Archive for April 2015

Andrew Cuomo – A contender for what? – By George J. Marlin

April 29, 2015

The following appears in the April 24-30, 2015 issue of the Long Island Business News:

If you’re interested in learning what makes Gov. Andrew Cuomo tick, I recommend you read Michael Shnayerson’s “The Contender: Andrew Cuomo, A Biography.”

This book is not hagiography; it portrays the man, warts and all. The only time Shnayerson goes overboard is when he argues that Cuomo is the “most tantalizing Democrat of his generation…, a prince in waiting,” and that “the only question is when” he runs for president.

What makes the book a worthy read is that it traces the development of Cuomo’s rude and ruthless behavior in dealing with people – even loyalists – from his youth in Queens County to the governor’s mansion. Here’s a sampling of what people who have known Cuomo throughout his life have thought of him:

As a young adult: “Andrew was a big, athletic kid, somewhat cocky, brandishing an outer-borough toughness and challenging those around him.…”

He was “…abrasive at 19.” Referred to as the “Prince of Darkness,” Cuomo “had no real friends, no colleagues, only people he controls. Everyone else he considers his enemies. To him there is only one agenda, and it’s his.”

As Gov. Mario Cuomo’s right-hand man: “…his father’s all-knowing, all-purpose henchman…his father’s heavy…he was a nasty piece of work who took delight in firing and cutting down to size people decades older…you do not want him mad at you. He takes no prisoners.”

At the Department of Housing and Urban Development: “…arrogant and obnoxious…. He yelled at me in a way that my own parents haven’t yelled at me…. He was sort of at your feet or at your throat…he could come on like a thug, in your face, talking down.”

During his failed 2002 run for New York governor: “…his way of dealing with staff or things…he doesn’t like is to play mind games with people and make them feel small, and let others do the dirty work of telling someone something they don’t want to hear…blaring his obnoxiousness for all to suffer…his arrogant, abrasive, controlling and…even mean-spirited qualities played a big role in his defeat by Mr. [Carl] McCall.” “…his grating personality has sullied what could have been a promising campaign….”

As attorney general: “Andrew said something negative about everyone…. No one was competent. Everyday it was a different person.” “Andrew could play one against the other, just as his father had done.”

As governor: “All power and all control – that was Andrew’s management style.” “Tough, nasty vindictive…He will do whatever he can do to punish you, only you won’t know it because he won’t do it to your face…he was also vengeful, bullying, mean-spirited, conniving, not always true to his word, and very secretive…a compulsive manipulator.”

Not a pretty picture.

Yet, while Shnayerson concedes that Cuomo is a man who has “seized power at every opportunity, alienated allies and rivals alike and micromanaged to a point of obsession, bringing to mind another less celebrated president – Richard Nixon,” he still insists the governor can be a contender for the office of president.

He even believes that if Hillary Clinton is elected and reelected president, Cuomo can still become the nominee in 2024 when he will be 67.

However, Shnayerson has failed to grasp that when a politician screws friends and foes alike, it eventually catches up. And it has with Cuomo. The base of his party and members of the Legislature don’t trust him, and he has a hard time finding talented people to fill senior positions in his administration.

It also foretells why Cuomo would fail as a presidential candidate. To make a serious run one must attract, trust and empower hundreds of people to organize campaigns in dozens of primary and caucus states. A mean-spirited control freak can not succeed at putting together such an organization.

Cuomo is a “contender” all right, but for the “Misanthrope Award,” not the nation’s highest office.

 

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Nassau’s sewer lease proposal is a disaster – By George J. Marlin

April 14, 2015

The following appears in the April 10-16, 2015 issue of the Long Island Business News:

Nassau County Executive Edward Mangano has resurrected another bad backdoor borrowing idea: monetizing the sewer system.

In March, Mangano issued a request for proposals from fiscal advisers “in connection with a potential public-private partnership transaction” for the county’s sewage treatment system.

A similar proposal was killed by NIFA in 2012. Why? Here’s the lowdown.

In September 2011, desperate county officials searching for new revenue streams were convinced by lobbyists/consultants they could receive a huge slug of one-shot dollars by leasing the sewer system to a consortium of investors.

The county was determined to move forward in executing the plan despite warnings from NIFA that it might not be legally feasible and could end future FEMA aid. The plan would convey to private-sector operators for 50 years the authority to impose, set and, if necessary, increase residential usage fees without government approval.

Ignoring the warnings, the county announced a so-called debt reduction and sewer stabilization plan on May 3, 2012. The county boasted that it expected to select a private investor who would finance $850 million to pay down existing low-interest, tax-exempt sewer debt and county debt and use any net dollars to balance its operating budget.

What county officials failed to grasp is that investors in this form of backdoor borrowing expect annual returns of 15 to 20 percent. And to achieve this return, sewer rates would have to be raised dramatically year in and year out since cost-cutting opportunities did not, and do not presently, exist in sufficient measure for them to reap their returns any other way. Because the increased payments would be fees, not property taxes, homeowners and businesses would no longer be able to deduct them on their income tax.

