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

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.

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