Stripping NIFA's power would hurt Nassau
A financial control board stripped of its most potent weapon isn't going to have much control. But that's what could result if a ruling by U.S. District Court Judge Leonard Wexler stands.
Wexler ruled two weeks ago that the Nassau Interim Finance Authority, a state control board overseeing Nassau County's finances, did not have the power in March 2011 to freeze public employee pay hikes and annual step increases.
Last week, the implications of the ruling, which NIFA is appealing, began to become clear.
Fitch, Moody's and Standard & Poor's repeatedly have cited NIFA as one reason the county's bond ratings haven't fallen more precipitously.
Nassau's finances were shaky with NIFA, and losing the board's power to freeze wages would make a bad situation worse. Moody's put it plainly, saying that losing the appeal "could magnify the county's precarious financial position."
Over the past seven years, Moody's noted, Nassau's audited net cash balance -- a measure of liquidity -- dwindled to negative 13 percent of revenue because of deficits and Nassau's increased use of cash-flow borrowings to fund county operations.
That measure improved, slightly, from 2011 to last year, when it moved to negative 11 percent. Should Wexler's decision stand, however, the net cash balance could plummet to 16 percent of revenue, Moody's noted.
In his decision, Wexler pointed out that NIFA's authority to impose freezes ended in 2008, although the statute has twice been revised since NIFA's creation in 2000.
The authority grew out of a financial crisis that, by 1999, turned a Republican supermajority in the legislature against Republican County Executive Thomas Gulotta.
Back then, Nassau, one of the wealthiest counties in the nation, was on the verge of insolvency. At one point, the county's bond rating dropped to near junk -- making Nassau a national joke.
Republican Gov. George Pataki asked Frank Zarb, a former Nasdaq chairman, to take a look. Zarb's analysis found that -- and, sadly, this will sound familiar -- Nassau's budgets were not balanced, that it borrowed money to cover operating costs and that the county's broken property assessment system was costing taxpayers millions of dollars a year.
The county later agreed to request creation of an oversight board, which came to be NIFA -- along with more than $100 million in state aid.
Although current County Executive Edward Mangano bristles at NIFA's continuing -- and necessary -- oversight, he asked the board to help by imposing a wage freeze.
Should Wexler's ruling stand, Nassau could end up owing at least $80 million in back raises and step increases. Nassau also would lose what's become its most effective tool in controlling recurring costs.
It will be up to a federal appellate panel to determine whether the intent of NIFA's statute trumps what the poorly drafted statute actually says.
That could take a year. But county officials won't have the luxury of waiting before building some kind of Plan B.