How to cure Nassau’s ailing finances – By George J. Marlin

The following appeared on Monday, August 24, 2020 on The Island Now’s website:

When the Nassau Interim Finance Authority voted in January 2011 to impose a control period on the county government, the board chairman, Ronald Stack—an expert in municipal finance—had a plan in mind to get the county back on the path of fiscal righteousness.

The Stack plan, which included controls on spending and hiring, a wage freeze, and some tax-cert borrowing, was working, and the annual GAAP deficit was declining through 2013.

A wrench was thrown into the plan, however, when Stack’s successor, NIFA Chairman Jon Kaiman, negotiated a union wage deal in 2014 that was nothing more than blue smoke and mirrors. Kaiman’s claim that the deal was cost-neutral was false and based largely on expectations for the ill-fated and infamous county speed camera program.

An analysis released by the county’s independent fiscal watchdog concluded the new labor amendments would cost Nassau taxpayers somewhere between $120 million to $292 million.

The Kaiman deal caused the Nassau budget deficit to jump in 2015 to $189.2 million.

In later years, however, the county’s deficit began declining, thanks to NIFA’s insistence on fiscal discipline (including multiple rejections and revisions of county budgets) and a strong economy.

The county has reduced its dependency on borrowing for capital projects, employee termination payments, and legal judgments and settlements.

Sales tax and other key revenue streams had grown significantly and rising property values had stabilized property tax streams.

In fact, in fiscal 2019, the county incurred its first GAAP surplus, $76.8 million, in decades.

If that trend continued, NIFA might have lifted its controls in 2021.

But all bets are off due to the COVID-19 pandemic.

On August 18, NIFA issued its mid-year analysis of the county’s financial plan—and it is depressing reading.

NIFA projects that the $3.55 billion 2020 budget can incur a GAAP deficit to the tune of $334.2 million.

In the out years, the budgets are projected to have deficits of $481.4 million in 2021; $423.9 million in 2022; and in 2023, $436.3 million.

What’s driving these deficits?

The main culprit is the reduction in sales tax dollars due to Gov. Cuomo’s shutdown of the economy. In the second quarter, those revenues were down 24 percent compared to the same period in 2019. Sales tax revenues could be off as much as $237.8 million in 2020.

Proceeds from other income streams (i.e., Department Revenues, Fine and Forfeitures, OTB payments) are also taking hits due to lower transaction and economic activity.

NIFA estimates that total revenues could be off as much as $334.2 million by year end.

To address this crisis, NIFA Chairman Adam Barsky urged the county “to use the economic catastrophe as an opportunity to go beyond pre-existing geographic and political disagreements and examine all options, including those that might have been disregarded in more ‘normal times.’”

Many of the options available to elected officials can be found in the Grant-Thornton study commissioned by NIFA in 2011 to identify potential savings and cost-cutting opportunities valued at between $251 million and $319 million.

Since most of the recommendations have been ignored, the nine-year-old report is still relevant and its suggestions valuable.

The savings the county executive has proposed thus far don’t cut it. NIFA’s analysis reveals “almost 40 percent would not provide savings on a GAAP basis and more than 90 percent would be non-recurring.”

These gimmicks will not put the county on a firm, structural financial footing. They will only kick the fiscal can down the road.

To address the projected deficits in the coming years, NIFA recommends that the county “implement gap-closing initiatives in fiscal year 2020, which provide recurring revenues and savings beyond the current year; and pursu[e] productivity improvements through collective bargaining in order to control labor costs, which represent approximately half of total spending.”

Such measures and increasing sales tax receipts, due to a recovering economy, may significantly improve the county’s fiscal condition.

However, if the County refuses to deal with fiscal realities and employs fiscal sleight of hand schemes as the Republicans did back in the 1990s and during the corrupt Mangano administration, NIFA will have to step in and impose what Chairman Barsky has called “Draconian” spending cuts.

Barsky said the measures could include laying off as many as 2,900 employees or hiking county property taxes by up to 60 percent.

The time has come for the county to face reality and to implement a dramatic restructuring of its government operations.

And the road map can be found in the 300-page Grant-Thornton report, as well as a subsequent, shorter report commissioned by NIFA a few years ago.

Implementing its scores of recommendations could be the prescription to cure the ailing county government. NIFA can impose controls, but it can’t create political will—that’s up to the county’s elected officials.

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