On January 1, 2012, the Town of Seneca Falls became a unified municipality for the first time since 1831. Communities across New York State have their eye on Seneca Falls to see what lessons can be learned from the dissolution of the historic village. As the largest village to dissolve in New York State, the process and outcomes will serve as a great test case for many years to come. However, some may be prone to draw conclusions from the outcomes that aren’t warranted.
Dissolution studies in most villages are initiated by citizens or elected officials because they believe it will save them money. The most common argument is that two layers of government are more expensive than one, and eliminating a duplicate layer must produce savings that will cause a tax bill to go down. When CGR models the fiscal impact of dissolutions cost savings are typically modest, usually in the 3-10% range. This was true in Seneca Falls as projected cost savings were a little over 7% of the combined budgets. Cost savings was not what pushed the lever in favor of dissolution.
The most significant factor in the Seneca Falls decision was non-tax revenue generated from the Seneca Meadows Landfill located in the town outside the village. Since the town did not share any of the revenue with the village, town outside of village residents enjoyed a small $1.60 town tax rate (the majority for fire protection) while village residents paid close to $17 per thousand to live in the village. Dissolution broke the dividing wall allowing village residents to access the revenue that had suppressed town tax rates for years. The resulting “revenue shift” was estimated to lower tax rates for village residents dramatically. Many people wondered if the numbers were realistic. Simultaneously, residents outside the village were inflamed to see the price they were projected to pay.
Village residents were projected to save nearly 50% on their combined village and town tax bill (read here for more info). This is what pushed many folks to the ballot box to vote in favor of dissolution. Who could argue, right? For village residents, a 50% cut in their tax rate translated into savings of approximately $850 on a $100,000 home. The flip side of this is that tax rates outside the village were projected to increase as much as 340% or $560 on a $100,000 home as the landfill revenue was spread over more property owners.
Fast forward to 2012 and we learn that the tax rates were not only realistic, but the actual 2012 combined tax rate (note the Transition Update dated 1/9/2012 on the Seneca Falls webpage) was even lower than CGR projected. In short, village residents saw their combined tax rate go down by 60% while the projected increases for those outside the Village were less than anticipated. A casual assessment of this may lead many to assume that dissolution produced exactly what fiscal hawks suggest; eliminating the village layer produced a lower cost government that lead to tax payer savings. This would be true to a point. But not to the degree experienced in Seneca Falls.
As pointed out above, eliminating the village layer of government made possible a shift in how revenue was allocated across the community. The savings realized by tax payers was less about cost savings and more about revenue allocation and tax shifting. Arguments can be made on both sides of the former village boundary about the equity involved in this transaction. Very few communities will experience a similar scale of savings simply because they lack the non-tax revenue source that exists in Seneca Falls.
And New York State paid the promised transition costs and increased aid, something many thought would never happen. For 2012, the new Town of Seneca Falls budgeted for their increase in aid but also received over $400,000 in transition funds from the State to help underwrite the expenses associated with merging the village into the town. Clearly the State honored its commitment to help the community dissolve, and also provided significant resources to aid the transition in Seneca Falls.
The cost savings associated with dissolution are typically very modest—the dramatic tax reduction experienced by village residents was largely a shift in tax burden, not reflective of improved efficiency. Each community is unique and the revenue and expense factors have to be studied to determine the final fiscal impact. However, folks who are skeptical of the future commitment of NYS to reducing layers of government can now point to Seneca Falls for an example of what they might expect.