ALBANY — An annual review by the office state Comptroller Thomas DiNapoli found that the cities of Albany and Watervliet rated among the most financially troubled municipalities in the state.

Both communities were found to be in “significant fiscal stress,” according to the comptroller's Fiscal Stress Monitoring System.

Created in 2013 as what the comptroller calls an "early warning system” for serious budget-balancing problems, the fiscal stress scores are based on factors that include a local government's or school district’s fund balance, cash-on-hand and operating deficits. The rating system also looks at population trends as well as poverty and unemployment rates.

The comptroller's list of fiscally stressed communities includes eight counties, 11 towns and eight cities, which is the lowest number of financially troubled municipalities since the system was started four years ago.

Along with Albany and Watervliet, only Monroe and Broome counties fell into the “significant” category. The ratings are based on 2016 year-end figures.

Watervliet had the highest average pay for firefighters among Upstate cities, along with the second highest average pay for police last year, $88,992 and $96,170 respectively, according to a report by the Empire Center, a fiscally conservative think tank. The figures include overtime pay.

Albany ranked sixth for firefighters' average pay at $70,635 and fourth for police's average pay at $84,020, according to the same Empire Center report.

Albany’s score improved slightly from last year, from 77.5 percent for 2015’s year-end to 67.5 percent.

Fifty percent of the scoring is based on a municipality's fund balance.

Despite a $6 million surplus in 2016 – touted by Albany officials and used in Mayor Kathy Sheehan’s campaign advertisements – the extra cash didn’t put the city into a better fiscal designation.

Sheehan said local governments are expected to have a fund balance, and the report showing Albany remains fiscally stressed underscores the city's need for permanent state aid.

Last year’s surplus was in part due to the $12.5 million the city received from the state in the form of a spin-up of the payment-in-lieu-of-taxes for the Empire State Plaza. This year, Sheehan convinced the state to provide Albany with $12.5 million in new money, not a spin-up.

"This really makes the case for $12.5 million in capital city funding," Sheehan said. "It demonstrates that in order for us to truly be on fiscally sound ground, we need the capital city funding to be permanent and we need to continue to do the things we are doing, which is investing in efficiencies, driving down the cost of government and continuing to implement cost-savings measures."

City Treasurer Darius Shahinfar said he wasn’t surprised by Albany’s designation.

“Right now, the way they score, (it) only begins to take into account positive effects of 2016,” he said. “We have to continue those for the next two years for us to get to a not stressed score.”

Previous years are keeping Albany from improving its score as well, Shahinfar said.

“If you have prior years with a deficit, that eats away at your score,” he said.

Watervliet scored 75.5 percent, the state’s second worse, behind Monroe County with 78.5 percent.

Watervliet Mayor Mike Manning said the city has been working to improve its finances, including engaging with the Comptroller's office on an audit, which will be completed soon.

Despite proactive measures and conservative budgeting, there are some factors beyond the city's control, Manning said.

Watervliet is one of the highest tax-exempted communities in New York State with more than 55 percent of the assessed property exempted from paying taxes. So only 45 percent of the property in the community pays for 100 percent of the services and costs, the mayor noted.

That being said, the city will continue to work with the Comptroller's office to improve its fiscal outlook, he said.