Statement by

George J. Marlin

Director

Nassau Interim Finance Authority

October 6, 2011

           At the September 28, 2010 board meeting—over a year ago now—NIFA announced that after a preliminary review of the County’s proposed 2011 budget, “given the level of risks in the County’s Multi-Year Financial Plan as presented, we do not believe the Plan, and its FY 2011 Budget, meets the standards of prudence necessary for us to project budget balance at this time.”  The County promptly disagreed with that assessment, insisting its budget was balanced.

           On December 16, 2010 five days before the December 21 NIFA Board Meeting, the County Executive ordered $23 million in additional cuts and said, “The 2011 budget was balanced before these new spending cuts.  These new budget cuts are designed to strengthen the County’s fiscal situation even further.”  On December 20, 2011, the County Executive reiterated, “Nassau’s 2011 budget is balanced and maintains significant contingencies.”  On December 22, 2011, Newsday reported that County CFO Timothy Sullivan said in a statement, “There is no deficit.”

           Prior to NIFA’s December 30, 2010 meeting in a letter dated December 28, 2010 to Chairman Stack, the County Executive wrote:  “Just two months ago the County Legislature adopted a balanced budget for 2011 that closes a $343 million deficit while not increasing property taxes.”

           In the January 26, 2011 edition of The Wall Street Journal, the day NIFA assumed control of County finances citing a budget imbalance of $176 million, reporter Sumathi Reddy wrote, “Mr. Mangano insists the budget is balanced and has said NIFA is requiring him to come up with unnecessary contingency plans.”

           On February 10, 2011, The Long Island Press, reported that in an interview the County Executive said “I put forth a budget that is definitely balanced.”

           In the August 5, 2011 edition of the News Times Newspaper, Timothy Meyer reported, “Deputy County Executive of Finance Tim Sullivan told the Nassau County legislature Monday that the county will have a balanced budget in 2011, and if the Nassau County Interim Finance Authority continues to say otherwise, the state oversight authority should tell the county how to bring it into balance.  ‘We’ve given them every possible revised plan we can think of,’ Sullivan said.  ‘I know the budget is balanced when a big four audit company signs off on it.’”

           As late as August 1, 2011, the County was still maintaining that its 2011 budget was balanced.  Just days later, however, the Nassau County Comptroller estimated a $134 million budget shortfall; the Nassau Legislative Budget Office put the deficit at $118 million and NIFA’s revised projection for the 2011 budget deficit is $153 million.

           As Nassau’s fiscal condition continues to deteriorate, the County appears to be in denial.  For instance, the County wants to spend $20 million to improve its baseball fields, making the dubious claim there will be additional usage fees from little league and other amateur teams to cover the $1 million a year in debt service.  I ask, is it a wise expenditure of scarce funds during a fiscal crisis?

           The County announced a hiring freeze on December 17, 2010, an appropriate action.  But the hiring freeze thawed and additional County workers were hired even though other County workers were being laid off.

           On September 16, 2011, the County proposed a budget that assumes legislation will be approved that permits municipal employee contracts to be abrogated.  Is it probable that such legislation will be passed or survive court challenges?

           As for the 2012 budget; instead of designing an achievable “shared sacrifice” plan, the County proposed another high-risk budget that merely gives the illusion of being balanced.  NIFA estimates those risks at approximately $280 million.  2011 redux?

           Back in 1975, the financial markets closed their doors to New York City.  Years of balancing budgets with “blue smoke and mirror” gimmicks and a “borrow now, pay later” mentality caught up with elected officials.  To institute an orderly and controlled process for placing the City on a sound financial footing, then-Mayor Abraham Beame had to eliminate 47,412 jobs (20 percent of the total) between January 1, 1975 and May 31, 1976.  By means of attrition, retirements, resignations and layoffs, 20 percent of New York City’s teachers, 14 percent of the police, 14 percent of firefighters, 33 percent of sanitation and 25 percent of Parks Department positions were eliminated.  Scores of programs and departments were reduced or abolished.  Capital project spending came to a halt.  The City had no alternative but to heal itself because state coffers were empty.

           Assessing the dire fiscal conditions of New York State, the City and the Urban Development Corporation, the newly sworn-in governor, Hugh L. Carey, valiantly announced in 1975 “The days of wine and roses are over.”

           The time has come for the County to face reality and declare the days of minor league baseball parks, barbeques and coliseums are over.  The time has come for the County to face its responsibilities, dispense with fiscal shell games and take the necessary corrective actions to restore fiscal integrity.  It will not be easy or pleasant.  It will mean making difficult decisions.  Such is the price of holding an executive office.

           I also urge elected officials of every political party, good government advocates, journalists and reporters to remove their heads out of the sand, look beyond County press releases, and alert and educate the public to the magnitude of this crisis.

           All should promote public discourse as to whether it is wise policy to sell off the County’s assets and use the proceeds as “one shots” to balance the operating budget.  The public should be made aware that one-shots will not fix the County’s structural deficit.  It is only “kicking the fiscal can” down Old Country Road.

           There should be public discussion as to whether the proposed sale of Nassau’s sewer system is good public policy.  The public should be told how much more it will cost to flush their toilets if there is a sale.  There will be a flush fee (a/k/a tax) because sewage costs will no longer be based on property tax assessments and because the buyers of the sewer system will require a profit on their investment.

           NIFA has been sounding the fiscal crisis alarm; for the sake of the County’s taxpayers, it can no longer fall on deaf ears.  Officials can no longer be spectators in their own government.  As Abraham Lincoln said:  “…let us stand by our duty fearlessly and effectively…. Neither let us be slandered from our duty by false accusations against us, nor frightened from it by menaces of destruction to the Government…. Let us have faith that right makes might, and in that faith let us, to the end, dare to do our duty as we understand it.”

