NIFA Statement, December 8, 2011 – By George J. Marlin

Statement by
George J. Marlin
Director
Nassau Interim Finance Authority

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.

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