A report from State Comptroller Thomas DiNapoli says local governments are financial strained and may be insolvent in coming years.

Many local governments have nearly exhausted their resources in an effort to avoid severe fiscal stress, according to an annual report from DiNapoli.

“For the past five years, the financial trends in our municipalities and school districts have become of heightened concern,” said DiNapoli. “Years of decreasing, stagnant or slow economic growth have led local governments to cut vital services and tap their rainy day funds to balance budgets, a practice that is not sustainable in the long term.”

DiNapoli’s report noted that the growing disparity between revenues and expenditures was increasing.

From 2006 through 2011, total local government expenditures grew by 17.4 percent (an average growth of 3.3 percent per year).

Meanwhile, revenues only grew by 15 percent (an annual average of 2.8 percent per year).

More specifically, county expenditures jumped 17.2 percent, while revenues climbed 13.4 percent. Total city expenditures (excluding New York City) increased 8.4 percent during this time frame, but revenues only increased 6.4 percent. And town expenditures grew 12.9 percent, but revenues increased only 7.1 percent.

Additional findings in the report include:

• Local government fund balances have been reduced 28 percent since peaking in 2006;

• Sales tax collections did not recover and grow beyond pre-recession levels until 2011. Collections declined by 5.9 percent from 2008 to 2009, but in 2010 and 2011, local sales grew by 4.7 percent and 4.1 percent, respectively;

• Towns have been hit hard by the decline in mortgage recording tax revenues, collecting $249 million less in 2011 than they did in 2005; and

• Between 2008 and 2011, counties cut $265 million in health, cultural and recreation programs. Public safety and sanitation spending were reduced by $76 million in cities during the same time frame.

In light of these and other factors, DiNapoli will implement an early warning fiscal stress monitoring system in January that will identify signs of budgetary strain in local communities sooner so that corrective actions can be taken before a full financial crisis develops.

Details of the new fiscal stress monitoring system were announced in September and the Comptroller’s office recently completed the process of receiving comments from local officials about the program. DiNapoli said the system will calculate and publicize an overall score of fiscal stress for municipalities and school districts across the state.

The monitoring system was announced in conjunction with a report examining the demographic and financial trends of New York's 61 cities (excluding New York City) over the past three decades. The report found that many cities are struggling to balance budgets and revitalize deteriorating local economies.

DiNapoli has also begun to issue fiscal profiles on select cities across the state. Earlier this month, the Comptroller profiled the cities of Niagara Falls and Salamanca.

DiNapoli says the reports will help further inform officials and citizens on some of the unique environmental and systemic pressures facing New York’s cities. As part of this effort, DiNapoli will also release in-depth reports on some of the issues that contribute to the financial pressures on local governments.

For a copy of DiNapoli’s report on New York’s cities visit: http://www.osc.state.ny.us/localgov/pubs/fiscalmonitoring/pdf/nycreport2012.pdf

For a copy of DiNapoli’s fiscal monitoring system plan visit:

http://www.osc.state.ny.us/localgov/pubs/fiscalmonitoring/pdf/fiscalstressmonitoring.pdf.

For a copy of the annual report visit: http://www.osc.state.ny.us/localgov/datanstat/annreport/12annreport.pdf.