The New York State Comptroller’s Office, which monitors municipal budget compliance, has recently revealed that 66 percent of the budgets it has reviewed so far have made tax cap calculation mistakes.

What many New Yorkers have failed to grasp is that the cap law, which limits the increase of property tax levies imposed by municipalities and school districts to 2 percent or the rate of inflation, whichever is less, does contain loopholes.

Counties, cities, towns, villages and special districts outside of New York City can raise taxes beyond the cap if a supermajority (60 percent or more) of its governing bodies vote for a cap override. The New York State Department of Taxation and Finance set the parameters for such a move this way:

A budget officer or chief executive may prepare a tentative budget that requires a tax levy in excess of the levy limit. However, the governing body cannot, without first complying with override requirements, (i) adopt a budget that requires a levy in excess of the tax levy limit, or (ii) impose or cause the imposition of a tax levy to the extent that a budget requires a levy in excess of the levy limit.

School districts can increase taxes over the cap if 60 percent of the district voters who turn out to the polls vote to do so. If taxpayers turn down at the ballot box proposed budgets twice for a given fiscal year, however, the district must freeze their property tax levies in a contingency budget. The tax cap law clearly states there can be no exceptions:

Notwithstanding any other provision of law to the contrary, if the qualified voters fail to approve the proposed school district budget upon resubmission or upon a determination not to resubmit for a second vote … the sole trustee, trustees or board of education shall levy a tax no greater than the tax that was levied for the prior school year.

Other tax cap loopholes:

Annual pension contributions that are greater than 2 percent of the municipality or school district payroll are exempt from the cap. With pension costs expected to zoom in the coming years, due to overly generous benefits and lackluster investment returns, expect this to be the most controversial exemption. Annual contributions that have consumed, on average, about 8 percent of local budget expenditures are expected to exceed 16 percent by 2018. For many government bodies, this will mean annual tax levy increases will exceed 2 percent.

If voters approve the issuance of school district bonds to finance capital projects or improvements, the principal and interest payments on the debt are excluded from the tax cap calculation. Because capital projects bonds are backed by the full faith and credit of a given school district, a cap would violate that pledge and prevent the bonds from being underwritten by the investment community.

A governmental entity’s tax levy can exceed the cap if the cost of a tort lawsuit settlement or judicial award exceeds 5 percent of the tax levy in a fiscal year.

Finally, a municipality can carry over to the next fiscal year up to 1.5 percent of unused tax levy growth. In other words, if a township raises the tax levy only 1 percent, the remaining 1 percent of the annual 2 percent cap can be rolled into the next year’s levy cap, which would then total 3 percent.

A little confusing? Perhaps. Remember, however, despite the imperfections, the property tax cap legislation signed into law by Gov. Andrew Cuomo in 2011 is an important first step in the struggle to curb the ravenous spending appetites of New York’s municipal leviathans.

In the first decade of the 21st century, the Empire State suffered a loss of 1.6 million citizens to other parts of the nation. The Manhattan Institute’s Empire Center in Albany has reported that 60 percent moved to the South and 30 percent established residences in neighboring lower tax states of Pennsylvania, New Jersey and Connecticut.

Other vital statistics concerning outward-bound New Yorkers:

In the past half-century, New York lost 7.3 million residents to other states. The net loss, after factoring in 4.8 million foreign immigrants, was 2.5 million.

For the past two decades, New York’s net population loss as a percentage of population was the highest of the 50 states.

Households that have bolted had average incomes about 22 percent higher than those who relocated to New York; $58,899 versus $48,432. According to the IRS, migrants from New York earned $3.3 billion more than migrants to New York in 2009.

The loss of all these people, Empire Center chief E.J. McMahon has observed, “is the ultimate barometer of New York’s attractiveness as a place to live and do business. It’s the ultimate indication that we’ve been doing things wrong.”

Nassau County, where I live, had a net loss of 3 percent of its population in the last decade. The average income of migrants in 2008-2009 was $67,311, while the average income of new residents from other states was $54,683 – an 18.7 percent drop.

There are a number of reasons why people are fleeing Nassau. First, blue-collar workers have been forced to find employment in other parts of the country due to the huge drop in manufacturing jobs on Long Island. Next, young people, after finishing school, leave the nest to find jobs and affordable housing in states with a lower cost of living. (A recent poll revealed that 36 percent of New Yorkers under 30 planned to leave.) Finally, retirees living on a fixed income are skedaddling to states like Florida, where housing is cheap and taxes are low.

