State Watchdog Takes Over New York County's Finances
Nassau County's Finances Will Be Overseen by New York State
A state watchdog voted Wednesday to take over the finances of a suburban New York county — one of the nation's wealthiest — amid a dispute over the severity of fiscal problems that have plagued it for at least a decade.
The unanimous vote by the Nassau Interim Finance Authority, which determined the county risks running a deficit of at least percent, or $26 million, halts the county's short-term borrowing for operating expenses. The decision also means the authority will have to approve any contracts involving the county, and it could eventually lead to a wage freeze for thousands of county employees. C
ounty officials were prepared to fight the decision in court, but no immediate action was expected; County Executive Edward Mangano had lobbied hard to prevent the takeover.
"These are the real world consequences of the worst recession in 70 years, and the federal and state response to it," said Lawrence Levy, executive dean of the National Center for Suburban Studies at Hofstra University. "Unlike presidents and congressional leaders, mayors and county executives live with the consequences." The authority's chairman, Ronald Stack, said an independent audit found Nassau was at risk of a $176 million deficit.The panel gave the county until Feb. 15 to submit a revised spending plan that addresses the discrepancy.
Homeowners in the county just outside New York City had an average property tax bill last year of $11,500, nearly the highest in the country. And it is hardly alone in its struggles. A June 2010 survey by the National Association of Counties found 65 percent of responding counties reported between $100,000 and $50 million in budget shortfalls. "Things are pretty dim," said Jacqueline Byers, the association's director of research and outreach. "We're waiting with bated breath to see how much worse it gets in 2011."
The authority, a state watchdog created in 2000 when Nassau first had fiscal difficulties requiring a $100 million state bailout after years of little or no tax hikes, has been reviewing the county's $2.6 billion 2011 budget. The six-member board is appointed by the governor, state comptroller and the two leaders of the state legislature.
Mangano, a Republican who ran as a "tax revolt" candidate in 2009, maintains the current budget is balanced and says the authority is treating him differently than his predecessors. He said he inherited a $133 million deficit when he took office, and kept a campaign promise to eliminate a $40 million home energy tax, but argues the county now has a $5 million surplus obtained through staff cuts and other savings. He complained that recent chatter over Nassau's finances led Moody's late last year to downgrade the county's credit rating, making it more expensive to borrow money. "When you create doubt where none exists, it costs dollars," Mangano said.
The authority, however, has raised questions about the county's bookkeeping and has expressed concerns that labor concessions Mangano expects to negotiate may not be realized. George Marlin, an authority board member who ran for New York City mayor as a conservative in 1993, said if the watchdog does step in, it would work with Mangano to solve the budget problems. "Nassau County for many years believed it could continue to spend at a rate that far outpaced the growth of revenues," Marlin said. "That resulted in major problems a decade ago. Unfortunately the politicians didn't learn; there are expensive union contracts. Ed Mangano has inherited a huge fiscal mess."
Nassau has had to contend with shortfalls in sales tax revenue, increases in employee health care and social services costs, police overtime and other issues. But E.J. McMahon, a senior fellow at the Manhattan Institute and expert on New York state issues, also noted that for decades after World War II, as Long Island evolved into quintessential suburbia with a current population of 3 million, county politicians made spending decisions their successors have come to regret. The average police salary approaches six figures, and 400 retired county officers currently receive pensions of more than $100,000, he said.
Other counties are hurting, too. In the past month, officials in Harris County, Texas, which includes Houston, began notifying 14 employees of layoffs in an effort to trim its $1.3 billion budget for the fiscal year that begins March 1. In Ohio's Cuyahoga County, including Cleveland, workers are facing a third straight year of being forced to take five unpaid days off to help balance the budget. In Boyd County, Ky., 17 county employees were laid off earlier this month.
In Nassau County, a takeover would open the possibility of a wage freeze for county workers, which could save $10 million annually. Mangano boasted an agreement this week with the Civil Service Employees Association, which represents 5,600 full-time county employees and nearly 1,400 part-timers and seasonal workers, creates substantially more yearly savings, and $70 million over five years. "This contract represents real structural savings and real pay scale reform," he said.
Mangano also has tried to overhaul the county's convoluted tax assessment system. Nearly 65 percent of a county property owner's tax bill is dedicated to school taxes, although the county has no say over school district spending. Despite that, in an arrangement created decades ago, the county pays refunds to property owners who claim their school tax assessments are too high.
Nearly a decade ago, the county legislature voted to revamp the system, spurred in part by the threat of a lawsuit claiming it was racially discriminatory because homes increased in value much faster in white neighborhoods than in minority areas. That left minority homeowners paying a higher percentage of home value in taxes. While changes were made, Hofstra's Levy and others note the county still owes tens of millions in refunds for overassessments.
Brian Nevin, a senior adviser to Mangano, said the county has passed additional assessment reforms, but they don't kick in until 2013. According to Levy, the system is so flawed that virtually every business or homeowner that challenges their assessment rate wins. That forces Nassau to borrow $100 million annually to refund homeowners. The county portion of a homeowner's tax bill is only 16.4 percent of the total, but the Manhattan Institute's McMahon points out that is an average of over $1,800 a year. "There are people in other parts of the country whose entire tax bills are not that much," he said.