Weitzman: Nassau fix is obvious-- but tough
From left, George J. Marlin, Leonard D. Steinman, Ronald A. Stack, Thomas W. Stokes, and Evan Cohen attend a NIFA meeting about wages at the Marriott in Uniondale on March 24, 2011. Credit: Chris Ware
Howard Weitzman was Nassau County comptroller from 2002 to 2009.
By all indications, Nassau County is heading toward a fiscal crisis of epic proportions. The Nassau Interim Finance Authority has declared a period of "hard" state control over county finances and estimated a possible county budget deficit of $170 million. A $200 million deficit looms for 2012.
How could this happen again to one of the wealthiest counties in America?
Nassau's problem is that it continues to spend more money than it takes in. Almost all municipalities have such structural gaps, but what sets Nassau's apart is its size. Some estimate the gap to exceed $200 million, an amount that cannot be eliminated without extraordinary measures.
The fix should be obvious to everyone. There must be large, sustainable expense reductions, along with additional revenues -- whether through increasing property taxes or, with state approval, sales taxes. If necessary, and as part of an overall multiyear plan, the county could exceed the recently agree-upon 2 percent cap on property tax increases, as there is an exception for court judgments like Nassau's tax refunds. And as distasteful as it sounds, there may be a need for transitional borrowing based upon a multiyear plan that provides a truly balanced budget, matching expenses with revenues.
But since Nassau County Executive Edward Mangano and the Republican legislative majority have taken the position of no new taxes, their options are limited to draconian expense reductions or the discredited practices of borrowing for operating expenses, inflating budget savings ("ordering" $60 million in union concessions, for instance) and creating one-shot revenues through the sale of county assets.
Unfortunately for Mangano, NIFA has indicated (as has the Democratic minority) that there will be no more approval for borrowing for operations. Neither party has shown the political will for the kinds of cuts that will make a meaningful difference. Mangano is in the position of watching his budget initiatives fade away as the year runs out.
NIFA is also in a difficult position. While its members have voted to impose a "hard control period," the only new powers they have are to reject contracts and new borrowings. NIFA cannot raise additional revenue or hire and fire county employees. It has rejected Mangano's 2011 budget and its revisions, but where does that get us? If by the end of 2011 the county goes off a financial cliff, it will hardly be sufficient for NIFA to claim that it rejected the budget.
The public expects NIFA to take the necessary actions to prevent a disaster. So it is heartening that NIFA is hiring an auditor to review county contracts, an overdue action that will probably lead to savings of millions of dollars. But by itself it cannot solve the bigger problem.
In many respects, the same problem is being played out on the federal level. In Washington, Republicans and Democrats have staked out the same immovable positions on the federal deficit. No new taxes or borrowing or large expense reductions. But bipartisan groups of federal legislators continue to try to find a compromise that will work for everyone, especially the taxpayers.
No such bipartisan meetings are taking place among county legislators, and no serious working meetings are occurring between NIFA and the administration. If this impasse doesn't break, NIFA should consider using its ultimate weapon: withholding permission for new cash-flow borrowings, which, distinct from operational borrowing, are routinely used to smooth out timing differences between tax receipts and expenditures. Without tax anticipation and seasonal cash-flow borrowings, Nassau could not pay its bills and would grind to a halt. At a minimum, that would bring NIFA, the administration and legislative leaders to the table to hammer out a compromise. A bipartisan advisory commission of financial professionals could provide the cover the politicians need.
An agreement between the administration, legislature and NIFA on a realistic long-term financial rescue plan will not be easy. In fact, it will probably be very painful. But it's the only way to avoid financial chaos. There is no plan B. No one believes the state will rush to our rescue as it did in 2000. A crisis of this magnitude will roil the municipal bond markets, affecting governments across the country. Both political parties and NIFA need to work together to solve it.