In my neighborhood of New Hyde Park, scores of seniors who bought Cape Cods in the 1970s and paid off their mortgages years ago have put “for sale” signs on their front lawns. Even though the value of their home has dropped since the 2008 crash, they figure they’ll still be way ahead of the game living in Florida. The average Cape Cod house that was worth $500,000 in 2008 may be off 30 percent, but the houses they’re looking at in Florida are off more than 60 percent. Seniors who net $355,000 for their home in New Hyde Park can replicate it in the Sunshine State for $100,000 and live off the $250,000 net proceeds. On top of that, they will have an additional $6,000 a year in disposable income because their annual property taxes will drop from around $8,000 to $2,000.

As long as New York continues to have the highest combined taxes in the nation, expect the stampede of the young and old to continue and for the tax burden to become more onerous on those of us left behind.

One year ago at Albany’s inaugural ceremonies, newly elected Senate Republican Majority Leader Dean Skelos came up to me and said, “George, we have found our way.” By this he meant Republicans, who lost their 43-year hold on the Senate in 2008, had found their mislaid philosophical compass.

Between Gov. George Pataki’s first inaugural in 1995 and November 2008, the Republicans squandered their 37-to-24 Senate majority by adopting the agenda of liberal Democrats. Here’s a review of their Democratic “Lite” actions during that period:

• The GOP Senate supported a spending spree that catered to every left-wing interest group and drove New York’s bloated budget to increase three times the inflation rate.
• The GOP Senate extended that World War II-era relic, rent control.
• The GOP Senate approved the so-called Gay Rights Bill and the Hate Crime Bill, and they eliminated the medical insurance “conscience clause” for religious institutions.
• The GOP Senate in 2001 evaded Article 7, Section II of the state Constitution, which requires ballot box approval of general obligation debt, by creating state personal income tax revenue bonds. Under this borrowing scheme, billions of dollars worth of debt has been issued whose principal and interest are being paid out of future income tax revenues.
• The GOP Senate in 2003 approved legislation that increased taxes on personal income, business and sales to fund a budget that increased overall spending by close to 10 percent.

Years of GOP Senate ethical lapses, bungling management and abandonment of the conservative fiscal, economic and social principles on which they were elected, took their toll and in November 2008 the Democrats gained a slim majority.

However, Senate Republicans got another chance because tea party and Conservative Party activists turned out the votes necessary for them to gain a two-seat majority in 2010. The grateful GOP swore they had been cured of their liberal addictions and would now be the taxpayer’s champions.

Sadly, the GOP Senate quickly reverted back to old habits. In the 2011 budget negotiations, they revealed they were still captives of the teachers union by exempting pension contributions from the 2 percent school district tax cap. They supported, once again, the extension of rent control. They betrayed social conservatives by abandoning their solemn pledge to stop enactment of the same-sex marriage law.

The final outrage was the GOP’s embrace on Dec. 6 of legislation to extend New York’s biggest income tax increase since Nelson Rockefeller was governor.

The Senate GOP surrendered to the public sector employee unions and the Occupy Wall Street radicals. Contrary to their claims that the plan is not an increase, the fact that $2 billion more in tax revenue is expected next year proves them wrong. Worse yet, the extra revenue will not be used to replenish rainy day funds or to pay down debt but to increase education and Medicaid spending.

The GOP party line that the tax overhaul will not drive away wealthier New Yorkers is nonsense. The number of Long Islanders making over $1 million annually declined by 35 percent between 2008 and 2010. Expect the exodus of taxpayers from the Empire State to continue, thanks to the GOP’s apostasy.

The Senate Republicans have forgotten that government never taxes anybody into prosperity and that traditional values are the foundation of freedom. They have also failed to learn that “hide your conservatism” strategy never works because Republicans can never outspend or out-promise the Democrats and their Working Families Party ally.

The philosopher George Santayana warned: “Those who cannot remember the past are condemned to repeat it.” Skelos and his Republican colleagues are condemning themselves to electoral oblivion because they are suffering from historical amnesia.

For readers who enjoy, as I do, giving books as Christmas presents to political junkie friends and relatives, here’s my 2011 gift book picks:

“Buckley: William F. Buckley Jr. and the Rise of American Conservatism” by Carl T. Bogus (Bloomsbury Press, $30). This is a fair and balanced study of the man who founded America’s modern Conservative movement in the 1950s. Bogus explains how Buckley’s wit, charm, integrity and drive united conservative factions and paved the way for Ronald Reagan’s 1980 election. Buckley’s basic political rule has proven to be wise advice, “Support the most conservative presidential candidate who can win.”

