Presiding Officer Jacobs, Minority Leader Schmitt and members of the Nassau County Legislature, thank you for affording me the opportunity to speak with you today regarding the county executive's proposed 2003 budget and multi-year plan. Before I begin, I would like to introduce Deputy Comptroller Jacques Jiha, Communications Director Michael Kornfeld, and Director of Accounting Randy Ghisone, all of whom played a crucial role in producing the report we issued on Monday.
In accordance with our charter responsibilities, we have carefully scrutinized the financial calculations and underlying assumptions contained within the Plan, much as we did with the county executive's plan last spring.
Increases in pension contributions, Medicaid, and health-insurance costs will raise the 2003 baseline-budget gap by $72 million to 257 million dollars. The best that can be said about our situation is that we are in the same boat as all other New York State counties. The only problem is that our boat sits lower in the water.
To close this budget gap, the county executive anticipates $119 million in new revenues from the often mentioned county property tax increase; $28 million in savings through workforce reductions; $20 million in additional revenue, expenditure initiatives and other miscellaneous adjustments; $18 million in debt-service savings from a reduction in the county's capital program and the launch of a variable-rate-debt program; $57 million in NIFA debt-restructuring assistance; and $15 million in transitional state aid. Most of these initiatives were previously contained in the April plan.
We inherited a county government whose budgets were structurally imbalanced even during the late '90s through early 2001, when the underlying economy was more robust than it is today. During much of 2000 and 2001, Nassau County's unemployment rate was below three percent and our sales-tax revenues were relatively strong, yet the county was confronted with major budget challenges.
Nassau County's economic recovery seems to have lost some of its momentum in recent months. Unemployment, while low by national standards, remains very high compared with last year's levels. The pace of employment gains has slowed, while sales-tax-revenue growth has decelerated. Looking ahead, economic activities in Nassau County will be affected not only by the strength of the national and regional economic recoveries, but also by the performance of the financial, business and legal sectors. In recent years, Nassau has become increasingly dependent on the service sectors, most notably financial and business services. If the stock markets remain weak, and the recession becomes long and protracted, the impact on business and financial services will be extensive. This will have far-reaching implications for Nassau County, since it has relied heavily on these sectors in recent years for job growth.
We must regain structural balance and, obviously, we should not and cannot rely on a rebounding economy alone to fix our underlying budget problems. A rethinking of spending priorities and the means for funding them are required to put the county back on the right path toward a structurally balanced budget.
The county has still to solve the twin evils of our structural imbalance; the first is our recurring expenses continue to exceed our recurring revenues; and second, close to 100% of the county expense budget of almost $2.5 billion is subject to annual inflation, while only approximately 1/3 of the $2.5 billion in revenues is subject to the same inflationary increases (sales taxes). Until these two critical issues are dealt with permanently, we will continue to reflect an ongoing structural deficit.
The Plan's proposed adjustments in taxes and spending should help address some of our immediate financial concerns. In our view, the proposed 2003 Budget reflects an appropriate mix of spending cuts, workforce reductions and smart government-savings initiatives, coupled with an increase in the county's portion of the property tax. The tax increase represents approximately 46 % of the gap-closing measures and will cost the average homeowner $180.
In addition to the effect of a long stock-market correction on pension costs, potential risks to the budget include the impact of historic workforce reductions on the county's overtime budget and the outcome of labor negotiations.
For years, wage increases for each of the county's employee-bargaining units have consistently outpaced inflation, adding significantly to the county's poor financial situation. The impact of each one-percent raise granted to the police unions is estimated to be $9 million in 2003. Therefore, the outcome of labor negotiations will play a significant role in determining the extent of the county's fiscal recovery. The county needs to settle these contracts as soon as possible to remove the resulting uncertainties from the budgeting process.
The Plan assumes that information technology will enhance productivity and generate cost savings. Yet, paradoxically, there is no funding earmarked in 2003 for investment in technology. Modernization of the county's information technology must be given the highest priority. Some of the smart-government savings may be at risk if the requisite investment in technology is not forthcoming. It is our understanding that $20 million was slashed from the technology budget.
Today, pension costs appear to present the most significant risk. At the same time, the county has a number of potential resources that are not included in the proposed budget, but are not certain as of this date. Among them are this year's ending general-fund balance, the 2003 pre-payment of pension contributions, and New York State Medicaid advances that may be forgiven.
The bottom line is that we believe the proposed Budget is balanced, and, indeed, could result in a surplus of between $11 million and $46 million depending on the performance of the stock markets. If stock prices remain depressed at their current levels by the end of the state fiscal year, which is March 31, we project a surplus of $11 million. Conversely, if the stock markets recover and investment losses in the New York State Pension Plan are limited to only 10 percent, the surplus could be $46 million. In either event, this surplus would be a small percentage of the proposed Budget; we recommend that any such surplus resources be invested in information technology.
The proposed Budget is the cornerstone of a long-term financial plan, laying the foundation for the county's fiscal recovery. Its assumptions are appropriately conservative in this uncertain economic climate. This will provide a cushion if economic conditions worsen. On the other hand, if the economy rebounds, Nassau County taxpayers will benefit from this prudent management strategy as the county will reap a surplus and move toward a structurally balanced budget.
For the out-years, balance is achieved largely as a result of initiatives that will be implemented during 2003. These actions are projected to reduce the baseline-budget gaps in the out-years to $362 million by 2006. The Plan also anticipates debt refinancing; labor concessions, particularly concerning health benefits; and state initiatives such as capping Medicaid growth.
While technically in balance, however, the out-years are definitely less certain and are subject to external factors beyond the county's control. State legislation authorizing the creation of a sewer-and storm-water authority, along with a reasonable arbitration decision concerning the police contracts, would go a long way to alleviating the need for potential cuts in human services, and in cultural and recreational amenities. But such actions are by no means assured. In addition, we are all banking on a successful implementation of the current reassessment project to succeed in reducing the county's annual real estate tax refund bill of $150 million. Should the project fail to reduce the county's annual refunds, there is no contingency funding available to offset the tax refunds.
Balanced against these uncertainties, however, the comptroller's office expects the county's financial position in the out years to be slightly better than is assumed in the Plan. In our view, the resumption of economic growth in the out-years should produce additional sales tax revenues. The reassessment project, which should link the county's property-tax base to market values, should also generate more revenues than anticipated in the Plan.
We all must share the financial burden resulting from the past administration's mistakes. Tough remedies are needed, especially in light of the current sluggish economic climate and increased costs of federal and state mandates that must be borne by the county. A weak economy - with its attendant impact on employment and consumer spending - and skyrocketing Medicaid, health insurance and pension-plan-contribution costs have added to the serious financial challenges Nassau County already faces. Meeting annual budgets, let alone multi-year financial plan targets, are all the more difficult and will require taking some painful steps.
Our full report is posted on our web site. I would be pleased to answer any questions you may have.