The following appears in the February 22-28, 2013 issue of the Long Island Business News:

When Andrew Cuomo was sworn in as governor in January 2011, he promised to help fiscally struggling municipalities and school districts by championing unfunded mandate relief.

It now appears that Cuomo’s pledge has been nothing more than empty rhetoric. In his 2013 State of the State address, he did not bother to mention the topic.

A coalition of elected municipal and school district officials recently chastised Cuomo for having “sidestepped” this issue. Their spokesman, Westchester County Executive Rob Astorino, pointed out that nine state mandates consume 85 percent of Westchester’s property tax levy.

“Albany’s unfunded mandates,” Astorino said, “are making it impossible for municipalities and schools all across the state to provide their own services and that hurts everyone in their community. Albany needs to get its foot off the throat of local municipalities. We’re feeling like we’re going to drown unless something is done in a real way soon.”

To silence his critics, Cuomo proposed in his 2013-2014 state budget a scheme that would allegedly cut the costs of local governments fastest growing line item expenditure – pension contributors.

In a nutshell, the Cuomo plan would give municipalities and school districts the option to “immediately reduce pension contribution rates by up to 43 percent and lock in a stable pension contribution rate for a 25-year period.”

Pension contributions have been rapidly increasing in recent years due to overly generous benefits localities have given to its public employees. Total annual local government pension contributions have jumped from $190 million in 2002 to $2.2 billion in 2012. For school districts, in the same period, it has grown from $52 million to $1.6 billion.

On the face of it, this plan would appear attractive, but as always, the devil is in the details. Analysts have pointed out that the proposal could, in the short-term, underfund the system based on the false hope that the new Tier VI pension plan for future hires would save billions decades from now.

The Empire Center for New York State Policy has pointed out three basic problems with the idea:

Even under ideal, fair-weather economic and financial market conditions for as far as the eye can see, it’s likely to be a losing bet for employers, saving them less in the short term than it would cost them in the long term.

It weakens and increases the financial vulnerability of the pension funds in the short term, and in the long term is a big financial gamble for both their beneficiaries and their ultimate underwriters, New York’s taxpayers.

It may violate the state Constitution’s Article V, Section 7, prohibition on impairment of retirement benefits.

Officials from all sides of the political spectrum have questioned the plan because it sticks to future generations of taxpayers present operating expenditures. In other words it is another form of back-door borrowing.

Syracuse Mayor Stephanie Miner – also the vice-chairwoman of the state Democratic Party – said she found the proposal “puzzling.” She added, “Some would say it’s a gamble, others would say it’s a tradeoff. When you start looking at what the intangibles are, I would suggest one to be cautious about the plan on pension payments.”

Fortunately, the Office of the State Comptroller Tom DiNapoli has stated it has “serious concerns” about the Cuomo plan “in part because of its potential impact on the funding level of the state pension system and the balance sheets of local government.”

DiNapoli, as the sole trustee of the state’s $150 billion pension fund, has the final say on the Cuomo scheme. Let’s hope he steps up to the plate and rejects it.

Statement by
George J. Marlin
Director
Nassau Interim Finance Authority

February 7, 2013

The County Comptroller’s declaration that Nassau ended fiscal year 2012 with a “miraculous” surplus was absurd.  It was a mirage, not a miracle.

I am shocked that after 3 years in office the Comptroller does not yet understand that a budget is balanced only when tax and fee income is equal to expenditures.

The claim that the County will end 2012 with a $25.5 million surplus was not measured on a GAAP basis, which is required by the NIFA statute, and was contrived by fiscal gimmicks that do not address the County’s structural deficit.

In 2012, the County kicked the fiscal time-bomb down the road by not paying $72 million in tax cert refunds, deferring $32 million in pension costs through the system’s amortization option, used $40 million in bonded termination costs and used $17 million from closed-out capital projects which had previously been funded through borrowings.

No one should be surprised that the County continues to ignore inconvenient fiscal facts.  Let’s face it, the County has forfeited its credibility when it comes to fiscal matters.  Lest we forget:

• The County claimed it ended fiscal year 2010 with a balanced budget.  This was false.  The County had to borrow to cover revenue shortfalls.
• The County claimed as late as August 5, 2011 that its budget for that year was balanced.  It was reported in New Times that the County CFO told the legislature that day, “the County will have a balanced budget in 2011 and if the Nassau County Interim Finance Authority continues to say otherwise, the State Authority should tell the County how to bring it into balance…‘I know the budget is balanced when a big four audit company signs off on it.’”  The County actually ended the 2011 fiscal year with $173.4 million GAAP deficit and a $50.4 million cash deficit.
• The County was legally required to cut $150 million in recurring expenses in fiscal year 2012.  The County failed to comply with this requirement and it had projected last fall that the 2012 fiscal year the County would incur a $139 million GAAP deficit and a $25 million cash deficit.

