COOPER ERVING & SAVAGE LLP

Transcription

1 COOPER ERVING & SAVAGE LLP TO: FROM: RE: CEG Local Government Council Kimberly Finnigan, Esq. Meeting the Challenge: Mandate Relief Summary of Presentation at the Rockefeller Institute 10/2/12 DATE: November 20, 2012 GOVERNING BY TRIAGE: GOVERNMENT MANDATES Robert Megna, New York State Budget Director, began the discussion of Mandate Relief at the Rockefeller Institute. In the context of mandate relief, the state has examined where the money is raised, where it goes, and in many cases where the services are performed and who performs those services. Often the state acts as the conduit, but the state must have the revenue in order to support those services, not only for school districts and health care, but for all of the services that are provided both by the state and local governments. Governor Cuomo inherited a $10 billion gap between the state s baseline spending and its revenue. Eliminating the impact on local governments, school districts, and health care providers was going to be impossible, but the state tried to find ways to minimize the impact. The state significantly reduced the size of the state workforce and curtailed state operations spending by over 10% in most state agencies in an effort to minimize the impact in other areas of the budget that are of more concern to local governments and school districts. The state s biggest agencies are Corrections, Mental Health, and Mental Hygiene facilities where the state is actually operating and providing a service. To aid local governments, one of the first things the state did last year was eliminate growth in Medicaid budgets at the local level. The state had capped Medicaid spending growth at 3% a year a few years ago, and now over a 3-year period the state will totally eliminate that growth, so local spending on Medicaid will stay flat. Eventually the state will be taking over a bigger and bigger share of Medicaid spending, taking over full administration of the program within 5 years. Mr. Megna believes the state is saving cities and counties $1.2 billion dollars over 5 years just with those actions. With respect to pension reform, the state passed Tier 6; it was a difficult negotiation but it will save the state and local governments more than $80 billion over a 30-year period. Most of that 1

2 savings accrues to local governments in New York City; it is not immediate relief but over time will result in significant relief to local governments. Last year the state also passed early intervention reform in which the state is taking the administration of early intervention out of the county's hands and moving it up to a state fiscal responsibility, which the state believes will save localities about $50 million over a 5-year period. There were some areas in which the state attempted to make changes but did not have as great success. For example, with respect to pre-k special education, the state proposed significant reforms in that area last year but were unable to get as far as they would have liked. If they can get their arms around ways to reform some of those programs, both at the state and local level, working with providers, they can make another dent in the kinds of fiscal issues that local governments are facing. Another item mentioned by Mr. Megna, which he admits no one is going to think is a good thing, is the state has kept AIM funding flat for the past two years; while he understands it is not good news for cities, it is better than what they have done in most areas of the budget, which is to cut back programs significantly. The state recognized how important AIM funding is and has tried to keep it, and keep it constant. They know there are some inequities in the AIM formula as it currently exists, but reforming the AIM formula is also difficult because they do not want to create any losers in a very difficult fiscal environment. With respect to the two areas where the state spends the most money, they tried to rationalize how they spend that money and keep growth at a pretty good level. For both Medicaid and education aid, they tied them to industries that grow at roughly 4% a year. Mr. Megna admitted that 4% growth in education aid is probably disappointing for most people, but it is significantly above the rate of inflation and significantly above spending the state is doing in any other area. Mr. Megna also mentioned the Mandate Relief Council. The Council is looking for every opportunity within the fiscal constraints the state faces to eliminate additional mandates. The Council would like to eliminate a lot of the reporting requirements imposed on local governments and is very seriously looking at a proposal to significantly reduce the amount of unnecessary duplicative reporting that the state asks local governments and school districts to provide. The Council is also looking for other opportunities where it can significantly reduce mandates that are imposed on governments, including regulatory reform. A significant regulatory review process is in place. The Secretary to the Governor is working hard to uncover regulations that are being imposed by state government that cost local governments money, time and effort to comply with. 2

3 Senator Betty Little discussed the challenges associated with mandate relief. For every mandate there is an advocate. When you try to remove the mandate, the advocates have not gone away, so it makes it very difficult to try to change a lot of these things. Representing 6 counties, 85 towns, 25 villages, and 53 school districts, Senator Little hears a lot about mandate relief; everyone wants less government, lower taxes, and no change. So, with that in mind, it makes it very difficult. There are two kinds of mandates. There is the statutory mandate, which the law requires, and then there are regulatory mandates. Many times when the Legislature passes a law, and the corresponding agency implements the law, we end up with a lot more regulations. She provided an example of a mandate passed a few years ago defibrillators in schools. It ended up being an expensive mandate for schools. For the safety of children, especially in sports, the Legislature passed the mandate. Then regulations were imposed regarding how many times the defibrillators have to be tested, where they have to be located, different sizes for different ages, and the amount of training someone must have to be a user. These regulations, and the costs associated with them, weren t necessarily foreseeable. Senator Little thinks the most important thing the state needs to do with some of these mandates is to provide some flexibility. They should not be one size fits all. While the state has passed some new beneficial mandates, such as Tier 6, the Senator still has advocates coming in saying, You shouldn t be supporting that tier. And she tells them they should support it to protect their own pension because what we re doing in New York is not sustainable. Mandate relief is like picking apples. If you get the low fruit first, maybe you can fill the basket, and someday this will be substantial when you start adding up all these mandates; these are the things that we have to do. For example, the state now allows the county to contract on the federal list or take good contracts that another county might have someplace in the state. And this year Senator Little was a sponsor of the piggy back bill, which allows any municipality or school district to use any contract they find in the country. It has run into some problems because there are differing contract requirements between states. For example, do they have the same minority business requirements as New York State? It sounds like we have much room to grow, but things get more complicated as we try to do that. Senator Little encouraged the audience to visit the website of the Mandate Relief Council. The Mandate Relief Council is made up of 11 members of the Executive and State Legislature who will review and advance proposals to reduce the statutory and regulatory burden on local governments and school districts. You can enter ideas for mandate relief on the site. One of the bills that Senator Little is working on is a reporting bill, which was passed by the Senate. Its purpose is to eliminate duplicative, unnecessary reporting the questions to ask with respect to reporting requirements are, Is this the only place you can get this data, is this 3

