Are Governor Cuomo’s economic policies good for Amsterdam? Part two: tax cap, shared services, consolidation

Photo by saebaryo. CC BY-ND 2.0

It’s no secret that New York State has a reputation of being one of the highest taxed states in the nation. This reputation is often cited as being the primary reason that the state fails to attract or retain businesses and residents.

In 2010, Andrew Cuomo ran for governor on a platform based on tax reduction and mandate relief. In 2011, he signed into law legislation that limited the yearly increase on all property taxes (city, county, school, etc) to 2% or the rate of inflation, whichever is lower. In order to increase taxes by a higher percentage rate, the governing body would have to approve a resolution and pass it with a 60% majority or greater.

As a homeowner, one of my biggest concerns is being able to afford the monthly mortgage bill and tax escrow payment. While the tax cap is technically not hard to override, I take some comfort that it is now more difficult to raise taxes by a large amount in any given year. It gives me a small measure of peace of mind.

I also think the cap has placed greater accountability on elected officials to figure out ways to cut costs and generate revenue. Even mentioning the idea of overriding the tax cap provides easy ammunition for a challenger in the next election (as we saw happen with the last mayoral election).

However, the cap assumes that costs for local governments won’t increase more than the Consumer Price Index or 2%. It doesn’t seem to me that the costs to provide public services would necessarily correlate with consumer prices. Employee salaries, benefits and infrastructure maintenance make up a large percentage of many local budgets. It’s hard for me to see how these costs would be related to consumer prices in any significant way.

So if a local government faces a budget shortfall and has already cut their budget down to the bone, and the political cost of overriding the cap is too great, what other options are there?

Answer: shared services, another major component of Cuomo’s policy.

The idea of shared services is a great idea in theory. For example, if two neighbors both need to buy a snow blower, and they are able to work out a deal in which they buy one machine and share it, they should save money and everyone wins, right? But one machine shared between two neighbors doesn’t cut down on the total number of hours the machine is in operation. The total cost of maintenance and fuel is still the same. And what if both neighbors need to clear their driveway to get to work at the same time? This illustration shows why it’s not a clear cut case that shared services always delivers the same level of service at a lower cost.

That doesn’t mean that beneficial opportunities for shared services shouldn’t be explored. You can find a handful of examples of shared services success stories here (see the four pdf downloads). NY State provides money for studies on the subject under it’s Local Government Efficiency Grant Program. I had high hopes for one such study funded under the program, called the Montgomery County Efficiency Study for Shared Local and County Highway Services. The final report is extremely long and complex and if anything shows how difficult it is to quantify whether sharing services saves money or not. The final conclusions suggest a few good possibilities, but offers a somewhat pessimistic view of whether sharing highways services is even feasible:

…options for regionalization through county contracting out or county centralization of highways do not provide a clear proposal to recommend but may be worth additional assessment. There may be some valuable[sic] in a more detailed discussion of implementation of county to town contracting for emergency response. There are simply too many variables and unknowns to countywide centralization of services to pursue implementation issues. The development of a more detailed proposal for the use of county software capability for local service cost and performance would also be valuable as would, sign management and the two identified local project opportunities.

Two real-life examples of shared services are the soon-to-be-defunct MOSA landfill operation and the Montgomery County health insurance trust. Both of these were found to cost the taxpayer more, not less. Taxpayers stand to save money in coming years with Montgomery County going it alone to contract out landfill services and The City of Amsterdam acquiring it’s own health insurance services for public employees.

To me, the above examples show how sometimes, the size and structure of a government program can make it harder to ensure fiscal accountability, resulting in lower efficiency, not higher.

And I think that concept is important to remember when considering another one of Cuomo’s policies of encouraging government consolidation.

A key piece of legislation signed by Cuomo is the the N.Y. Government Reorganization and Citizen Empowerment Act. This piece of legislation provides a streamlined way for municipalities to disband or merge with others. It also provides extra state funds to consolidated entities over a set period of time.

The complexity of the issues surrounding full scale mergers of school districts, cities, towns and counties make it extremely difficult to assess whether this option is advantageous to taxpayers or not. There are examples of small villages and school districts combining with larger entities where the projected numbers come out favorable. But in most cases, the favorable numbers are only attainable when the extra state funding is added into the equation. These funds become obsolete after a certain time period (usually ten years).

The concept of city and county consolidation has been touted by elected officials and local newspapers for years now. However hard numbers that prove the benefit to the taxpayer have yet to be produced. I took a look at one major study of city/county consolidation a few years back. You can read my summary of the study here.

In short, the study found that statistically, consolidation of major municipalities didn’t result in any significant tax savings. What it did result in, however, is more political power placed in fewer hands.

On top of all of this, a major part of Cuomo’s platform, madate relief, has yet to yield any significant results and efforts to reform mandate laws have fizzled. These mandates dictate a large percentage of most school district and county budgets.

So you can see how the combination of rising municipal expenses and the tax cap are squeezing local governments into solutions liked shared services and consolidation which in the end, may or may not bring any relief to the taxpayer.

So where is all this leading? I’ll wrap up my points in the next installment in this series as I look at Cuomo’s idea to create tax-free zones in NY State. 

Tim Becker

Tim Becker is the owner of Anthem Websites Inc. which publishes The Compass. He serves as both editor and a writer.