And now the County wants us to believe they have suddenly incurred in 2012 a surplus?

As for its 2013 budget, it is a classic election year document designed to deceive voters.  To get by in 2013, the County is ignoring the white elephant in County Hall—Commercial Property Tax Cert refunds.  Only $18 million in refunds have been approved for fiscal 2013.  These dollars will be allocated primarily to settle residential claims (a/k/a voters).  Meanwhile, the backlog in Commercial Real Estate Tax Cert claims continues to grow.  The County Comptroller’s office has estimated that the backlog on December 31, 2010 totaled $150 million; $223 million at the end of 2011; $306 at the end of 2012 and is projected to grow to $388 million in 2013.  Other experts have suggested the number could be as high as $500 million by the end of this year.

Obviously the County has learned nothing since the control period began two years ago.  This may explain why the County’s ratings have been downgraded and may very well be downgraded again.

The following appears in the February 8-14, 2013 issue of the Long Island Business News:

Back in the 1840s, good-government groups concerned about New York’s rising state debt, persuaded delegates at the 1846 Constitutional Convention to support a plank that required popular approval of any proposed borrowing.

Since that time governors and legislators have concocted scores of financial schemes to evade that constitutional amendment and the will of the people.

The most creative Chief Executive was Nelson Rockefeller who served as governor for a record-breaking 14 years (1959-1973). Not to be hampered by the voters in implementing his grandiose plans for the redesign of N.Y.S., Rocky created over 200 public benefit agencies and authorities with the power to incur debt. These quasi-independent entities circumvented voter-approval and rang up $12 billion in debt during Rockefeller’s tenure.

This “back-door” borrowing, as it became known, was utilized by every one of Rockefeller’s successors. Governor George Pataki, who fraudulently claimed to be a fiscal conservative, increased such state-funded debt during his three terms in office from $28 billion to $51 billion. In the past decade, 95 percent of debt for state purposes has been issued by state agencies.

The state’s debt burden, which was $63 billion on April 30, 2012, is among the highest in the nation. At $3,253 per capital, it is 3 times the median of the 50 states; second to California and 80 percent higher than New Jersey, which comes in third place. As a result, N.Y. spends 5.4 percent of its annual budget (2 times the national median) paying down its debt. Only financially strapped Illinois pays a higher percentage.

The most egregious example of back-door borrowing was the state’s sale of Attica prison to the Urban Development Corporation in 1990. To procure a one-shot revenue to help balance his budget, then Governor Mario Cuomo leaned on the U.D.C. to issue $241 million in 30-year bonds to buy the prison facility. After the sale was completed, the U.D.C. leased the facility to the state. The lease payments have been used to pay principal and interest on the bonds.

As of March 31, 2012, $142.1 million of the Attica prison bonds are still outstanding and they will not be paid off until April 1, 2020. In other words, it will take two generations of taxpayers to pay off Mario Cuomo’s 1990 overspending.

To curtail abuses and to address New York’s shrinking debt capacity and its need to invest in the state’s crumbling transportation infrastructure, Comptroller Tom DiNapoli released in January a very sensible reform plan.

To make the state’s borrowing practices more transparent and accountable and its debt burden more affordable, DiNapoli has called for the following:

• Constitutionally banning “Backdoor Borrowing” and returning control of state debt to voters: Voter approval that presently applies to state-issued General Obligation debt would be expanded to include state public authorities that issue bonds;
• Constitutionally restricting the use of long-term debt to capital purposes: This provision would force Albany to live with its means by preventing long-term borrowing to balance current operating budgets;
• Create an Infrastructure Council: This Council would prioritize capital infrastructure projects and develop a long-term strategic plan to guide the Capital plan.

Conservatives like me have been pleading for such reforms for years. And it is time they are taken seriously in Albany.

On this issue, I welcome Comptroller DiNapoli to the ranks of fiscal conservatism. Perhaps he has realized that some of the votes he had cast as a member of the state assembly supporting “back door” borrowing have been harmful to the state’s fiscal health.

One can only hope the Comptroller fights for debt reform and exhibits more staying power than Governor Andrew Cuomo who broke his no tax increase pledge last year when he signed into law legislation that raised state income taxes.