The following appears in the October 5-11, 2012 issue of the Long Island Business News:

The Office of the New York State Comptroller announced Sept. 19 that total state tax revenues for the period April 1 through Aug. 31 were $147 million less than projected and $204 million below collections for the same period in 2011.

“Almost halfway through the state’s fiscal year, the state’s budget is still on relatively solid ground, but weak revenue collections and slow economic growth signal a need for caution going forward,” Comptroller Tom DiNapoli said.

What should sound alarms throughout the state is the comptroller’s report on personal income tax, or PIT, collections. These revenues, which totaled $11.2 billion as of Aug. 31, were down $149.5 million and are lower than the total income projected in the state’s revised fiscal plan.

The PIT figures indicate that three years after the recession ended, New York’s economy is not experiencing a robust recovery. The state Labor Department confirmed this when it announced Sept. 21 that the Empire State’s unemployment rate is stuck at 9.1 percent versus 8.1 percent nationally. The total number of unemployed, which was 869,400 in July, increased in August to 872,100.

Don’t expect the job situation to get any better during the fourth quarter of this year. That’s because the financial sector, which is the key component of the state’s economy, will contract, not expand, by the year’s end.

The nation’s second largest bank holding company, Bank of America, announced in September it will lay off 16,000 employees and close 200 more branches by the end of the year. New York will take a big hit because Bank of America has a large presence in the state. In addition, Wall Street investment banking firms are expected to downsize due to declining revenue, particularly in corporate finance departments.

On another front, American Airlines, which is a major employer at the region’s airports, has sent out layoff notices to 11,000 employees and intends to fire at least 4,000.

Other bad news for the state: The economic slowdown in Europe is beginning to hit our economy. There is less demand for American goods and as a result, traffic in New York’s ports is expected to decline. A prolonged European downturn will also hurt the state’s If Italy or Spain or Ireland or Greece throw in the towel, abandon the euro and default on debt, a worldwide recession could ensue, further damaging New York’s stressed financial sector.

Another potential problem: If the Bush tax cuts, the payroll tax cut and various business tax credits all expire in December, and the mandatory federal sequestration of across the board cuts in discretionary spending is triggered, there will be a fiscal shock that will severely harm New York’s already weak economy.

The Congressional Budget Office has announced that if these events come to pass, the nation will plunge into a recession in the second half of 2013. And New York, which is dependent on major government spending and has a high concentration of high earners, will take a major hit.

In a recent analysis, the American Action Forum has pointed out that if the U.S. falls off this “fiscal cliff,” total federal and state marginal rates for New York’s small business owners and high-earning taxpayers will exceed 50 percent. They predict this would increase the costs of doing business for every small and medium-sized company and “would reduce the probability that a small business would undertake expansion by nearly 15 percent, and reduce the capital outlays of those who do by almost 20 percent.” The AAF estimates that New York could lose between 171,000 and 614,000 jobs.

This fall, don’t let any politicians con you into believing all is well. National and international events could easily shatter New York’s fragile economy.

Statement by
George J. Marlin
Director
Nassau Interim Finance Authority

September 24, 2012

            The County’s proposal to finance property tax judgments is another scheme to evade the approval process to borrow money.

           If the County could execute a deal with RPTF LIC of Uniondale (a firm Newsday reports “has not been incorporated and does not have a web site or phone number listed in public records”) it would not be “selling” judgments it would be borrowing money for seven years at an outrageous annual interest rate of 5.95%.

           When a government entity sells its unpaid bills or liens or uncollected judgments, it sells them at a deep discount (i.e., 10 cents on a dollar) then it writes down the receivables on its balance sheet and gives up any future claims.  The vendor who purchases these government uncollectibles has the right to go out and try to collect the unpaid balances.

           The County’s proposal is completely different.  The County would not be selling receivables, it would be borrowing money at 5.95% to pay down tax refunds which are listed on the County’s balance sheet as liabilities.  County Comptroller Maragos got it right last week when he said the proposal would be “adding millions of dollars of debt to the County’s books.”

           The CountyAttorney claims he has the power to settle judgments under $100 thousand.  This may be true.  But it does not mean he has the authority to borrow money to pay the judgments he settled.  That approval must come from the Legislature.

           As for the 5.95% annual interest rate, the County announced it would be willing to pay on a seven-year loan—it is an egregious amount.  The County could issue tax-exempt municipal bonds for seven years at an approximate rate of 1.50% or lower.  The County’s claim that it can issue only 20 year tax-exempt bonds is wrong.

           If the County does not abandon this ill-conceived borrowing scheme, County legislators should go into court and request a Temporary Restraining Order (TRO).