The city council will be having a work session on Monday, November 21, 2011, at 6 p.m. in City Hall.

This session has been rescheduled due to the Thanksgiving Holiday, and according to the press release, “[i]t is expected that the bulk of the meeting will involve budget discussions.”

On June 13, 2011, City Manager Rick Herbek held a press conference on the budget. Also speaking were Mayor Nick Valentine and City Comptroller Cheryl Gross. (See other coverage of this here and here.)

The city council members Regina Angelo, Christine Bello, and Curlie Dillard sat behind the podium.  Councilwoman Marge Bell was not present.

Someone who signed the “Newburgh Take Action Coalition” petition received a letter (PDF here, text of body below) from the New York State Comptroller’s Office in response.

The petition (available online here, also quoted below) called upon the Comptroller to “take direct control of the city’s management and operations,” among other demands.

The Deputy Controller, Steven J. Hancox, concludes in his two-page letter that (bold added by Newburgh Advocate):

As you can see, the State Comptroller has had and will continue to have significant involvement with the City’s financial activities. There are, however, limitations to our involvement. For example, the submitted petition calls upon the State Comptroller to reject previous and future real property tax increases. The State Constitution gives the City authority to levy taxes and does not provide the State Comptroller with authority to change or reject tax levies. Likewise, the petition calls for taking direct control of the City’s financial management and operations. Such control, usually in the form of a control board, can only be accomplished by an act of the State Legislature. The State Comptroller has no authority to impose such control over the City. Finally, the petition asks that the State Comptroller reject the City’s three year financial plan. As stated above, we have reviewed the plan and have offered assistance to City officials to improve it.

***

Full text of petition:

We, the undersigned residents, property owners and business owners of the City of Newburgh do hereby petition the Office of the State Comptroller of the State of New York and the State Legislature for additional direct State fiscal management beyond the oversight currently defined in the Newburgh Fiscal Recovery Act. We urge you to:

REJECT the unprecedented, double digit tax hikes proposed by the city over the next three years:
• 71% in 2011
• 28% in 2012
• 11% in 2013

We believe that these tax hikes are unfair, unsustainable and unconscionable, and will drive record numbers of homeowners and businesses into foreclosure and potentially bankrupt the City of Newburgh. Ironically, the cover letter to the 3-year plan states that “the City’s major increases in its tax levy over several years can only contribute to an ongoing downward spiral ….from which the City may never be able to recover.”

REJECT the three year financial plan filed by the City of Newburgh with your office in December 2010. We do not believe that the current 3-year fiscal plan will deliver the proposed revenue to satisfy the current Bond Anticipation Notes (“BANs”) or the Tax Anticipation Notes (TANs) on the grounds that it:
• does not include a credible revenue generating strategy;
• relies excessively on unsustainable property tax hikes which will devastate families and  businesses in the City of Newburgh;
• fails to address long-term structural budget challenges and unsustainable debt obligations.

TAKE DIRECT CONTROL of the City’s financial management and operations to:
• prohibit future double digit tax increases;
• provide tax relief to Newburgh residents and businesses;
• prevent further imprudent budget decisions;
• take the necessary actions to prevent the City of Newburgh from falling into deeper financial crisis.

In summation we do not believe that the current City Council has the expertise or capacity to manage a city in such dire fiscal straits, as evidenced by their attempt to tax their way out of this crisis, with a proposed, compounded 4 year tax increase of 300% by 2013. The State must step in now to stop this madness before its local elected officials bankrupt the city and destroy the lives of its hardworking families and businesses.

***

Full text of Comptroller’s letter:

The State Comptroller’s Office was recently presented with a petition, signed by residents of the City of Newburgh, requesting additional State fiscal management beyond the oversight defined in the City of Newburgh Fiscal Recovery Act, which became effective in July, 2010. Specifically, the petition requests that the State Comptroller reject tax increases enacted and planned by the City, reject the three year financial plan submitted by the City and take direct control of the City’s financial management and operations. Comptroller DiNapoli has asked me to respond.

The State Comptroller’s Office has had extensive involvement with City of Newburgh officials since we became aware of the City’s financial difficulties in 2009. In December 2009, we met with City officials and their State Legislative delegation to discuss issues and provided guidance on how they should begin to address their problems. In March 2010, we issued a report on the City’s 2010 budget and identified areas that needed immediate action so that the City could avoid a budget shortfall for the 2010 year. Throughout the spring and summer of 2010, we met with City officials, their Legislators, various Legislative Committees and the State Division of Budget to discuss the City’s financial problems and provide technical assistance.

