This Op-ed piece I wrote appears in the New York Post on August 2, 2013.

Statement by
George J. Marlin
Director
Nassau Interim Finance Authority

July 30, 2013

At the December 8, 2011 NIFA board meeting among other things I said:

“… The members of this Board are asked to approve a 2012-2015 Fiscal Plan that includes $305 million of new Tax Certs borrowing; $64 million in judgments and settlement borrowing and $80 million of borrowing for termination pay….

“In return for imposing on taxpayers another multi-generational backdoor tax increase, the County pledges it will … obtain $150 million of … cuts in the operating budget….

“Personally, I have very little faith in the County’s ability or will to achieve these goals.  In my judgment, the County has no creditability because time and again in dealing with fiscal matters, the County has been disingenuous, deceptive and delusional.

“However disturbed I am at the plan that the County has put before us today, and however skeptical I remain about its willingness to affect the measures necessary to effect fiscal change, I am also cognizant of our role as a Board and the repercussions our decision here today will have….

“To close the County, based on their unacceptable actions to date and on our fear that they will not do what they purport they will do, would not be unreasonable or unjustified.  Nevertheless, upon reflection, I believe that the Board should not exercise this Draconian option at this moment….

“And let me remind the County that approval of a plan is not approval of all the parts.  NIFA will base the approval of each part of the plan that comes before us in the coming months on whether the County carried out its responsibilities.”

Today I continue to have little faith in the County because it still fails to carry out its responsibilities.  The County broke its 2012 promise to obtain recurring cuts totaling $150 million.  And its claim that it did achieve $120 million in permanent cuts is suspect.

In 2012, for instance, the County closed not four police stations, as they budgeted, but only three.  In addition, the County’s claim that police station consolidations would achieve $18 million in annual savings has not materialized.  In fact, police overtime in 2013, year to date, versus the same period in 2012, is up $16 million.

Then there is the County’s absurd claim that it incurred a $41.5 million budgetary surplus in 2012.  The County came up with that number based on the fact that they failed to pay some current bills in 2012 and paid others by borrowing money.  For example, $88 million in tax cert refunds were not paid in 2012 but were pushed into fiscal 2013.  Also, there was an unbudgeted use of $10 million in reserves in 2012 and the use of $67.8 million in long-term borrowing to pay current bills such as termination payments.

These practices are like using one’s credit card to make current mortgage payments on one’s home and then making minimum payments on the credit card balance for the next thirty years.

The analysis of the 2012 budget based on Generally Accepted Accounting Principles (GAAP) reveals that the County incurred an $85.5 million deficit.

For this year, as of June 30, 2013, the GAAP deficit is projected to be $164 million.

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

The County continues to kick the can down the road despite the County Executive’s statement to Meredith Whitney, author of Fate of the States, on July 3, 2012, “This ‘kick the can down the road’ policy has to stop.”

If the County is ever to get its fiscal house in order, officials must heed the recent comments of two people:

Kevyn Orr, Detroit’s Emergency Manager, gave this advice on July 22, 2013, to local officials with fiscal problems:  “Delay doesn’t produce positive outcomes.  So, whatever the problems are, deal with them.  Have the political will, the wherewithal, to deal with them now.”

Governor Andrew Cuomo, sitting between the Nassau and Suffolk County Executives in Albany on July 19, 2013, said:

“The difference between communities that thrive and communities that die is leadership.”

In other words, for Nassau to succeed there must be the will to govern.  Governing by press release will not cut it.

As for today’s motion—I remind the County of my words in December 2011 “that approval of a plan is not approval of all the parts.” 

Today I vote yea for this small sliver of the tax cert refunding plan because they did come up with some permanent cuts.  But if the County continues its fiscal shenanigans it cannot assume my support in the future.

The following appears in the July 5-11 2013 issue of the Long Island Business News:

Gov. Andrew Cuomo’s voter approval ratings have been dropping like a rock, from the high 70s to the mid-50s. Why? He’s been exposed as just another pol whose actions do not live up to his big talk.

To boast that his third budget in a row passed on time, Cuomo abandoned the sound and tough fiscal measures he employed in his first year in office.

Instead, he adopted the Mario Cuomo/George Pataki smoke and mirrors approach to balancing budgets.

Hence, the Cuomo budget for fiscal 2013-2014 is riddled with one-shot revenue, tax and fee increases, back-door borrowing and overly optimistic revenue estimates.

