Nassau’s Balancing Act

When Nassau County Executive Tom Suozzi, a Democrat, took office as the county’s chief financial manager in 2002, the Certified Public Accountant and former mayor of Glen Cove had his work cut out for him. Years of fiscal mismanagement under the previous administration of Republican Tom Gulotta had left the county in a state of economic collapse and on the brink of bankruptcy.

Nassau’s financial crisis was so severe that the New York State (NYS) Legislature created an independent oversight agency, the Nassau County Interim Finance Authority (NIFA), to oversee and ensure its recovery. Eight years later, that recovery still hasn’t come. Some would argue it’s actually gotten worse.

Recently released fiscal analyses from the agency and other fiscal watchdogs sketch a portrait of an administration whose budgetary practices hearken back to the very tactics NIFA was created to end. The contents of one such report, the Press has learned, were considered so negative there was concerted effort to block its release until after the county legislature’s upcoming budget vote.

Property taxes are still high, the second-highest in the nation. The county is still borrowing to pay for operating expenses and relying on non-recurring revenues to close budget gaps, practices that led to NIFA’s creation. Tax certioraris—the grievance process for property tax assessments—are still costing taxpayers nearly $100 million a year, the money being bled out of taxpayers’ piggy banks and into the coffers of politically connected law firms.

Additionally, the Press has discovered that Nassau may have already passed a state-mandated threshold intended to trigger a takeover of the county’s finances by NIFA—a move not necessarily welcomed by the agency, confide some members, since such a switch would further affect the county’s already sub-par credit rating and deliver a cascade of other negative consequences.

But the worst is yet to come, warn the reports, many of which are available online: 2011 looks to be a watershed year for more financial stress and burden for county taxpayers.

The numbers don’t lie.

That’s the same phrase Nassau Deputy County Executive for Management, Budget and Finance Tom Stokes used to defend the current administration’s fiscal actions when he responded to an interview request by the Press for the county executive.

To the Suozzi administration, there are no similarities between Nassau’s current financial situation and the fiscal devastation left in the Gulotta administration’s wake. The county’s bond rating was a few steps above junk bond status, says Stokes. The budget gap was almost half a billion dollars. Nassau was saddled with a $400 million tax certiorari backlog, with no end in sight.

Stokes downplays the immediacy and language of the watchdogs’ reports, describing them as protocol critical by design.

“The reality is, whether it’s the Comptroller’s Office, Legislative Budget Review or NIFA, it’s their job to point out the risks we have in our budget,” says Stokes. “Our job as the administration is to manage those risks, and to make sure that we close the budget with surpluses. And every single year we close the budget with a surplus.”

Some would see it differently.

Follow The Money

For years, the nonpartisan NIFA has been warning the Suozzi administration about risky balancing practices and the continuance of costly tactics responsible for bringing the county to its near bankruptcy in the past—namely, borrowing to pay for operating expenses and relying on non-recurring revenues to close budget gaps.

NIFA hasn’t been the only watchdog sounding the alarm. Similar criticisms have been echoed in numerous analyses by the independent Nassau County Office of Legislative Budget Review (OLBR) and the county Comptroller’s Office. But where in the past such foreboding news might have fallen on deaf ears, Nassau’s financial stability—or lack thereof—during the current economic recession has taken center stage this year in the race for the $60 million newly renovated Theodore Roosevelt Executive and Legislative Building.

The stakes are high. Suozzi, who is running for re-election but has made no secret of his desire for higher office—losing the 2006 NYS Democratic gubernatorial primary—has hinged his political aspirations on his fiscal policy record. Nassau Legis. Ed Mangano (R-Bethpage), Suozzi’s Republican challenger, has marketed himself as a fiscal reformer, quick to point out the administration’s budgetary shortfalls and indiscretions. Yet in the end, no matter who wins this Nov. 3, it’s county taxpayers who will be footing the bill.

Come  To Jesus

Nassau’s fiscal watchdogs point to 2011 as a year of financial reckoning. One-shot infusions, such as a $40 million temporary increase in the Federal Medical Assistance Percentage, part of the federal stimulus funds package, for example, will disappear. State pension contributions will skyrocket by just as much, says Eric Naughton, director of the OLBR.

Source: Nassau County Interim Finance Authority, “Review of the proposed multi-year financial plan fiscal 2010 - 2013,” Oct, 2, 2009.

“That’s an $80 million swing right there, with nothing else,” notes Naughton. “So then once you factor in your regular union increases and everything else, it’s pretty sizable.”

The county’s “rainy day” reserves, as NIFA refers to them, of which $220 million was burnt through since 2004—plummeting from $284.8 million to a projected $64.7 million at the end of fiscal year (FY) 2010—will continue to dwindle, and be “substantially depleted” that year, says the agency.

The county’s largest source of revenue, sales tax, which comprises almost 40 percent of the county’s budget, has fallen 10.9 percent year-to-date between FY 2008 and FY 2009, excluding Suozzi’s energy tax. Stokes says it’s currently down 9.3 percent due to a recent upswing hailed by some as indication of a leveling off.

Much of the uptick, however, can be credited to tax collected as a result of the federal Cash for Clunkers program, says Naughton—another non-recurring shot in the arm.

The administration is hinging a large part of its budgets’ success, says the reports, on its revised assumption that baseline sales tax revenue will decline 6 percent from FY 2008 levels in FY 2009, then make substantial gains in FYs 2010 through 2013. It could be a costly gamble.

Naughton tells the Press his office is sticking with a sales tax revenue estimate for the year to drop 8 percent—a difference of about $20 million compared to Suozzi’s projection, he says. He and NIFA both caution the administration’s projections may be too “optimistic.”

Nassau Comptroller Howard Weitzman projects a 7-percent drop for FY 2009, translating to about $11 million at risk, he said in an Oct. 2 statement. He calls the 2009 final sales tax numbers and approval of the cigarette tax “critical” to balancing the FY 2010 budget.

In addition, 2011 is also when repayment of deferred salaries for the county’s unions begins—with some deferred even longer, piling on even more debt—and labor contracts extended through the end of 2015.

“We have actually deferred deferrals,” explains Naughton, half laughing.