The latest piece of wallpaper used by Nassau County to hide deep cracks in its property assessment process was ripped off last week by a state appeals court, exposing, once again, why county finances will be unstable until the flawed tax system is repaired.
Nassau residents are pretty familiar with bad fiscal news, but the ruling rejecting County Executive Edward Mangano's attempt to shift liability for tax refunds to local school districts is the second setback delivered by the courts in less than three weeks. On Feb. 14, a federal court threw out a freeze on police wages imposed in 2011 by the county's fiscal control board, the Nassau Interim Finance Authority.
The consequences of what is known as the "county guarantee" to repay property-tax overpayments on behalf of school and other taxing districts won't be immediate. But its implications are very real.
Nassau County is broke. It can't pay mounting tax certiorari refunds that are the result of successful challenges to assessments -- not without extensive borrowing, a tax increase or a sale of major assets. If both court decisions stand, the county could owe, at the very least, $100 million more annually than it projected. And a bond rating downgrade would be likely.
Just take a look at the refund liability. The county already had a $306-million backlog at the end of 2012. That is expected to grow to $388 million in 2013. And it is projected to jump to $452 million by 2014, unless the assessment system miraculously heals itself.
These numbers are ominous because the big court victory by 40 school districts and others on Wednesday is likely to stick. The appellate division ruled unanimously that only the New York State Legislature, not the county legislature, can repeal a tax law imposed by Albany in 1948 to protect school districts from errors made by county assessors. The Republican-dominated Nassau legislature voted to repeal the law on a legal rationale developed by County Attorney John Ciampoli, better known for his skills in election law. The state Court of Appeals is unlikely to reverse the decision. Action by state lawmakers to eliminate the guarantee would be stopped by teacher unions.
So in this round of Mineola pinball, losing the guarantee lawsuit could derail efforts by the county to negotiate givebacks from the police unions worried that the wage freeze could be reinstated by an appeals court. With the tax refunds ripping a bigger hole in the county's balance sheet, it seems unlikely that Mangano and the Police Benevolent Association can find enough savings to close that refund gap as well as replace tens of millions of dollars the wage freeze saves the county each year. Although the odds are a lot better that a federal appeals court will overturn the lower court and validate NIFA's authority to freeze wages, nothing is certain. If the freeze evaporates, the county not only loses the tens of millions of dollars in savings, it has no leverage to get any other givebacks from the PBA, whose contract runs through 2016.
So two of the three pillars of Mangano's financial strategy are wobbly. And the third, getting hundreds of millions of dollars from a convoluted lease of the county's sewer system to private investors, was flushed for now because of the extensive damage done to it by Sandy.
The county doesn't have a cash flow crisis now because the commercial property owners, who are get a 2 percent interest rate on what they are owed by the county, aren't demanding payment. At some point, however, they must be paid.
But how? Mangano's financial strategy needs an update, and the assessment system still needs to be fixed.