“James Madison” by Richard Brookhiser (Basic Books, $26.99). This is Brookhiser’s fifth succinct book on America’s founding icons. “James Madison” is a penetrating portrayal of one of America’s smartest politicians and its most brilliant political philosopher. Brookhiser elegantly describes how the co-author of the “Federalist Papers” shepherded the Bill of Rights through the First Congress and guided the nation to victory in the War of 1812.

“1948: Harry Truman’s Improbable Victory and the Year that Transformed America” by David Pietrusza (Union Square Press, $24.95). This Albany-based historian has written a fine narrative on how the accidental president outfoxed the political establishment and won a stunning upset victory. Truman, by sheer tenacity, beat back the challenges of lackluster New York Gov. Tom Dewey, the communist-dominated Progressive Party’s candidate Henry Wallace and segregationist Dixiecrat Strom Thurman.

“Eisenhower: The White House Years” by Jim Newton (Doubleday, $29.95). The veteran journalist, utilizing newly declassified documents, debunks the notion that Eisenhower was a caretaker president. During his two terms in office, Ike maintained the peace, kept the Communists in check and refused to commit troops to Vietnam. Eisenhower was a meticulous manager who built the American economy and balanced the federal budget.

“George F. Kennan: An American Life” by John Lewis Gaddis (Penguin Press, $39.95). This is a magisterial biography of the man who created the post-World War II “containment policy.” Much of the credit for America’s Cold War victory over the Soviet Union goes to Kennan. Gaddis gets to the essence of this moody but brilliant foreign policy analyst, diplomat and historian. It is a long read – 700 pages – but worth the effort.

“Berlin 1961: Kennedy, Khrushchev and the Most Dangerous Place on Earth” by Frederick Kempe (Putnam, $29.95). This gripping book describes how the untested John F. Kennedy was rolled by the crude but cagey Soviet dictator during his first year in office. Fortunately, JFK turned to America’s greatest Cold Warrior, former Secretary of State Dean Acheson, for a tutorial on handling Soviet blustering. Acheson’s advice paid off during the Cuban missile crisis.

“Confidence Men: Wall Street, Washington and the Education of a President” by Ron Suskind (Harper, $29.99). The Pulitzer Prize-winning journalist describes how the fractious Obama White House struggled to deal with the economic crisis. Suskind portrays Obama as a weak manager who preferred lecturing adoring audiences than governing.

No matter which side of the fireplace political junkies hang their stockings – right or left – I’m confident they’ll find these books to be terrific reads.

December 8, 2011
         

            In 2000, NIFA was created as an independent New York State authority to help restore the county’s fiscal health, which had been suffering for years due to mismanagement, cronyism and sleaze.  In a nutshell:  the County had to be saved because it was teetering on the edge of the fiscal precipice.

            Prior to the State taking action the Nassau County legislature unanimously approved a home rule message requesting Albany to create a state oversight panel with the power to guide the County’s budget policies.  Both Nassau County Legislator Peter Schmitt and then-Legislator Ed Mangano voted for the measure.

            By asking for an independent public authority possessing budgetary oversight powers, the Nassau legislators conceded that they could not trust themselves to manage the County’s finances responsibly.

            Portions of the NIFA Act did reward elected officials for failure by providing various financial benefits including $100 million in state funds.  (Lest we forget during the 1975 fiscal crisis N.Y. City did not receive one dollar from the state.)

            To give elected officials time to reform the Tax Certs mess and to achieve a structurally balanced budget, the NIFA Act also permitted the County to borrow as “operating revenues” money to pay down accumulated Tax Certs refunds.  Tax Cert borrowing, which totaled $947 million between 2000 and 2007 and accounted for 45 percent of total bonded debt issued during that period, was in effect a backdoor tax increase.  Taxpayers, their children and their grandchildren are stuck paying the bill for the County’s fiscal operating shenanigans.

            NIFA’s authority to approve or disapprove budgets and fiscal plans expired in 2008 and the County was once again on its own.  Sadly, Nassau pols quickly reverted to bad fiscal behavior.  Tax Cert reform did not materialize; the County failed to pay refunds out of operating revenues.  The backlog of unpaid Tax Certs began to grow and has continued to grow to this day.  Tax Cert borrowing, which reached a low of $12 million in 2007, has grown significantly:  $58 million in 2008, $64 million in 2009 and $42 million in 2010.  The report of the Assessment Reform Team, created by County Executive Mangano with much hoopla, has been turning yellow in a bureaucrat’s bottom desk drawer.

