Nassau County Executive Laura Curran and Republican county legislators are at odds over whether to ask the county’s control board to refinance existing debt. The move could save Nassau hundreds of millions of dollars but, Republicans fear, also help extend the life of the control board for decades.
The coronavirus pandemic has wrecked the county’s $3.55 billion budget, with officials projecting a $749 million deficit over the next 18 months. Curran has asked the Nassau Interim Finance Authority to refinance $367 million in existing county debt, and NIFA plans to restructure existing debt it borrows for Nassau.
Involving NIFA offers financial advantages: With higher-rated bonds, the control board can secure better bond ratings for debt than fiscally challenged Nassau could on its own.
If the bonds are restructured, Nassau and NIFA would make smaller-sized debt payments to creditors over the next two years. That would free up dollars that Nassau could use to cover its budget hole. And NIFA could provide more sales tax revenue to the county if it paid less on debt service in the short term. NIFA takes a portion of sales taxes due to the county to pay its borrowing and operating costs, before providing the rest to Nassau.
But the GOP-controlled legislature would have to approve Curran’s request for NIFA to refinance Nassau’s debt. And so far, Republican legislators are balking, concerned a refinancing could prolong NIFA's existence until 2051, when the last payment on the proposed restructured debt would come due. NIFA's final payment is currently due in 2025.
That's triggered alarm among Republican legislators, who say an “unelected control board” should not rule for half a century.
The State Legislature created the control board in June 2000 to serve as a temporary watchdog over county finances. In April, NIFA won state approval to borrow on behalf of the county after more than a decade without that power, and also to refinance and extend NIFA's debt to 2051. (The seven-member NIFA board is appointed by the governor, with one member each upon the recommendation of the Senate majority leader, Assembly speaker and state comptroller.)
In a letter to Legis. Richard Nicolello (R-New Hyde Park), the presiding officer, Curran said the benefits of the deal outweighed any concerns about prolonging NIFA's tenure. She and NIFA leaders say that, under state law, NIFA can last until 2051 as long as it believes its oversight is needed.
“It is important to keep in mind that every dollar saved by utilizing NIFA can be applied to avoid cuts to vital services and the County workforce," Curran wrote. "These benefits outweigh the fact that NIFA’s life would be extended, in that NIFA may go on in any event — because NIFA has the sole authority to refund its own debt past 2025 and its oversight powers may continue regardless of the maturity of its bonds.”
NIFA Chairman Adam Barsky said if the county doesn’t proceed with a refinancing, officials have "to come up with a combination of $200 million of cuts or new revenue increases, or tax increases. It’s one of two things: It’s cuts in spending and services [or] tax increases, that would have to amount to $200 million, $285 million over the next two years.”
Nassau Deputy County Executive for Finance Ray Orlando said, “We’re facing a situation where the revenue has dried up in 2020 — and there isn’t much of a prospect of it returning."
But Nicolello said the county should not rush to refinance. He said there are still too many unknown factors, including whether sales tax receipts will rebound or if Congress will provide more aid to local governments.
“The larger concern we have is this: We don’t know yet what the federal government is going to do. There very well could be sizable sums to come to localities. Before we go out refinancing debt, extending debt out to years, increasing costs to the county, we need to get that additional information,” Nicolello said.
Legis. John Ferretti Jr. (R-Levittown) said: “The administration is simply trying to kick the can down the road ... We need to do better," he said. "We need to work to relinquish its control board, where it appears the county executive is working to extend it.”
Republican legislators point to an analysis conducted by the Office of Legislative Budget Review, which estimated that NIFA, should it exist until 2051, could cost taxpayers $81.1 million using a growth of 2%, and between $122 million and $257 million dollars to continue operating using a rate of 4.5% and 8.7%, respectively.
Barsky said the projections are not accurate. NIFA costs a bit more than $1 million a year, and its annual costs could drop if the county exited the "control period," which was triggered in 2011, when the county's deficit became 1% of the budget. NIFA can still exist outside of a control period, with limited oversight powers.
Barsky said "the idea of waiting and waiting to see if sales tax improves over time doesn’t seem to be a sound plan. Hope is not a plan.”
NIFA's existence has been a source of frustration for lawmakers on both sides of the aisle. For legislators and union officials, NIFA is an easy foil: Government oversight gone awry. For county executives, NIFA can be a convenient scapegoat to blame for instituting austere financial measures, whether it's a wage freeze for thousands of union workers or rejection of contracts and overly optimistic budgets.
Before the pandemic, some county officials were optimistic that Nassau's financial picture under Curran had lifted and that Nassau was on its way out of the "control period."
But the Nassau Interim Finance Authority can stick around until 2051, regardless of whether it issues new debt, according to Barsky and a new memo from its outside law firm, Skadden, Arps, Slate, Meagher & Flom LLP of Manhattan.
According to the memo, “NIFA has the authority to exist until 2051 even without the existence of outstanding bonds so long as it has liabilities that remain outstanding or it believes that Nassau County has not achieved the fiscal stability envisioned by NIFA’s authorizing legislation.”
Legis. Kevan Abrahams (D-Freeport), the minority leader, said: “I think no one wants to have a control board overseeing the county’s finances. It limits our growth, it limits our ability to move forward."
"With that being said, I don’t know if she has any other option,” Abrahams said of Curran's refinancing plan.
He said his members want to determine what would happen to NIFA if Nassau pays off the debt more quickly.
"We want to have a full-blown analysis so we understand exactly what we're getting into, so we're not extending any statutes or anything along those lines.”
Of the NIFA memo, Abrahams said: “I'm not surprised. The legislation basically creates opportunities for NIFA to hang around however long they feel fit.” He added, “It’s tough, because if that was to be the case, you're talking about 51 years of a control board."
Nassau Comptroller Jack Schnirman, a Democrat, said "refinancing existing debt normally is amongst the least controversial options, and if refinancing existing debt can lead to significant savings, that prevents worse options from having to be considered."
Last month, NIFA hired Goldman Sachs to lead any restructuring effort.
Gregory Carey, chairman of public sector and infrastructure at Goldman Sachs, said “Basically, we’re freeing up over half the deficit, projected deficit, by restructuring the debt service."
The total debt service for NIFA and Nassau would rise by $242 million — from $4.087 million to $4.329 million — over the next 30 years, according to a proposal provided by the county.
Barsky said the county would see savings of 5% to 7% on a "net present value basis" — a method of measuring payments structured over a long period of time.
Orlando said, "it would cost $242 million more than it otherwise would, and we believe that in order to preserve as much of the county's services for businesses, taxpayers and residents that we can, we believe over that long period of time, over 20-plus years, it's worth it. It's fiscally responsible."
To Refinance or Not to Refinance?
Nassau County officials propose having the Nassau Interim Finance Authority restructure existing county and NIFA debt service. The plan would create a new debt repayment schedule, and more immediate relief to the county in the short term: $285 million in savings in 2020 and 2021, and another $150 million in savings in 2022.
Without the restructuring, Nassau owes $248.97 million in debt service payment in 2021, and $251.6 million in debt service in 2022.
Post-restructuring, Nassau would pay $129 million in debt service in 2021, and $180.3 million in debt service in 2022. A final payment of $12.3 million could be due in 2049 and NIFA would assume the bulk of the county's debt as its own debt. After 2025, NIFA could have to pay new installments of $24.18 million, each year, through 2050.
Source: County documents, officials from Nassau and NIFA.