cities, There's Little Money in Raising Property Taxes

11:44 PM, Feb 22, 2013   |    comments
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By Joseph Spector
Albany Bureau Chief

ALBANY If Syracuse raises property taxes 1 percent, the city would get about $300,000 in revenue. Its pension bill is rising by $15 million next year.

If the city of Rochester raised property taxes to its constitutional limit, it would bring in $32 million in additional revenue. That would only be enough to cover the city's budget deficit for next year.

While much of the focus of upstate cities' financial problems have been on rising costs for pensions and health care, they are dealing with just as many problems on the revenue side of their ledgers.

"There has been a fundamental change in these places," Rochester Mayor Thomas Richards said. "That fundamental change means that we just can no longer generate enough revenue to pay our expenses."
Property taxes and state aid are cities' main revenue sources. But a dwindling manufacturing sector, a glut of vacant properties and growing poverty have made property taxes a less reliable foundation for their budgets.

"Either with abandoned properties or tax-exempt properties, you can get just so much out of the folks who are still able to pay taxes," Comptroller Thomas DiNapoli said.

Yonkers, which has property values four times as high than the average for other upstate New York cities, has also struggled with revenue. Property values declined 24 percent from 2008 to 2011 in Yonkers, a report Tuesday from DiNapoli found.

Yonkers Mayor Mike Spano said last month that the city's sales-tax revenue has increased in recent years, and there is some positive economic development. But it hasn't made up for growing costs. He wants a state task force to look at cities' problems.

"We still need to address the core issues that are facing cities," he said after a budget hearing in Albany. "They will not be able to tax their way, cut their way nor borrow their way out of their issues. There needs to be a new matrix put in place."

Last month, Moody's Investors Services downgraded Binghamton's credit rating and said it could take further steps against the city, citing its fiscal woes and diminishing tax base.

Binghamton Mayor Matt Ryan said Moody's concerns are overblown. He said the city's finances have improved by cutting positions and lowering spending - which other cities have also done.

"We're not in as bad as shape as others," Ryan said. "Part of it is we're smaller and don't have as big as government to run and we've tapered down things when we've had to."

The revenue problems for upstate cities have prompted Richards and other leaders to call for an overhaul of how cities are funded by state government. Richards has urged Gov. Andrew Cuomo to consider using the state's income-tax revenue - the state's largest funding source - as a way to help cities.

The cities, like all municipalities and schools, also operate under a property-tax cap signed by Cuomo in 2011. Cities said the cap isn't much of a threat, but they don't make much money by raising taxes.
If Rochester increased property taxes 2 percent, the tax cap threshold, it would raise $3.2 million. The city's deficit is about $28 million for the fiscal year that starts July 1.

Cities are expected to receive flat aid from the state in the 2013-14 fiscal year. The proposed $715 million in aid to municipalities also goes to towns and villages, and it hasn't increased in recent years after growing steadily over the prior decade.

Cuomo has argued that the state doesn't have more money to increase aid.

Using income-tax revenue to help pay for city services would be akin to how the state finances most of the budgets for its largest school districts, Richards said.

Suburban school districts rely on property-tax revenue and some state aid. City schools have for decades needed heavy doses of state aid to stay afloat because they doesn't have a deep tax base and they serve the poorest students.

Rochester had 54 percent of its youth under age 18 living in poverty in 2011. That's in a class with Flint, Mich.; Camden, N.J., and Reading, Pa, U.S. Census data last fall showed.

Syracuse ranked 10th with 53 percent of its children in poverty. The median home value in Syracuse is $83,400, compared to the median of $96,000 for other cities outside New York City.

"When you compare cites across New York state, we are all very, very similar," Syracuse Mayor Stephanie Miner said. "I think Mayor Richards has been very eloquent and articulate in saying we need a new model. The old model is broken. It was created for a system that doesn't exist anymore."

Upstate cities were once among the largest and most prosperous in the nation. Decades of manufacturing decline have led to population loss and stagnant property values.

The bankrupt Eastman Kodak paid the city about $13 million in property taxes a decade ago. Now it pays about $3 million on its sprawling 1,200-acre industrial park, which is largely empty.

"We're not going to bring back Eastman Kodak, who is going to have a huge industrial park and pay lots and lots of real-estate property tax," Richards said.

Syracuse is the fifth largest city with about 145,000 people, and it's lost a third of its population over the last half century. Rochester, the third largest city, has nearly 100,000 fewer residents than it did in 1970, to about 210,000 in 2011.

Buffalo, the second largest city, has about 200,000 fewer residents than it did in 1970. The city had about 260,000 residents in 2011, and it has been under a state-imposed fiscal control board since 2003.

Buffalo has had as many as 10,000 vacant properties in recent years.

In Syracuse, nearly 50 percent of its properties are tax exempt.
Miner said the state should consider impact fees - which would require non-profit groups to pay for city services.

Miner, who like Richards is a Democrat seeking re-election this fall, said she's worried about cities in New York becoming like Harrisburg, Pa., the bankrupt state capital that can't even afford to fix its sinkholes.

She railed against Cuomo's proposal to let local governments and schools enter a pension-smoothing program, saying it would lead to future deficits. Richards supports the program.

Miner, who is co-chair of the state Democratic Committee, said her criticism of Cuomo's pension program goes to her larger point: The state needs to step in with a broader solution for upstate cities.

"They are serious enough that I have called on the governor in a very public way to address it," she said.

Cuomo is proposing a Financial Restructuring Assistance Program to help struggling cities and municipalities. He said he understands the troubles they are facing. He said he has enacted a number of mandate-relief measure to alleviate some of the fiscal stress.

"There is no one size fits all. I've been looking at a number of counties, a number of cities -- they are all in different situations," Cuomo said in State of the State address Jan. 9. "Some have too much debt, some have high expenses, some have short-term cash needs. Let's bring them in individually if they're in financial distress."

But Miner has called on Cuomo, in particular, to do more.

"I don't know what the best course is. I don't think anybody knows what the best course is," she said. "There is no best course laid out; that's why we need leadership."

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