Solving Nassau County's Financial Challenges

An abridged version of the following viewpoint article
appeared in Newsday on March 25, 2002

By Howard S. Weitzman
Nassau County Comptroller

On April 1, Nassau County Executive Thomas R. Suozzi will present a four-year financial plan to the Nassau Interim Finance Authority (NIFA). Restoring our ailing county to financial health, following years of fiscal mismanagement and inaction, is a daunting challenge. All of us must be ready to pay a price for the mistakes of the past.

Nassau County's structural deficit -- it spends more money than it takes in every year -- has ballooned. County services and expenses have grown over the years despite an eroding property tax base and without a corresponding increase in revenues.

Since the county is legally required to balance its budget each year, prior administrations have inflated revenue estimates, understated expenses, made extensive use of one-time revenue sources and borrowed for operating expenses and deficit financing. But none of these questionable techniques addressed the central problem - expenses exceeded recurring revenues in each year's budget.

My office projects that even including one-time revenue sources, such as tobacco settlement funds and NIFA aid, the county deficit will still reach $170 million in 2003. The county executive is forecasting deficits of $279 million for 2004 and $428 million for 2005. These numbers are not cumulative. Rather, the deficits will recur each year and are likely to increase unless we institute permanent reductions in recurring expenses, along with increases in recurring revenues. No amount of non-recurring aid or borrowing can solve our long-term problem.

As difficult as curbing our mounting deficits will be, we can be successful if the political will is there to take the tough actions that are needed. To that end, I have been speaking with residents at community forums across the county over the past month about the financial challenges we face. Among the steps I have outlined during these community forums and recommended to the county executive are the following:

• Assess real estate correctly and reduce tax refund claims. A major step now underway is the full-value reassessment of commercial and residential real estate, which should reduce the number of tax challenges filed. But since the reassessment is designed to be revenue-neutral (that is raise the same amount of taxes), more must be done.
  
  We need changes to existing state legislation to put Nassau County's arcane and outdated real estate tax laws on the same footing as other localities in New York. Key among these is eliminating a provision of state law, unique to Nassau County, that holds school districts and towns harmless when it comes to real estate tax refunds. Unlike other assessing jurisdictions in the state, Nassau County must refund all tax money owed because of a successful assessment challenge, even though it only retains the county portion of about 20 percent of the property tax payments. Of the nearly $1 billion in bonded debt outstanding for tax refunds, the county only received $200 million. The balance went primarily to school districts.
  
  Shifting the burden to pay such refunds to the school districts that originally collected the taxes is inherently fairer. The refunds are not equitably distributed among Nassau County school districts, and county taxpayers are being compelled to foot the bill for school districts that are rich in commercial property. While the preponderance of claims are filed on behalf of homeowners, the lion's share of the monies refunded go to commercial property owners.
  
  We also will need financing help from Albany and NIFA to deal with our tax refund backlog, which is estimated to be between $300-$500 million dollars. This is a one-time fix and should be addressed through long- term borrowing to smooth out its impact.
  
• Strengthen the county's labor relations efforts. Our county government employees are among our most important stakeholders and must play an integral part in the county's return to fiscal health. The county must restructure its labor contracts. The current contract dispute with the Nassau County Police Benevolent Association (PBA) is just a harbinger of things to come. The county must improve productivity while reining in costs as we negotiate with labor unions.
  
  County Executive Suozzi has said that eliminating 1,200 of Nassau's current positions through an early retirement incentive and attrition is part of his plan and may save $100 million annually. Detailed plans must be developed to provide for the requisite departmental re-engineering.
  
  
• Make E-government a reality. No re-engineering plan can be successful, however, unless the county's inadequate technology is updated. Funds must be allocated for computer and Internet technology to bring the county into the 21st century. This will substantially increase employee productivity, while enhancing public access to county officials, government records and information.
  
  In a radical departure from the past, we'd be investing in assets that will pay significant dividends over the years to our taxpayers. This makes more sense than issuing debt to cover the county's day-to-day expenses.
  
• Closely examine county services. Nothing is sacrosanct from review. Unless we put spending for every county department -- including police, public works and social services -- under a microscope we can never realistically eliminate our structural deficit. In addition, we need to take a hard look at overlapping services provided by the county and other levels of government.
  
• Increase revenues. Reducing expenditures alone will not suffice. Nassau County must do a better job of collecting its currently authorized non-tax revenues, such as fines and fees, and has to be creative in identifying new sources of non-tax revenue. Only after exhausting these options should we consider raising taxes.

A ¼% sales tax increase will generate $50 million annually, while a 10% increase in the county portion of the property tax would raise an additional $65 million toward balancing our budget in 2003. Because county taxes comprise only 20% of the typical property tax bill, this amounts to $150 for the average homeowner. Additional 10% increases in 2004 and 2005 may also be necessary.

If the county executive is successful in cutting expenses through increased automation, departmental consolidation, and program and workforce reductions, the out-year tax increases can be mitigated or eliminated. They must be considered, however, as a realistic contingency for a sound four-year plan. In November, the voters expressed confidence that we could change business as usual in Nassau County. Now, we must maintain the political will to do so.