 The following appears in the September 23-29, 2011 issue of the Long Island Business News:

Last month, the governors of New York and New Jersey relented and permitted the Port Authority to raise tolls and fares for the third time in 10 years. While the increases were half the amount the agency sought, nevertheless, it was a victory for incompetent bureaucrats who have squandered billions of toll payers’ hard-earned dollars and have run out of capital to complete Ground Zero construction.

In exchange for the OK, however, the governors must insist on genuine reforms that ensure the agency is never again rewarded for failure. To achieve this end, their respective board members must be given marching orders to overhaul the bloated capital projects budget, to scale down the $3.1 billion downtown PATH subway station, to punish those responsible for cost overruns and to hire an independent firm that reports directly to the board to root out waste and mismanagement. Both governors should also demand immediate resignations from P.A. commissioners appointed by prior governors.

One huge expense that needs to be curtailed is Port Authority employee overtime. In a blistering report released in mid-August, state Comptroller Tom DiNapoli declared, “Overtime flows like water at the Port Authority and management has no clear strategy to achieve its own benchmarks and goals for curbing costs.”

Between 2006 and 2010, $459 million was paid in overtime to over 5,000 of the P.A.’s 7,000 employees. There were two dozen whose overtime earnings were greater than their base salary. The P.A.’s 2010 budget, which claimed overtime would not exceed 15 percent of base salaries and agencywide would be reduced by 20 percent, came in at $85.7 million, down only 3 percent from 2009. Overtime for P.A. police and PATH workers was twice the limit and accounted for two-thirds of the total paid by the authority.

Reacting to these findings, the comptroller concluded, “Port Authority management set cost control goals, policies and overtime limits, and then proceeded to fall asleep at the wheel. They’ve made minimal progress in containing these costs, which are too high given the current fiscal environment.”

The comptroller’s report also revealed that as a result of these appalling O.T. costs, P.A. employees account for 23 percent of the state’s top 300 pension earners with lifetime guaranteed annual incomes ranging from $125,000 to $196,000. The average P.A. retiree receives $143,000 a year. Toll payers whose 401(k)s were wiped out during the Great Recession have every right to be outraged that they and their children and grandchildren will have to pay for these exorbitant pensions.

The people of the New York-New Jersey region deserve better. Govs. Chris Christie and Andrew Cuomo should make it clear that they will accept nothing less than fundamental change that results in a leaner and more responsive Port Authority.

 The following appears in the September 9-15, 2011 issue of the Long Island Business News:

Now that Hurricane Irene is over and electric service has been restored to the Island, it is time for a sober review of the performance of those who run our electric system.

In the mid-1990s, I served on a review group for the Long Island Power Authority’s future, appointed as a conservative member of that team. I remember the commitment that LIPA would have no more than two dozen employees and would oversee a private sector utility hired to operate and maintain the electric system. All agreed that LIPA didn’t have the expertise, experience or background to provide electricity to 3 million people.

That approach was reflected in LIPA’s acquisition of LILCO’s transmission and distribution businesses back in 1998. LIPA’s role was merely to serve as a financing conduit that issued billions of dollars in tax-exempt debt to refinance the billions in Shoreham debt LILCO had fruitlessly incurred. Further, as a public entity, LIPA would not have to pay federal or state income taxes or provide returns to the stockholders of a privately owned company. Those three sources permitted a 20 percent rate cut. Ratepayers cheered.

But a now-forgotten, long-time LIPA official began a campaign to position LIPA as the actual provider of electric service on Long Island. LIPA’s profile was raised as the place to look for storm restoration, maintenance matters and all the small and large tasks incident to providing power in a post-industrial society. When storms threatened, it was LIPA that held the prime spot at press conferences and the public concluded, incorrectly, that LIPA ran the electric system on Long Island.

During LIPA’s 13-year existence, Long Island was fortunate and missed the horrors of a full-scale hurricane, last seen in 1985 when Hurricane Gloria knocked out the power of 750,000 Long Island electric customers. On Aug. 28, Long Island’s lucky streak ended. Irene struck, casting over 500,000 customers into darkness. Thankfully, no life was lost and injuries were few.

The inevitable public outrage arose slowly at first and then loudly against LIPA for not restoring power quickly. (Gov. Andrew Cuomo’s strong intervention as recovery lagged undoubtedly played a role in bringing Irene’s impact to an end,) Throughout the entire crisis, one thing was certain: LIPA’s communication with its customers was horrid. Tens of thousands of calls were dropped, customers who got through were told nothing about crew assignments and when power would be restored. Even LIPA’s COO conceded that customer communication was poor.

But in fact, Long Island electric consumers may be directing their ire at the wrong place. That’s because LIPA’s 100-plus employees include zero electric linemen and zero tree trimmers and zero substation operators. LIPA’s employees – accountants, lawyers and the politically connected – only monitor the company that actually runs the electric system on the Island. That company is National Grid, an international energy company based in London with significant operations in New York and Massachusetts. Grid is the successor to Keyspan, which acquired LILCO’s generation and gas businesses in 1998. I will leave it to post-mortem reviewers to determine whether Grid was up to the job of restoring power. My sense is that International Brotherhood of Electrical Workers employees workers from National Grid and states as far away as Michigan, Missouri and Tennessee worked long and hard to restore power and deserve our thanks.

Just as the Federal Emergency Management Agency was roundly criticized following Hurricane Katrina for its inadequate response caused in part by being perceived as a first responder rather than a federal coordinating bureaucracy, so, too, LIPA’s past communications have misled the public and have confused responsibility for restoration of service. It’s high time for LIPA to clarify what it is and isn’t, and who actually bears responsibility for electric service on our Island.