His most egregious budget gimmick is the $350 rebate check, to be delivered by mail to a select group of New Yorkers, which will cost taxpayers about $400 million. The checks will not be distributed during the present fiscal year, by the way, but in October 2014, one month before the state elections.

Another dismal failure has been Cuomo’s much heralded Public Integrity Act, which included the Joint Commission on Public Ethics.

The slew of state legislators indicted in May and the Assemblyman Vito Lopez scandal proved the “new and improved” ethics board is a toothless tiger.

As for Cuomo’s 2013 legislative achievements, there’s not much to write home about:

The Fiscal Restructuring Board Cuomo alleged will help financially distressed municipalities is nothing more than a subterfuge for the extension of the rigged mandatory arbitration law written by the public employee unions.

The pension budget relief program doesn’t curb ever-growing local government pension contributions. It merely sticks current liabilities to future generations of taxpayers.

The LIPA legislation will probably do little to help struggling commercial and residential ratepayers. The re-structuring of LIPA debt, particularly with interest rates trending upward, is not expected to achieve the projected $30 million in annual savings.

The governor blinked on the proposal to decrease LIPA/National Grid payments in lieu of taxes to local governments and school districts, which total $586 million annually.

He failed to acknowledge that the payments are based on outrageously over-assessed values of electrical facilities and are unfair subsidies to favored government sub-divisions.

The approved casino plan is irrational. Giving casino location preference to upstate communities and not to New York City and Long Island where there is demand could prove to be disastrous.

Private-sector investors may not have any interest in ponying up hundreds of millions of dollars for gambling ventures in areas that may not attract the “high-rollers” needed to make facilities profitable.

Don’t be surprised if voters reject the constitutional amendment to legalize casinos this November.

Cuomo’s over-hyped tax-free zones on state-owned land on or near public or private universities, which now includes New York City, will probably go the way of Pataki’s failed and scandal-ridden tax-free enterprise zones. Expect the politically connected to be awarded tax-free havens, with few jobs created.

Finally, Cuomo’s hastily drafted campaign finance bill and his fatally flawed women’s rights legislation – both introduced in the final days of the legislative session – got nowhere.

All the glowing press releases proclaiming the dawn of a new New York cannot cover up the fact that the governor’s drive to change the business climate by cutting taxes and regulations has stalled.

The proof Cuomo has failed: The dim-witted governor of Texas has figured the Empire State is ripe for the picking and has financed an advertising campaign aimed at poaching businesses.

If that’s not a wake-up call for Cuomo, I don’t know what it will take to jar him out of his political coma.

The following appears in the June 21-27, 2013 issue of the Long Island Business News:

To placate voters who are angry over his gun control legislation and his unwillingness to approve hydro-fracking or to implement genuine unfunded mandate relief for local governments, Gov. Andrew Cuomo has been conjuring up piddling economic proposals he hopes will boost his approval ratings.

Cuomo’s latest concoction is “Tax-Free NY.” Companies that “partner” with state universities and select private colleges and open or expand their facilities on 3 million square feet of designated land north of Westchester County and 30,000 square feet on Long Island, will be able to operate tax free.

There will be “no income tax for employees, no sales, property or business taxes for a decade.”

Tax-Free NY, which Cuomo has immodestly called the greatest game changing initiative since the construction of the Erie Canal, appears to be only a new label for an old error. It is a scaled down re-packaging of the failed scandal-ridden Enterprise Zones initiated during Gov. George Pataki’s tenure in office.

Enterprise Zones, championed in the 1980s by New York conservative icon Jack Kemp, called for tax breaks to entice businesses to relocate to depressed urban areas.

This supply-side economic theory anticipated that tax incentives coupled with the suspension of regulatory and zoning restrictions would entice entrepreneurs to invest in poverty-stricken areas and increase job opportunities.

A pilot Economic Development Zone program, created by Gov. Mario Cuomo in 1986, was dramatically revised by Pataki in 2000 and rechristened “Empire Zones.” Eligibility rules to receive tax benefits were expanded, as were the rules to create new zones.

A study released in 2009 by the Citizens Budget Commission concluded that the Empire Zone Program, whose costs skyrocketed from $30 million in 2000 to $580 million by 2008, had become “a vehicle for giving tax-breaks to a variety of corporations with no clear, consistent, verifiable justification for the public investment.”

In other words, a well-intentioned plan morphed into another form of crony-capitalism.

