An independent state financial oversight agency issued a critical review recently of Nassau County Executive Tom Suozzi’s handling of the county’s finances. The bipartisan Nassau County Interim Finance Authority (NIFA) report highlighted the administration’s reliance on bonds, one-time quick fixes and wishful solutions to close a projected $130 million budget gap for fiscal year 2009.
The report criticized the administration’s lack of long-term planning and depletion of $217 million in critical emergency reserves—spent during “good times” rather than saved for periods of crisis, such as the current economic downturn. In addition, it reiterated its previous discovery that a $2.1 million “operating surplus” reported by the county for fiscal year 2008 included a significant amount of non-recurring revenues and bond proceeds as operating income—contributing to a “large and growing structural deficit.” NIFA described these actions as “troubling.”
Despite the seriousness of its findings, the May 28, 2009 analysis, titled “Review of the May 1, 2009 Nassau County Multi-Year Financial Plan Update and Related Matters,” received little to no publicity from the Island’s major media outlets.
That may change as the race for county executive heats up. Suozzi, who is running for re-election this November, has made his fiscal policy record a bedrock of his campaign. His Republican challenger, Nassau Legis. Ed Mangano (R-Bethpage), has recently issued a press release citing the report’s finding that county property taxes will have increased 76 percent through fiscal year 2012 since the Dems gained control.
A request for comment from Suozzi was returned with an e-mailed response from Deputy County Executive Tom Stokes, who defended the county’s fiscal management:
“It’s NIFA’s job to point out the risks, it’s our job to manage those risks,” he writes. “We have successfully managed risks pointed out in every single budget and have closed each year with surpluses.”
Politics aside, NIFA, created by the NYS Legislature in 2000, is empowered to review, monitor, make recommendations and oversee compliance on the county’s finances, among other duties. The agency approved the county’s current budget plans conditionally—only after requiring Suozzi to submit a detailed Contingency Plan and Update to address identifiable risks and prepare for the current economic crisis.
The May 28 NIFA review’s major findings included the county’s continued reliance on “non-recurring resources,” “optimistic assumptions,” the current administration’s expertise in handling crises and “certain unsuccessful initiatives of prior years.” It was critical of the county’s balancing of the budget through the use of: bond proceeds to pay for operating expenses, “one-time revenues such that its recurring expenditures still exceed its recurring revenues” and “the draw down of reserves and fund balance.” The report also warned of the county’s continued increasing Out-Year (2010, 2011 and 2012) budget gaps and denounced its practice of paying tax certiorari refunds with bond proceeds.
While Suozzi’s Update included such gap-closing items as labor concessions, federal stimulus funds, and anticipated revenue from the recently approved Red Light Camera ticketing program and 2.5 percent sales tax on residential energy, NIFA found that overall, his blueprint “continues the county’s reliance upon skill in managing through crises and obtaining bipartisan support for uncertain state and county initiatives. It also lacks sufficient long-term structural changes, which are still needed in the Out-Years.”
The Update maintains Suozzi’s proposal to implement annual increases in the property tax levy by 3.9 percent in the Out-Years.
The administration is hinging a large part of the budget’s success, says the report, on its revised assumption that baseline sales tax revenue, which accounts for almost 40 percent of the county’s total revenue stream, will decline 6 percent from fiscal year 2008 levels. Year-to-date collections were already down 10.4 percent compared to the same period in 2008 at the time of the May 2009 report. And it’s getting worse.
An Aug. 12 Inter-Departmental Memo from Nassau’s independent Office of Legislative Budget Review Director Eric Naughton, says the county’s latest year-to-date sales tax receipts compared to 2008 are down 10.7 percent, excluding $3.6 million received since June 1 from Suozzi’s energy tax. Including that revenue, collections have decreased by 10.1 percent, it says.
Naughton tells the Press his office recently revised its sales tax revenue estimate for the year to drop 8 percent—a difference of about $20 million compared to Suozzi’s projection, he says.
Sales tax revenue declines can be attributed to the current economic meltdown still rippling through the country. But Nassau’s fiscal woes can’t all be blamed on the recession, says the NIFA report. The county burnt through $217 million in critical emergency reserves since 2004 to finance recurring expenditures, the review found.
“Your reserves are for when there’s a rainy day, or downturn in the economy,” explains Naughton. “In other words, it would have been perfect for this year. It was pouring, financially and literally.”
Drawn-down reserves negatively affect municipalities’ ability to borrow money, says NIFA, as credit ratings agencies use them as a means of gauging fiscal stability. NIFA says rating agencies have recently raised concerns about Nassau’s dwindling reserves, reliance on one-time revenues and declining liquidity. Despite its underlying wealth, the county remains an outlier, it says, rated well below almost every other comparable county in the nation.
“Most ‘A’-rated counties are smaller and poorer; in fact, the only other large county that we could find that is rated as low as Nassau County is Wayne County, Michigan,” it charges. Wayne County includes the city of Detroit.
The disappearing reserves, combined with its continued dependence on other non-recurring resources for short-term balance, says the report, resulted in a fiscal year 2008 structural deficit that “was larger than at any time since FY 2001.”