NIFA Statement, August 30, 2012 – By George J. Marlin
Statement by
George J. Marlin
Director
Nassau Interim Finance Authority
August 30, 2012
Today I would like to review several issues that have arisen since our last board meeting:
1. In late July, the Nassau County Comptroller finally closed the books for the fiscal year that ended December 31, 2011 and confirmed that the County incurred a cash deficit of $50.4 million and a GAAP deficit of $173.4 million. The County’s claims throughout 2011 that its budget was balanced were wrong, and NIFA’s deficit analysis released in January 2011 was pretty much on the mark. NIFA had projected a GAAP deficit of $155.5 million and a cash deficit of $53.4 million. The final figures for 2011 prove that many of the County’s revenue and expense estimates were delusional.
The County Comptroller also projected that Nassau will end fiscal year 2012 with a cash deficit of $45 million. To address this conservative cash deficit projection, the County announced among other things the cancelling of $19 million in capital projects. The $19 million will be applied to an operating budget expense, debt service payment.
Utilizing capital project money that was raised by issuing long-term tax-exempt bonds to pay current operating expenses is a classic “one shot” fiscal abuse. This irresponsible fiscal practice brought down New York City in 1975.
When I cast my vote as a NIFA board member to approve borrowing to fund capital projects, I presume the good intentions of the County to proceed with a given project. If the County is going to deceive NIFA and treat capital dollars as operating dollars, I will have to seriously consider withholding my support for the funding of new capital projects presented to this board.
2. In December 2012, this board reluctantly approved the Veolia bus deal because we received the contracts at the last minute and did not wish public bus transportation to come to a halt on January 1, 2012.
When I cast my “yes” vote I warned that the County presented too rosy a picture of the contracts merits and that it would prove to be a disaster for taxpayers and bus riders. Sadly, my prediction has come to pass.
As a recent Newsday editorial pointed out, the $106 million estimate cost for a private company to run the system in 2012 was off by $14 million. Hence, bus routes had to be eliminated and services cut to save $7 million. The other $7 million came from an unexpected one shot of federal and state aid that the County turned over to Veolia.
Once again, the County’s budget projections were wrong.
3. When this board rejected the Morgan Stanley contract it sent a strong message that it frowned upon the proposed sewer system deal that would include approximately $750 million in borrowing. No matter how the County describes this potential securitization deal it is still borrowing. (As New York’s greatest governor, Alfred E. Smith, once said, “Anyway you slice it, it’s still baloney.”)
The County continues to pursue this deal because it hopes to use about $300 million of the proceeds as “one shot” revenues to balance operating budgets. “One shots” do not solve structural operating deficits. It merely kicks the can down Mineola Blvd., and sticks the bill to the children and grandchildren of today’s taxpayers.
When someone hands over $750 million the lender expects to be paid back the principal amount plus a rate of return. In the case of a sewer deal, every citizen who flushes a toilet would be paying back for the next 50 years that $750 million with an annual interest rate of 10% to 15%.
The next two generations of Nassau residents would be paying ever increasing toilet flushing taxes so that the County could receive “one shot” dollars to plug the deficit hole in current operating budgets. Taxpayers have every right to be outraged.
One last comment on this matter. Newsday’s Joye Brown reported on August 7, 2012 that:
Mangano said he has no plan to give lawmakers documents for analysis because he can’t produce a formal document without help. And he can’t hire help, he said, unless he can convince NIFA to approve Morgan Stanley’s contract.
I have been an investment banker for 35 years and I can say with authority that this claim is nonsense. Firms like Morgan Stanley advise municipalities on potential deals without upfront fees all the time. They invest their time in the hopes of reaping returns if the deal is completed. I am confident the County will have no problems finding a qualified firm to work on a contingency basis.
4. The 2012 budget that was approved by the CountyLegislature requires the County to cut $150 million of recurring labor costs. The County has failed to comply with this requirement.
To review:
– County officials insisted the 2011 budget was balanced. They were wrong.
– County officials insisted the Veolia Bus Company could run the County system for $106 million in 2012. They were wrong.
– County officials who are legally bound to cut $150 million of recurring labor costs from the 2012 budget are not close to reaching that number.
The County has a serious credibility problem. This is what happens when one tries to govern by press release.
Last December I supported a compromise fiscal plan that included $450 million of tax exempt bond borrowing over 3 years in order to get the County to a balanced GAAP budget. This plan included the $150 million in recurring cuts I described earlier. To help the County achieve this goal, this board has approved long-term borrowing to pay court judgments and to fund voluntary employee separation incentive plans. (Other municipalities in New York pay for these expenses with current operating dollars not borrowed ones.) And now the County wants to borrow another $750 million.
Let me make my position clear—I will not vote to approve a 2013 budget or a fiscal plan that includes any “one shot” proceeds from mortgaging the sewer system to the tune of $750 million.
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