4 duplicative of getting data from someplace else, is this beneficial, and is this report going to be read? Timothy Kremer, Assistant Director of the New York State School Boards Association, explained that because the Association represents school boards and school districts around the state, they are placed in a position where many of the mandates that are put out by the state, regulatory or statutory, are things with which they automatically have some concerns. They believe that one size does not fit all and that there should be local flexibility using methods that are specific to schools rather than having them thrust upon schools. Mr. Kremer provided a 2008 report on maximizing school district resources that explains things that the districts could do specifically to save costs; interestingly, some of this stuff is contrary to what you would think a school district would want to do. The Playbook was in response to the Legislature s request for specific mandates from which the school districts wanted relief. The book continues to be valid. The other handout was a portion of the Mandate Relief Council website that Senator Little was referring to; one page outlines the process whereby a local government would petition the Council for mandate relief of some sort (the diagram shows the process to be followed). The other page lists the school districts that have sought mandate relief. Examples include relief from last in, first out, or the idea of having to use seniority first and foremost to make a decision about layoffs. Mr. Kremer recently interviewed a young man for a position with the NYSSBA. It demonstrated how this last in, first out has horrible effects. This man had been a teacher for 9 years, the last 3 in one school district where he s least senior. He s a terrific teacher based on all the references NYSSBA checked, but he has now been cut down to a 0.6 position. Here s a guy whose father was a teacher, his mother was a teacher, his wife is a teacher, and he s going to leave the profession disgruntled because he can t make ends meet. Another example is APPR, the teacher and principal evaluation system that has a huge funding impact. Much of the money that comes to school districts to support APPR activity is federal dollars. But school districts have told Mr. Kremer for every $1 in federal money that they receive to support the evaluation system, they re spending about $10 of their own. New York State has the most expensive special education system in the country; there are over 200 additional mandates on top of the Individuals with Disabilities Education Act, which is a federal requirement. The NYSSBA recommends that there be a commission or advisory council assembled by the Governor and State Education Department to review the mandates and determine if they are all necessary. In addition, teacher disciplinary procedures under the 3020(a) system cost a fortune. From the beginning of the filing of a motion to dismiss a tenured teacher through the entire process, on the average a school district is going to spend 502 days and over $200,000. 4

5 With respect to Triborough reform, there are schools with expired collective bargaining agreements where people are getting an automatic step increase every year averaging 2%. Buffalo CSD has not renegotiated their teachers agreement since 1999; it expired in They re still operating off that same contract, and they receive a 2% salary increase plus health care benefits are paid for 100%, including cosmetic surgery. They have a really good looking staff over there in Buffalo! Stephen Acquario, Executive Director of the New York State Association of Counties, also spoke (please see slides from his presentation). To begin, Mr. Acquario demonstrated the projected county fiscal gap. The chart is a snapshot of time in September The red line represents the mandated expenditures on New York s 57 counties and the city of New York and the blue line represents the available revenues to these local governments as of September It demonstrates a $6 billion projected deficit outside New York City. The state has taken steps to reduce this deficit, and county officials have made significant spending cuts, workforce reductions, and revenue actions to lower the trajectory of that spending to help close the fiscal gap. But in 6 to 8 years, counties and New York City will have a structural deficit of $4.2 billion. Compounding this situation is that there are new limitations on the blue line. We have a state-imposed property tax cap, which is a good thing. But we have bills not being moved through the state legislature for approval. What are they? Sales tax increases, recording taxes, hotel/motel taxes, anything that counties can use to raise revenue locally and to offset property taxes. Why? We want to follow the governor s lead. The governor says our taxes are too high in this state. Our property taxes are too high. We agree. Counties are trying to find the revenue to run the programs and the services our citizens need. What is a mandate? From NYSAC s perspective, and from a generally accepted perspective, it is a program or service mandated by one government to another. It could be the construction of a facility, or the upgrade of a facility, for example, a courthouse or a gym. Or it could be a tax break or an exemption on property taxes. A mandate usually requires a county to adhere to a rule set by the federal or state government. They generally come in two forms. One is a funded mandate, such as food stamps, which some level of government will fund. Food stamps are 100% funded by the federal government for our citizens needs. But it comes in another form unfunded or underfunded. If we look at that same example of food stamps, a 100% federal program, the federal government does not pay for the administration. Therefore, the mandate becomes unfunded; the very same mandate that was funded by the federal government now costs the counties and the state $300 million to administer. Other unfunded or underfunded mandates include Medicaid and preschool special education. Mr. Acquario examined 9 of the largest mandates that counties of the state are talking about on a regular basis. In 2012, Medicaid alone cost $7.5 billion. It was growing $60 million every single year outside of New York City. Pension costs grew 30% per year over the last 4 years. And inflation ranges between 2-3%. The increases in one of these programs, pensions, consumes the 5

