New York has been dealing with distressed municipalities for longer than almost any other state, but it seems to have gained little wisdom from its experience. Gov. Andrew M. Cuomo claims that his Financial Restructuring Board bill, passed at the end of the session last month by a near-unanimous vote, will provide an effective alternative to bankruptcy and control-board takeovers.
The Cuomo plan rightly recognizes that resolving distress requires a mix of local autonomy and state oversight. But it combines these elements in the wrong way, and thus comes far short of its intended goal to "help struggling municipalities shore up their finances in the long term."
Traditionally, New York has addressed local distress on a one-off basis. When forced to intervene in Nassau County in 2000 -- as well as Erie County in 2006, Buffalo in 2003, Troy in 1994, and Yonkers and New York City in the mid-'70s -- state government did so by means of special legislation.
Believing that a general state policy would be more effective, Cuomo last summer initiated discussions over what the press termed a "super control board." Facing pushback from both local officials and unions, Cuomo quickly backtracked. "There is no one size fits all," he said when announcing plans for a Financial Restructuring Assistance Program in his January State of the State address.
The Cuomo plan that just passed attempts to balance state involvement against local autonomy by making participation in the program voluntary. A community must recognize that it has a problem, and seek designation as "fiscally eligible" -- meaning distressed -- as measured by its level of reserves and taxing capacity. It may then petition the restructuring board for "performance and efficiency" grants to strengthen operations, consulting expertise on fiscal matters, and assistance in resolving contract impasses with public safety unions.
But as has been clear -- from the New York City fiscal crisis nearly four decades ago up to Nassau County's more recent struggles -- local governments are ostriches. Those most in need of fiscal assistance are often also the ones most reluctant to admit it.
Making the program voluntary also suggests a bit of buck-passing by the state, which is rarely eager to intervene. Despite occasional tough talk about local profligacy, state officials generally view interventions as high-risk, low-reward propositions and prefer to put them off for as long as possible.
Instead of letting local governments decide for themselves if they need assistance, New York should have laid out a series of measures of fiscal distress -- along the lines of Comptroller Thomas DiNapoli's fiscal stress scores -- which, when triggered, would give state authorities the right, and maybe even the duty, to impose stronger fiscal management controls over troubled communities.
At the same time, the state could have displayed a more substantive respect for local autonomy by granting municipalities more relief from existing labor laws.
The Financial Restructuring Board promises reform of binding arbitration, the formal process by which the state requires public safety contract impasses to be settled. The Cuomo plan offers the services of the board as an alternative to an arbitrator -- if labor agrees -- and requires that the board base 70 percent of its decision on a locality's "ability to pay."
This doesn't go nearly far enough and represents a clear concession to unions. Earlier this year, Cuomo had recommended imposing a firm 2 percent cap on arbitration awards in distressed communities, which would have enhanced local governments' bargaining leverage. But that didn't make it to the final bill.
As vexed as the state-local relationship can be, state government is the only entity in a position to help struggling cities and counties. The state should empower those local officials who do possess the will to resist union demands, while at the same time acting promptly to restore fiscal stability in communities whose leaders are not so disciplined.
Stephen D. Eide, a senior fellow at the Manhattan Institute's Center for State and Local Leadership, is author of the institute's upcoming report "Defeating Fiscal Distress: A State Responsibility."