            Elected County officials have also approved lucrative long-term contracts with public service employees.  Those who voted for the contracts and now must deal with their consequences insist the previous County Executive claimed there would be sufficient revenue to pay for sweetheart contracts.  Such finger pointing is deceptive.  The money was to come from the home heating fuel tax—the very tax many Legislators who supported the contracts repealed on January 1, 2010.

            Nassau County’s present fiscal crisis is the direct result of mismanagement, extravagance and political cowardice.  And to save their political hides, elected officials, once again, want to be rewarded for failure.  Gulotta redux!

            Most disappointing:  There have been no cries of outrage.  Instead of demanding transparency and genuine fiscal reforms, the political establishment has stood silently on the sidelines.  They have behaved like the hollow men described in the opening lines of Nobel Laureate T.S. Eliot’s poem of that name:

We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw.  Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless…

Shape without form, shade without colour,
Paralysed force, gesture without motion…

            Today the members of this Board are asked to approve a 2012-2015 Fiscal Plan that includes $305 million of new Tax Certs borrowing; $64 million in judgments and settlement borrowing and $80 million of borrowing for termination pay.  The County, which assumes business as usual, also wants to issue Capital Project bonds totaling $564 million.  (Reminder:  During New York City’s fiscal crisis, Capital Project spending came to a halt.)

             In return for imposing on taxpayers another multi-generational backdoor tax increase, the County pledges it will either obtain $150 million of union givebacks or make other cuts in the operating budget totaling $150 million.  In addition, the County claims that it will fully fund with operating revenue all tax certs, judgments and settlements and termination expenses beginning in 2015.

           Personally, I have very little faith in the County’s ability or will to achieve these goals.  In my judgment, the County has no creditability because time and again in dealing with fiscal matters, the County has been disingenuous, deceptive and delusional.  Let’s review:

• The County has boasted its 2010 budget was not only balanced but incurred a surplus.  In fact, the County ended the fiscal year with a deficit and funded the short-fall with long-term debt (another backdoor tax increase).  Yes, the County borrowed money to close the gap.  That’s like using ones credit card to pay ones mortgage.
• The County pledged in late 2010 they would procure $61 million in union givebacks in 2011.  That never materialized.
• The County told NIFA members in November 2010 that they had the makings of a deal with unions that was contingent on a sales tax increase the County assured would be approved later that month in a special session of the state legislature.  That never materialized.
• The County, in a letter to Chairman Stack dated December 28, 2010, (coincidently, a day before a NIFA meeting) outlined a list of contingent cuts it would execute to balance the 2011 budget.  Most of those savings never materialized.
• The County, on March 8, 2011, shortly before Judge Diamond was to announce his ruling in Nassau v. NIFA, asked the judge for a delay in the decision because the County was on the cusp of an historic labor breakthrough that would deliver dramatic savings and solve the County’s fiscal problems.  No such breakthrough materialized.
• The County insisted time and again that its 2011 budget was balanced and that NIFA’s analysis was wrong.  In fact, the County has been wrong.  County Comptroller Maragos projects that the County will end the fiscal year with a cash deficit between $84 million and $12.9 million.  On a GAAP basis, the deficit will be in the vicinity of $120 million.
• The County, on September 15, 2011, proposed a budget it claimed was balanced.  Weeks later the County repudiated that budget and the budget’s linchpin, the Fiscal Crisis Reform Act.

With this checkered history, the County now wants me to believe that this time they are really, really serious about fixing its fiscal mess.

             However disturbed I am at the plan that the County has put before us today, and however skeptical I remain about its willingness to affect the measures necessary to effect fiscal change, I am also cognizant of our role as a Board and the repercussions our decision here today will have.  Simply put, if the Board chooses to reject the plan, the County could not go to the capital markets and borrow the cash necessary for ongoing operations.  In a word, the County would be closed.

             To close the County, based on their unacceptable actions to date and on our fear that they will not do what they purport they will do, would not be unreasonable or unjustified.  Nevertheless, upon reflection, I believe that the Board should not exercise this Draconian option at this moment.