In July 2010, the State Legislature passed and the Governor signed the City of Newburgh Fiscal Recovery Act. This Act authorized the City to borrow up to $15 million to address its accumulated deficit and required additional actions by the State Comptroller’ s Office to oversee the City’ s finances . For example, the State Comptroller’s Office is now required to:

• Certify the City’s deficit – after completion of the City’s independent audit for the 2010 fiscal year, the State Comptroller will determine the exact amount that the City may borrow (up to $15 million) to address its accumulated deficit.

• Examine the City’s Annual Budget – the State Comptroller will examine the City’s proposed budget for each of the next 15 years. The purpose of this review is to determine whether proposed revenues and appropriations are reasonable. Our review of the City’s proposed 2011 budget was completed and issued to City officials on November 10,2010.

• Review Quarterly Budget Reports – at the end of each quarter of the fiscal year, City officials are required to submit budget reports showing actual revenues and expenditures compared to budgeted amounts. We will review these reports to determine whether the City is staying within their budget and will make recommendations for action if material variations occur.

• Review Multi-year Financial Plans – City officials are required to submjt a multi-year financial plan, with their proposed budget, to the State Comptroller for each year that deficit financing is outstanding. These multi-year plans cover the next three fiscal years. We have reviewed the City’s most recent multi-year plan and have recently offered assistance to City officials to improve the plan.

• Provide Comments on Further Debt Issuances – during the period in which deficit financing is outstanding, City officials must provide the state Comptroller with notice of their intent to issue any bonds or notes, or their intent to enter into an installment purchase contract. We will review such debt issuances and comment, as necessary, on whether the City can afford to pay for such borrowing.

• Oversee the Special Debt Service Fund- the State Comptroller is authorized to intercept City revenues (including State Aid and real property taxes) in such amounts as are necessary to pay for the City’s debt service for the succeeding 12 month period. The State Comptroller then authorizes the scheduled debt service payments from this account.

As you can see, the State Comptroller has had and will continue to have significant involvement with the City’s financial activities. There are, however, limitations to our involvement. For example, the submitted petition calls upon the State Comptroller to reject previous and future real property tax increases. The State Constitution gives the City authority to levy taxes and does not provide the State Comptroller with authority to change or reject tax levies. Likewise, the petition calls for taking direct control of the City’s financial management and operations. Such control, usually in the form of a control board, can only be accomplished by an act of the State Legislature. The State Comptroller has no authority to impose such control over the City. Finally, the petition asks that the State Comptroller reject the City’s three year financial plan. As stated above, we have reviewed the plan and have offered assistance to City officials to improve it.

I hope this addresses your concerns. If you have additional questions or concerns, please feel free to contact Christopher Ellis, Chief Examiner of our Newburgh office at (845)567-0858.

Marching down Broadway this afternoon shouting chants such as “Hey-Hey, Ho-Ho, This deficit has got to go,” a coalition of Community Voices Heard and the newly formed Political Action Committee Change Newburgh headed to City Hall. They marched up to the second floor, where they were determined to meet City Manager Richard Herbek.

Herbek appeared and there was an exchange on various issues, including tax increases and “receivership” (which Change Newburgh has been encouraging.) Herbek said that what happens in New York State would be a financial control board, which the city council previously asked the State for, but the State refused.

Dissatisfied with Herbek’s answers, the group organized a phone-in and some members began making calls to Albany politicians Senator Bill Larkin and Assemblyman Tom Kirwan.

The group then continued downstairs to the sidewalk outside City Hall, where they held a press conference. Representatives from CVH, a local union, and Change Newburgh spoke.

In light of the recent concerns about Newburgh’s financial condition, I contacted the New York State Comptroller’s office to get some answers about various options.  Mark Johnson from the Press Office provided the following information (OSC.)

NA: Has any municipality, county, or other governmental entity ever gone bankrupt in New York State?  Has any ever gone into receivership?

OSC: NYC OTB recently filed a bankruptcy petition, and Suffolk Co. OTB’s board has authorized such a move if they deem it necessary. Not sure of the current status of either.  Not sure what you mean by “receivership.” If perhaps you are referring to instances in which a control board takes custody of city monies, yes that has happened (Buffalo and Erie County recently). Control boards are created by a special act of the State Legislature.

