Scarsdale Village Needs a Long-Term Financial Plan

letter to the editorThis article was sent to Scarsdale10583 by Mayra Kirkendall-Rodriguez
In the last few weeks, there has been a flurry of positive employment and GDP data that show that the US is enjoying its second longest economic expansion since WWII. The second quarter GDP rise of 4.1%, was pushed up due to positive contributions from personal consumption expenditures, exports, nonresidential fixed investment, federal government spending, and state and local government spending. However, private inventory investment and residential fixed investments decreased.

Unfortunately, a big reason for exports increasing in the second quarter was because US companies were hurrying to export ahead of retaliatory tariffs from other countries due to Trump having announced the imposition of tariffs on Canada, China, Europe, and Mexico. It is unlikely that we will see such a rise in exports in the second half of this year unless somehow the Trump administration were to walk back its tariff threats.

Personal consumption expenditures, a big contributor to US GDP, is also likely to slow down as interest rates rise making credit cards, new loans, and existing variable rate loans more expensive for consumers. What has concerned me for the last twelve months is that due to an incredibly long period of low interest rates, American households and companies of every size are incredibly leveraged; consumer spending has been growing much faster than disposable incomes. As interest rates rise, the probability of default rises; late payments in credit cards have already been rising. In addition, recent housing data are indicating that second quarter GDP performance is unlikely to be repeated at the same level in the coming quarters.

Recent housing starts and home sales data should be a serious wake up call for all US municipalities to create long-term financial plans to position themselves to weather the inevitable economic and market downturns. In June, housing starts tumbled to their lowest level in nine months; the 12% decline was much more than had been anticipated; in July, they barely rose, and in fact declined in the northeast. Also worrisome is that permits for future construction declined for a third month in a row. Fox Meadow resident and economist, Robert Selvaggio, explains that “Housing starts are a key leading indicator for the macroeconomy, because residential fixed investment represents about 20% of total US gross private domestic investment and the housing sector overall accounts for about 15% of total US GDP. Homebuilders do not start new projects when they fear an oncoming economic downturn, and potential homebuyers reduce their demands for new homes when they fear stock market and employment instabilities.”

U.S. purchases of new homes fell in June to the slowest pace in eight months, while the median selling price declined to the lowest in more than a year. Additionally, the National Association of Realtors (NAR) reported a decline in existing home sales for the third month in a row.
Locally, according to data from Julia B Fee’s Monthly Tracker  Scarsdale has seen a 16% decline in home units sold year-to-date in comparison to the same period in 2017. Moreover, of concern is that inventory has risen 105% in comparison to 2017. Scarsdale’s home sales decline is far greater than that of Bronxville and Chappaqua, which declined 3.7% and 7.4%, respectively, in the same period. Home sales in Larchmont and Rye are up almost 11% and 9 ½%, respectively.

National and local data are reminding us that we need to prepare for an economic downturn, and there is not doubt that the best time to prepare for adversity is in good times. Having a long-term plan provides a dynamic tool to help municipalities preserve assets, identify where there may be funding gaps, and to identify potential income shortfalls. Elected officials and municipal personnel should determine the priorities of their constituents with polls and focus groups to help them determine funding needs for infrastructure development or other community priorities, and to identify potential income shortfalls from residential or retail tax payors.

Sharing my view are also international standard setters and state comptrollers. For example, the Government Finance Officers Association of the United States and Canada, an important best practices standard setter for public finance officials, advocates for “long-term financial planning as a highly collaborative process that considers future scenarios and helps governments navigate challenges.” Moreover, the GFOA believes that “long-term financial planning works best as part of an overall strategic plan.” State comptrollers and treasurers also advocate that municipalities create and implement long-term financial plans. The Office of the New York State Comptroller, for example, not only recommends that municipalities create a long-term plan to cope with ‘future stresses,’ but also includes on its website a useful manual on how to create a long-term plan.

Unfortunately, Scarsdale Village has not developed a long-term financial model and plan. Since April, I have written repeatedly to Mayor Hochvert and the Board of Trustees about this pressing issue. Unfortunately, Mayor Hochvert wrote me that he sees no need for a long-term financial plan. Respectfully, I encourage the trustees and him to give serious thought to the pressing need to create and implement a long-term financial plan. All economic agents – businesses, individuals and governments - should be planning for tomorrow and positioning themselves to withstand adverse economic conditions.

In speaking to “Bloomberg Government” recently, Standard and Poor’s analyst Kurt Forsgren stated that “What bond-rating agencies are hoping to learn and are increasingly asking cities is how cities are approaching long-term planning, both from an asset and revenue-stream perspective.” This is the type of statement that Scarsdale’s Mayor and Trustees should take note of.

Rather than wait for the ratings agencies to come calling, Scarsdale should run a survey or create focus groups to determine what our residents’ priorities are and to incorporate them into a long-term financial plan. What services do we want? Which can we cut? Which ones could be shared with other nearby municipalities? Which can be provided more cost effectively by the private sector? Why are we issuing an over $9 million-dollar bond for a significant expansion of the library? Why are we not issuing a bond that would cost a lot less to repair the 50% of our roads that are classified as fair or poor? Which investment would yield a higher return on investment for all residents? These are possibly tough questions, and village officials should be answering them together with all of us, the taxpayers.

Presently, Scarsdale officials do not have any data to back up the agenda they have been pursuing. Scarsdale’s plan should incorporate how to cope with challenges posed by uncertainties caused by the loss of the property tax deduction in the new federal tax law, rising medical costs for Village employees and pervasive underfunded pension liabilities. To wait for the business cycle downturn or market crash to figure out how to respond to challenging issues, would be the proverbial shutting the doors after the horse has run out the barn.

Mayra Kirkendall-Rodríguez
Scarsdale Voters Choice Party