Economy's strain on local governments grows severe

By Bob Salsberg And David A. Lieb

Associated Press

Published: Sunday, March 20 2011 5:00 a.m. MDT

When Illinois delayed payments to medical providers because of a multi-billion dollar budget shortfall, the Vermillion County Health Department got a loan to stay afloat. Then, with the state more than $600,000 in arrears, the county decided to lay off half its staff and halt all services funded with state general revenue. Gone is the free clinic for sexually transmitted diseases and family planning, which served about 3,000 people. Also axed was a medical case management program for children in the foster care system.

While the severity of the financial crunch varies greatly from one city to another, local government officials point to a common cause for their financial woes: revenue from sales and property taxes, the pillars of local government finances, have fallen while costs to provide services and pay for government retirees keep rising.

Retiree costs are particularly problematic in states where politically powerful public employee unions wield broad power over health insurance and pension plans. Boston Mayor Thomas Menino said his city's $2.3 billion budget is being "crippled" by health care costs, hindering the city's ability to improve schools and neighborhoods.

In a recent report, The Massachusetts Business Alliance for Education said health care costs for school districts rose by $1 billion from 2000 to 2007, four times the rate of inflation and outstripping by $300 million the increase in state aid to public education during the same period.

In New York, where residents are among the most heavily taxed in the nation, newly-elected Gov. Andrew Cuomo has proposed, and the state Senate has approved, an annual 2 percent cap on property tax growth. Some municipal officials say such a cap would be disastrous unless accompanied by other changes. A task force of mayors has proposed that the state declare a financial emergency, impose a one-year freeze on public sector wages and require all local government employees to pay a share of their health insurance costs.

"For our members, this year is going to be bad, but next year is going to be disastrous if our legislature does not change the paradigm and restructure the state-local fiscal arrangement," said Peter Baynes, executive director of the New York State Conference of Mayors and Municipal Officials.

Associated Press writers Chris Blank in Jefferson City, Mo., and Beth Fouhy in New York contributed to this report.

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