NA: Can you clarify the differences between municipal bankruptcy and municipal receivership?  Why would such status be advantageous or disadvantageous?

OSC: We cannot comment on any particular potential measure or approach.

NA: I have heard that municipal bankruptcy is “illegal” in New York State.  Is this accurate?

OSC: Here is the law:
§  85.80  Authority  for  municipality  or emergency financial control board to file petition under federal  statute.  A  municipality  or  its emergency  financial control board in addition to, or in lieu of, filing a petition under this title, or the city of New York  or  the  New  York state  financial  control  board,  may file any petition with any United States district court or court of bankruptcy under any provision of  the laws  of  the  United  States,  now  or  hereafter  in  effect,  for the composition or adjustment of municipal indebtedness.  Nothing  contained in  this  title shall be construed to limit the authorization granted by this  section.    However,  no  municipality  shall  file  any  petition authorized  by  this  section  for  so  long as its local ARRA bonds, as defined  in  section  twenty-four  hundred  thirty-two  of  the   public authorities  law, purchased by the state of New York municipal bond bank agency and secured by  its  pledge  of  tax  revenues  pursuant  to  the authority  of  section  twenty-four  hundred  thirty-six-b of the public authorities law remain outstanding.

NA: I understand that if a municipality (or other government entity) is about to default, the state will impose a control board.  Why would having a control board be advantageous or disadvantageous?

OSC: Financial control boards are created on a case-by-case basis.  The powers and duties of these board are provided in the specific enabling legislation that creates them, and since we don’t know what type of board, if any, would be imposed here, we can’t speculate on whether it would be “advantageous” or not.

For background: Boards are usually given the power to operate in “advisory” mode or “control” mode, depending on the financial situation of the municipality that they oversee.  While in advisory mode, the board generally is involved in reviewing, monitoring and recommending revisions to the municipality’s multi-year plan, budget and proposed borrowings.  When the board is in a control period, the board is typically given broader powers such as the power to approve all contracts (including collective bargaining) and borrowing, impose a wage or hiring freeze (or both), and borrow and intercept revenue to pay debt service on behalf of the local government.  Because of this intercept provision, control boards typically receive a higher credit rating than the municipality that they oversee and therefore are able to borrow at lower rates of interest, generating savings.

NA: Here in the City of Newburgh, there have been steep tax increases in recent years, with additional steep increases predicted for future years.  Are there any avenues by which the State might mitigate unsustainable tax increases?

OSC: It would be up to the governor and the Legislature to determine if additional state aid should be provided to the city to offset the tax increases.  The Office of the State Comptroller has been assisting the City by providing technical assistance.  OSC has reviewed and issued reports on the city’s last two budgets, receives and reviews quarterly financial reports, will be conducting an audit of the city’s operations, and administers the city’s debt service account (all pursuant to the Newburgh Fiscal Recovery Act of 2010.)

In addition, OSC recently offered to help the city modify its multi-year financial plan as our office is concerned that the tax increases planned in future years to achieve balanced budgets may not be sustainable.

NA: If Newburgh were to go bankrupt, into receivership, or have a control board imposed, is there any reasonable expectation that the predicted steep tax increases might be different?

OSC: It’s hard to say as there are many variables that can affect the City’s finances going forward and we would not want to speculate.

—-

Notes: regarding the ARRA stipulation in the law, while the City of Newburgh did receive American Recovery and Reinvestment Act (ARRA) Funding in 2009, that funding was not bonds but CDBG funds from HUD:

The U.S. Department of Housing and Urban Development will be awarding the City of Newburgh a total of $225,632 through the American Recovery and Reinvestment Act of 2009.

These funds are earmarked to the City as a CDBG entitlement grantee. HUD anticipates these funds to be managed through the CDBG administrative process and the majority of regulations which govern the use of CDBG funds will apply to the use of these additional funds – referred to as “CDBG-R” funds.

It is not clear if the city does have ARRA bonds outstanding.  Requests for comment from city comptroller Cheryl Gross were unanswered.

4/22/11 UPDATE: At the City Council Work Session yesterday evening, Ms. Gross said to me she would look into the ARRA funding and see if there were any bonds.  Ms. Gross also mentioned in the city’s original proposal to the state, they asked for a control board (and Ms. Gross was proposed to be on it), but the state said no.

4/23/11 UPDATE II: Cheryl Gross has confirmed that Newburgh has no ARRA bonds.

Video may be downloaded here.