Andrew Cuomo’s SUNY Empire Zones could be a similar boondoggle that gives special treatment to the favored few at the general expense.

It could become a free-lunch program for savvy high-tech entrepreneurs who would seize opportunities to make millions by partnering with renowned and innovative SUNY professors regardless of the tax-structure.

Tax-Free NY could also be exploited by local schemers and the politically connected, particularly around community colleges, looking to escape heavy taxation.

Most importantly, Tax-Free NY discriminates against and penalizes struggling businesses and commercial real estate developers that have played by the rules, have paid their taxes and have put up with all the regulations. Vendors who have “partnered” with SUNY campuses throughout the state for decades would be penalized because they are located outside the zone.

Heavily taxed commercial real estate would have to unfairly compete against tax-free sponsored office spaces.

For over 30 years, governors have failed to address the state’s economic woes. In fact, their tax and spend and regulatory policies have made things worse.

If Cuomo doesn’t want to follow in their footsteps and turn vast regions of New York into a big Detroit, instead of a promoting a program that invites political shenanigans, he should create an equal playing field by significantly cutting state corporate taxes and reducing local tax burdens by eliminating unnecessary unfunded mandates.

Such bold broad-based policies would turn New York into one giant enterprise zone that would unleash entrepreneurial forces and truly shatter its high-tax reputation.

The following appears in the June 7-13, 2013 issue of the Long Island Business News:

Since Gov. Andrew Cuomo unveiled his LIPA reorganization proposal last month there has been plenty of public weeping and gnashing of teeth, much of it justified.

The lowering of LIPA’s bond rating by Moody’s Investor Services to borderline junk, BAA1 from A3, did not help the governor’s cause. LIPA, Moody pointed out, has “little, if any, cushion for the unforeseen events that seem to occur every year.”

Political interference, Moody concluded, could make it “increasingly challenging for the board to take steps to systematically enhance the long-term financial and operational stability of the utilities, particularly if those actions would lead to rate increases.”

The feasibility of the governor’s pledge to freeze rates for three years has also been challenged.

The Director of Evercore Wealth Management’s municipal research department, Howard Cure, observed, “To start off with saying we’re not going to have any rate increases for three years when there’s a lot of capital needs – the math doesn’t work for me.”

The loudest complaints have been over the political decision to continue the $586 million in annual PILOT payments to local municipalities and school districts. Many commercial real estate proprietors and homeowners are tired of subsidizing municipal entities in which they do not own property or reside.

I, for instance, live in the New Hyde Park school district and paid about $9,000 in taxes this past school year. Because 15 percent of my monthly LIPA payments go to PILOTs, I also contribute year in and year out to the operating budgets of other school districts where LIPA owns land. That is truly “taxation without representation.”

Eliminating these egregious PILOTs could lower rates or at the very least freeze rates. Also, the revenues could be used to finance much needed capital improvements.

Another concern is the review and oversight of LIPA contracts over $50,000. Cuomo’s plan would amend Public Authority Law Section 1020-CC to eliminate the present requirement that “all contracts of the Authority shall be subject to the provisions of the state finance law relating to contracts made by the state.”

Such a change in the LIPA statute would cut the office of the State Comptroller out of the process to review and approve contracts. This in turn could open a new era in crony capitalism.

Finally, there is the issue of the proposed “advise and recommend” role of the Department of Public Service. Many are fearful that DPS will be a toothless tiger permitting the new five-member board to run wild.

The Cuomo administration has defended this structure, pointing out that LIPA bond covenants prohibit direct DPS control over rates and management.

This claim is substantially true. The rating agencies prefer public utilities to be free from crawling through state bureaucratic mazes to get approval for rate increases in order to meet principal and interest payments on outstanding debt.

Nevertheless, the DPS will not be opening an office in Long Island merely to take in the sights. Hovering over the LIPA board, scrutinizing budgets and capital project plans, utilizing the bully pulpit and issuing critical public edicts of board practices or policies, will most likely keep the trustees on the path of righteousness.

The clock is ticking. The governor has only a month to get a LIPA reorganization plan through the state Legislature and hurricane season is rapidly approaching. This may mean Cuomo will have to put aside his pride and address some of the issues raised here and by other critics.

If Cuomo fails and Long Island gets hit with another Sandy debacle, he will not be able to evade responsibility for the miserable response of one of his state agencies as he did last year. The finger he will be able to point will only be at himself.