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Editorial: Help NY's local governments manage money woes

The New York State Capitol in Albany. (March

The New York State Capitol in Albany. (March 10, 2008) Credit: Getty Images

Are the budget woes of New York's cities and counties so bad that the state needs a mechanism for sending in fiscal SWAT teams?

That's the talk lately in Albany, where the governor and comptroller are both mulling such a system -- with good reason. Local governments and counties all over New York -- including Nassau and Suffolk counties -- are struggling with gaping deficits, burdensome union contracts and heavy retirement obligations. Meanwhile, high unemployment and slumping property values have dampened tax revenue.

When a city or county in New York gets into a hole so deep it can't climb out, the State Legislature creates a fiscal control board. These custom-made boards, such as the Nassau County Interim Finance Authority and the Erie County Fiscal Stability Authority, have strong but varying powers to oversee local finances, including the right to freeze wages.

But at least seven states take a different approach. They have laws in place that lay out a standard procedure for coping with local government financial problems, often culminating in a fiscal control board or outside supervisor appointed by the state.

New York can learn a lot from the experience of these states, as well as its own history of rescues. Both suggest that, while fiscal control boards are no panacea, they can help. A prearranged legal structure, culminating in a control board for troubled localities as needed, is a reasonable idea if it does a few key things:

Heads off trouble. A good state municipal-aid law should boost Albany's early warning system to spot troubled local governments long before a control board is needed.

Provides a stitch in time. The state Comptroller's office is already monitoring local finances but has no real authority to force action. A new law should trigger escalating levels of state involvement, starting with technical advice, proceeding to state oversight if necessary, and culminating in a control board only in the direst cases. Each of these steps could be triggered by preset criteria such as excessive borrowing or multiple years of red ink.

Keeps bankruptcy available. Personnel accounts for at least three-quarters of municipal spending, and the threat of bankruptcy is sometimes the only way to get serious concessions from labor unions.

Requires a recovery plan. Let's not aim to keep places on state life-support; the goal is full recovery. A formal plan can keep all parties on the road to health, preventing a fiscal relapse when the worst is past.

Gets public buy-in. A powerful control board perceived as an imperial proconsul, answerable only to far-off powers, can run into serious political headwinds. Better to require lots of public hearings and include representatives of local officials on the control panel.

A law doing these things can't solve all our deep-seated fiscal woes. But it can keep them from getting out of hand. Bear in mind that a city such as Syracuse filing for bankruptcy could raise borrowing costs for local governments (and taxpayers) statewide. In North Carolina, on the other hand, the state's well-known municipal oversight system is considered a plus by bond-rating agencies, helping to lower borrowing costs. New York could do worse than to follow in its footsteps.