             But I must be clear.  The approval of this plan today is not without a price.   The price is that this Board—and I promise you I will personally—review every act, every contract, everything the County does to ensure it is in compliance with this plan.  I will demand that any deviation, any movement from the plan, be dealt with severely and swiftly.   I will demand that NIFA issue a formal order for the County to adhere to its plan.  If necessary, I will demand that NIFA go to the District Attorney’s office and the courts to enforce orders.  If I detect any smoke and mirrors in official statements or in filings with rating agencies or regulatory bodies—I will be a whistle blower.

             And let me remind the County that approval of a plan is not approval of all the parts.  NIFA will base the approval of each part of the plan that comes before us in the coming months on whether the County carried out its responsibilities.

             The County must realize that NIFA is no longer an oversight Board—we are a Control Board and if the County fails in its responsibilities, we will exercise control measures.  County officials are making a major error if they think NIFA is a toothless tiger.  No more shenanigans.  Don’t even think about resurrecting astro turf baseball field projects.

             Mr. Chairman:  Despite my personal fears and misgivings, I believe that as a member of this Board, I also have to consider what is the practical impact of our actions as a Board.  I vote in the affirmative.

Here’s my take on Long Island’s winners and losers for 2011.

WINNERS:

Steve Bellone – He skated to an easy victory in Suffolk’s County executive race and restored Democratic hegemony. His challenges: to tame a rambunctious Legislature, to maintain the fiscally conservative budgetary practices of Steve Levy and to avoid turning Suffolk into a ward of the state like neighboring Nassau.

Tom Croci – He is one very lucky Republican pol. Croci narrowly beat a popular and competent incumbent and his party will control all the Islip town board seats. Thanks to Phil Nolan, a dedicated fiscal conservative, Croci will take over a town that has a triple A rating and the lowest taxes on Long Island.

Ed Walsh – The Suffolk County Conservative Party leader proved that his party still has the clout to provide the margin of victory in tightly contested elections. In the cross-endorsement negotiation over judicial nominations, Walsh outmaneuvered and publicly humiliated Nassau GOP boss Joe Mondello, who in a fit of rage smashed his hand.

Desmond Ryan – The executive director of the Association for a Better Long Island led the charge against the plan to borrow up to $400 million to build a new Nassau Coliseum, a minor league baseball park and to raise property taxes. Ryan convinced voters that a county on the financial brink could not afford the sweetheart deal Nassau County gave to Islanders hockey team owner Charles Wang.

Long Island taxpayers – Thanks to the efforts of Gov. Andrew Cuomo and Senate Majority Leader Dean Skelos, there will be a cap on increases in annual local property tax levies of no more than 2 percent or the rate of inflation, whichever is less. This will be a great relief to Long Island homeowners who pay the highest state and local taxes in the nation. The cap will force Long Island schools to watch every dollar and implement efficiencies to streamline bureaucracies.

LOSERS:

Charles Wang – The owner of the attendance-challenged Islanders hockey team was rebuffed at the ballot box by angry voters opposed to “crony capitalism.” By a margin of 57 percent to 43 percent, voters told Wang they were not willing to pay $900 million in principal and interest over 30 years on a publicly financed plan to build a new Coliseum. The politically blind and media-deaf Wang wrangled a referendum held on the day the United States almost went broke. Great timing, Charles.

Richie Kessel – He resigned from the CEO’s job at the New York Power Authority not with a bang but with a whimper. Kessel still awaits the verdict of the New York inspector general’s investigation into his antics at NYPA and the Long Island Power Authority.

Jerry Wolkoff – A combination of Heartland’s ham-handed approach to development and the surprise defeat of Phil Nolan leave Wolkoff in the lurch. His utopian city in Islip seems farther away in the rearview mirror.

LIPA and National Grid – Their 13-year lucky streak ran out on Aug. 28 when Tropical Storm Irene hit Long Island. When 500,000 customers were cast into darkness, there was public outrage against LIPA and National Grid for not restoring power quickly. LIPA’s communication with its customers was horrid. Even LIPA’s chief operating officer conceded customer communication was poor. It took Cuomo’s strong intervention as recovery lagged to get LIPA and National Grid to shift into high gear to restore power.

Taubman Malls – This leading, national, upscale mall operator has been humbled for 10 years now by the intransigent Town of Oyster Bay supervisor, John Venditto. Despite spending tens of millions of dollars, Taubman is stuck on the sidelines watching as its flailing investment is kicked about by Simon Properties and the Americana in Manhasset.