(Corrects spelling of Spiotto in paragraph 6)
By Joan Gralla
Aug 6 (Reuters) – New York state is considering whether
control boards for cash-poor cities and counties should
automatically go into effect when localities fail certain fiscal
tests, instead of being approved on case-by-case basis as they
are today, a source said on Monday.
The new control boards, which could serve either as advisers
or managers, might be triggered for municipalities that have
been in economic declines for decades, a list that includes
Utica and Troy. Some downstate localities, including Rockland
County and Yonkers, also might be at risk.
Some emergency control boards have stronger powers than
local elected officials, as they can annul union contracts, for
example. Buffalo’s control board froze public workers’ salaries
from 2003 to 2007, prompting the employees to sue.
A debate over what role states should play when their
cities, towns or counties are struggling to remain solvent is
playing out around the nation.
California did not oppose three of its cities filing for
bankruptcy since June, but some other states have intervened,
including Pennsylvania. In Michigan, voters this November will
decide whether the state’s emergency managers should keep
enhanced powers to run city governments, including suspending
union contracts.
A total of 15 states – including New York – allow
municipalities to seek bankruptcy protection, while another nine
only allow such filings under certain conditions, according to a
2011 report by James Spiotto, a bankruptcy lawyer with Chapman
and Cutler LLP in Chicago.
New York, however, has a long a long tradition of saving its
local governments.
In 1975, “New York City met all the criteria for municipal
bankruptcy: it was insolvent, couldn’t meet its debts as they
came due and its financial books were in disarray,” said Iselin,
New Jersey-based Richard Larkin, director of credit analysis,
for HJ Sims, a broker/dealer, in a report.
The state responded by creating a control board to pull New
York City back from the brink of a fiscal collapse. Another
entity was set up to sell debt on the city’s behalf, and by
1981, the city was once again able to sell bonds on its own
credit, Larkin said.
New York City’s control board stopped managing the city’s
finances in 1986; since then, it has served in an advisory
capacity.
THREE ACTIVE CONTROL BOARDS IN NEW YORK
At present, the state has three active control boards, for
Eire County, Nassau County and Troy. Buffalo’s control board in
late May stepped down from active oversight to an advisory role.
This spring, a few state and local officials debated
creating a control board for Rockland County, which lies just
north of New York City and is struggling with a multi-year
deficit, but no bill was enacted.
“Our office continues to examine a number of options,” said
a spokesman for New York Democratic comptroller Thomas DiNapoli,
who monitors the finances of about 4,000 localities around the
state, from school districts to New York City.
“The problem is that we are keenly aware that no one size
fits all localities across the state because local governments
have their own distinct issues,” the spokesman said.
A spokesman for Democratic Governor Andrew Cuomo had no
immediate comment.
Currently, the comptroller or local or state officials can
request that the New York legislature enact a bill creating a
control board for a municipality.
The latest discussion of control boards in New York follows
a report last week by DiNapoli that noted eight municipalities
were so close to hitting the maximum level of property tax
allowed by the state that they were at risk of losing state aid.
The concepts policy makers now are analyzing would sidestep
the political process by devising a l ist of fiscal indicators,
fo r example, according to the source, who requested anonymity.
If a municipality was in the danger zone on a minimum number of
them, an advisory board might be created, or the localities’
finances might be handed over to a control board.
Tests might include whether the fund balance was in deficit,
whether reserves had been exhausted, or whether the municipality
had exceeded the property tax level.
Some policy makers are concerned that automatically creating
a control board to run a localities’ finances would give the
state too much power, the source said.
(Reporting by Joan Gralla, Editing by Tiziana Barghini and M.D.
Golan)