The biggest losers in such a deal would be Nassau’s nonprofits (e.g., North Shore-LIJ), commercial real estate owners (and their tenants, to whom they pass such costs along) and homeowners. Their toilet flush fees would be overflowing.

The biggest winners: investment bankers and lobbyists flushed with millions in commissions and fees.

NIFA rejected in May 2012 a $5 million Morgan Stanley sewer advisory contract because it made no sense to spend taxpayer dollars in pursuit of borrowing such costly funds to pay down low-interest tax-exempt county and sewer debt. It would be like paying someone to advise you to draw down the credit on your Visa card at 18 percent interest per year to pay down your home mortgage, which has a 4 percent annual interest rate. Sheer folly!

The flawed sewer deal has reared its ugly head again – but this time with a new twist. The chatter around One West Street is that if a sewer lease yields $1 billion or more, the proceeds could be used to eliminate NIFA by paying off its outstanding debt. If NIFA is disbanded, it would be party time in Mineola. The political hacks and lobbyists would have a field day lining their pockets with taxpayers’ money – even more than they do now.

However, in the unlikely event this scheme came to pass, the county’s structural budget deficit won’t go away but NIFA’s protections would.

Under the NIFA statute, Nassau cannot go bankrupt. But, if the control board is gone so is its statute. That would force the ratings agencies to take a fresh look at the county finances – and my guess is that before long Nassau’s rating would drop below investment grade and the county could become insolvent.

If the Nassau County Legislature and NIFA permit Mangano to lease the sewers, the irony would be that this man who ran as a “tax revolt” candidate would not only be raising costs on homes and business owners. He would singlehandedly manage to raise federal, state and local taxes for his electorate.

Nassau County’s endless budget deficits – By George J. Marlin

April 1, 2015

The following appears in the March 27-April 2, 2015 issue of the Long Island Business News:

Recently, Nassau County Executive Ed Mangano and his new deputy for finance, Eric Naughton, have boasted that the county’s 2015 operating budget is not only balanced but will have a budgetary basis surplus. They are likely to claim that, when the books are closed on 2014, that budget was ‘balanced,” too.

Frankly, they’re delusional. When the 2015 budget was approved by the Nassau Interim Finance Authority last fall, the deficit projected under generally accepted accounting principles was in the $100 million range. And since that time most experts agree that the gap between revenues and expenditures has continued to grow.

The school speed camera revenues disappeared due to a bungled rollout and the elimination of the program after legislators succumbed to pressure from outraged citizens. There’s also little expectation of revenues from any ill-advised gambling ventures, and the privatization of the county sewer services will not, as Mangano claimed, save $23 million this year. Savings will be in the $10 million range at best – which is merely the minimum amount that was guaranteed in the contract with the third-party management company. And, despite claims to the contrary by NIFA’s chairman and the county, sales tax revenues fell far short of 2014 projections, setting up a shortfall for 2015, as well.

The root cause of the ever-increasing deficit, however, is the negative impact of last year’s deals with the public employees unions that lifted the NIFA-approved wage freeze.

Readers will recall that, in 2014, the new Chairman of NIFA, Jon Kaiman, convinced himself and a majority of the NIFA board that the deals he had negotiated with Nassau County and the unions were cost-neutral. His claim, however, was absurd. Every objective analysis arguing otherwise has proven to be true, and done so even sooner than expected. The union agreements will cost up to $70 million more a year then they will save.

Stated differently, had those union deals not been approved, or had they only been approved in a manner in which they were actually paid for by revenues that are as predictable as the expenses, the fiscal plan approved by NIFA in 2011 under the leadership of Chairman Ronald Stack would have resulted in Nassau balancing its budget in 2015 or incurring a deficit of less than 1 percent. If the Stack plan had been adhered to, NIFA controls could have been lifted in 2016. But under the Kaiman plan, that’s impossible.

What I find most disturbing is that after five years in office, Mangano still hasn’t learned that a budget is balanced only when revenues from taxes and fees match expenditures. The county executive cannot get it through his head that borrowing money to meet payrolls and to cover other financial obligations doesn’t count.

Another grave disappointment: Eric Naughton, the county’s CFO. Naughton, who had credibility during his tenure as head of the Nassau Legislative Budget Review, has forfeited that credibility by adopting “budgetary basis surplus” language. It’s the same language used by his predecessor, Tim Sullivan, that assumes if the county doesn’t pay its bills or borrows the difference, it can declare a cash surplus in contravention of GAAP, good practices and common sense.

Believing their spurious surplus rhetoric has prompted county officials to resurrect bad ideas. Specifically, even with a deficit that is essentially the same as it was in 2011, the county appears to believe that things are well enough to approve $11 million for artificial turf fields. Prior and current analysis shows that, just like most of the county’s bad ideas, such fields don’t produce “savings.” Instead there is a negative return on investment. The fields cost more than the additional revenue received and do not cover depreciation, let alone the increased operating costs and maintenance. They also don’t last very long and require multimillion-dollar replacements.

Mangano’s misguided fiscal policies, enabled by Kaiman, will have long-term consequences. Current taxpayers, their children and grandchildren will be paying off the debt incurred to finance the fiscal follies of these political hacks for many decades to come.