McMahon: Suffolk needs state control law

Suffolk County lawmakers are shocked -- shocked! -- to learn that someone has been gambling with the county government's fiscal future. It's a full-blown "emergency"! In the words of County Executive Steve Bellone, the resulting problem is "larger than any of us imagined."

But anyone truly surprised by fiscal distress in New York's most populous suburban county must have been sleeping under a tree the past few years. Once the County Legislature rejected the last round of spending cuts proposed by former County Executive Steve Levy, it was only a matter of time before his successor would have to deal with the ugly consequences.

For all the talk about over-optimistic sales-tax projections or past one-shot actions, the "systemic structural imbalance" identified by Bellone's fiscal advisory task force can be blamed primarily on excessive spending. Suffolk's expenses in 2012 and 2013 are projected to grow by 14 percent, which means the county would have a serious problem just ahead even if revenues were growing at twice the paltry 2 percent rate projected for the same period.

More than three-quarters of the spending increase consists of employee salaries, benefits and pensions, which are rising over the two-year period by 21 percent. Options for curbing personnel costs are limited, thanks to state laws such as the Triborough Amendment, which make it difficult to negotiate changes to costly labor agreements. The other, more slowly growing, half of the budget consists of untouchable debt service, and of the county's contribution to state-mandated Medicaid and welfare services.

A more advanced case of the same fiscal disease has already brought Nassau County into a state of virtual receivership. But this sort of problem is not limited to Long Island. The Great Recession of 2008 clobbered local governments across the country -- and throughout New York State. While several other large New York counties are exhibiting trouble signs, the biggest fiscal problems are concentrated in poor municipalities with high-poverty populations and stagnant or even shrinking tax bases.

Upstate cities "are in peril . . . approaching the point of financial failure," as Rochester Mayor Thomas Richards warned in legislative testimony earlier this year. Downstate, the cities of Long Beach and Newburgh are already at that point, and Yonkers may not be far behind.

Since the New York City fiscal crisis of the 1970s, state officials in New York have dealt with local budgetary meltdowns on a case-by-case basis, passing separate laws creating financial control boards only when local officials were running out of money and begging Albany for bailouts. It's time for a different approach.

New York should follow the lead of other major states, most notably Michigan, that have passed strong laws to establish state control mechanisms that are automatically triggered by a set of measurably eroding conditions -- such as declining credit ratings or a deficit exceeding 1 percent of budget funds, which is how the Nassau Interim Finance Authority came to take control of Nassau's finances last year.

Like NIFA, these fiscal control agencies should be empowered to review and approve all debt, contracts and financial plans, and to freeze all wages, including otherwise automatic step increases. But unlike NIFA, they should also have the power to unilaterally restructure labor contracts once they expire. County executives and mayors could use the threat of automatic state control as leverage against recalcitrant legislative bodies and labor unions.

In the meantime, Bellone needs to stretch his imagination -- because if he fails to quickly bring spending more in line with revenues, he ain't seen nothing yet.

E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.