6 entire amount of property tax cap levy growth the increase of pension costs alone in New York s counties consumes every dollar available through property tax cap levy growth. Eventually the math overwhelms any budget. Mr. Acquario showed another chart explaining what this means a different way. The red line is the cap limit allowable levy growth for New York s 57 counties, $114 million. The blue box represents the pension costs, $135 million. You can quickly see a $240 million increase in 2013 unless something is done about this by the state. These 9 programs alone will automatically rise $244 million, and levy growth is only $114 million. For 2012, for just 9 major mandates, we are sending $12 billion to the state of New York from the local economy, local counties, and the city of New York to fund these programs as partners in government. This is just a sampling of the mandates which the counties of New York are required to provide for New Yorkers; others include foster care adoptions, public health, community college costs, veteran services, court security, election law, etc. One county reported to Mr. Acquario that two thirds of their available property tax cap levy growth will go to pay for community college charge backs alone. The struggles of these local governments are going to be severe. Let s look at some kitchen table math, another way of saying, how do we understand this complicated property tax system, the levy. What is the levy? From NYSAC s perspective, the county budget is the amount of money necessary to operate the government. It includes the total cost of local services roads, bridges, public health expenditures, economic development activities, plus those mandated by the state. When you determine the amount of money necessary for expenditures, subtract the amount of money collected by the county, including state and federal reimbursement, direct local fees, and sales tax, that equals the tax levy. That s what local governments need to ask people for in order to make up the difference of the shortfall. If we look at the first year of the historic property tax cap that was passed, 50 New York Counties met this property tax cap out of 57. The cap does not apply to the city of New York. As the mandates continue to grow, as 2013 budgets continue to come out, we ll see how long the trend to stay under New York s property tax cap can continue. What we re seeing right now is governing by triage at the county level. It s no longer what to cut, it s when and how much. Counties are prioritizing. Major historical assets that have been in the business of providing services for over 200 years were sold in nursing homes are in jeopardy of being sold or closed. Over 50 certified home health agencies have been sold or closed in the last 10 years. Another chart shows that state-mandated expenditures in Rensselaer County increased 54% over a 5-year snapshot of time, and local spending is down 11%. Services being cut include senior and youth services, veteran services, drug enforcement, sheriff road patrol, roads and bridges, economic development, not-for-profit and library contributions, lack of investment in community colleges, and this will be the trend. Salary freezes, hiring freezes, abolishing positions, demotions, pay cuts, shared work, limiting overtime, reducing benefits and the triage continues. We re depleting revenues. It s not a good thing to run your government without a rainy day fund. What s going to happen when another natural disaster hits our state? Some 6

7 counties will completely deplete their available reserves, others are close behind, and some are at their constitutional tax limit. As the former lieutenant governor mentioned, we will go socially bankrupt before we go financially bankrupt. Are local governments going to voluntarily say they want to file for bankruptcy? What are they going to do? We ve been told they can t raise property taxes. We ve been told they can t raise sales taxes. We ve been told they can t raise motel/hotel tourist taxes. What are they going to do? They re going to cut. And it s going to hurt. But you have to give credit to Governor Cuomo, to the state legislature, for doing their hardest. The relief in pension reform comes in 5 to 10 years when we begin to increase hiring. The blue section represented the obligations of the local governments to pay Medicaid without the reform, $39 million. The red is what New York s counties pay in Medicaid, $37.8 billion, even with lower payments. And the next highest state, California, is only $5 billion over 5 years. Pension mandates are going to be a severe problem in 2013, 2014 and going forward. Pension is projected to rise in 2013 and is projected to rise another 2% in How are the local governments going to afford this pension, $5 billion and growing? The tier helps, it was necessary, but with benefits constitutionally protected, it s unsustainable. In closing, what do we do about all this? We cannot propose a cost shift of preschool special education to school districts where it should properly reside; no county in New York State has an education department, yet the counties are running preschool special education, or paying for it while the schools run it. The schools should have this program, but we can t shift it to the school districts because they can t afford it, nor can their taxpayers. So shifting it between governments, from the counties to the state, or from the counties to the school districts is not the answer. As Senator Little mentioned, there is a constituency behind every mandate, and we must engage these constituencies, engage the people who are receiving the services and providers that are providing the services, and get everybody at the table to bring necessary reform. 7