COMPTROLLER RELEASES NASSAU COUNTY ANNUAL REPORT

Despite 2002 Surplus, County's Weak Financial Condition
and Projected Budget Gaps Still a Concern, Weitzman Finds
County's Liabilities Found to Exceed Its Assets by Nearly $1 Billion

Although Nassau County's latest financial report shows a $40 million surplus for 2002, Nassau County Comptroller Howard S. Weitzman warned today that the county's weak financial position and projected budget gaps for 2004 and 2005 still threaten its financial future.

Mr. Weitzman made the comments today upon releasing the county's 2002 Comprehensive Annual Financial Report.

Mr. Weitzman said, "Despite recent progress by the Administration in reining in expenses and increasing revenues, and despite crucial assistance from the Nassau Interim Finance Authority (NIFA), Nassau County still faces formidable financial challenges.

"In particular, while much attention rightly has been focused on the significant budget deficit that exists for 2004, equally troublesome is the underlying disparity between the county's assets and liabilities. Nassau's statement of net assets - revealed for the first time under a new accounting standard mandated by the Governmental Accounting Standards Board - shows that the county's liabilities exceed its assets by nearly $1 billion.

"Put another way, the county's "net worth" is approximately negative $1 billion, and not improving," Mr. Weitzman said. The county's liabilities totaled nearly $4.5 billion in 2002, while its assets totaled about $3.5 billion.

"The liability figure includes $2.8 billion in outstanding long-term debt, largely caused by the county's historical bad habit of borrowing to meet operating expenses, particularly property tax refunds, as well as other settlements and judgments.

2002 Highlights

The 2002 financial report confirms a combined operating surplus of $40 million last year for its five primary funds.

"Let's be clear about the reason for this surplus," Mr. Weitzman noted. "It is primarily due to budgetary actions taken by the Suozzi Administration and the infusion of $78.3 million in NIFA aid." Based on its improved fiscal situation and its Multi-Year Financial Plan for achieving budgetary balance, the three principal debt-rating agencies, Moody's, Standard & Poor's, and Fitch, all recently raised their ratings for the county's debt.

Moreover, in approving the annual report, the county's independent auditors, Deloitte & Touche LLP, gave the county a "clean opinion" for the first time since 1998, removing the auditor's former qualifications about whether Nassau could meet its financial obligations. From 1999 to 2001, Deloitte had included a "going concern" qualification in its audits of the county's statements indicating that the firm had substantial doubts about the ability of the county to continue to meet its obligations. Removing the qualification is an expression of greater confidence in the county's financial performance over the next year.

Troubled Outlook for 2004 and Beyond

Although the county is expected to end the current budget year with a surplus, under NIFA rules any such surplus funds cannot be applied to operating expenses in the 2004 budget year and beyond, in which large deficits loom.

"Despite Nassau's recent progress, the outlook for 2004 and beyond remains troubled by structural budget gaps of approximately $150 million in 2004 and $300 million in 2005," Mr. Weitzman said. "In order to close these gaps the county will need to cut recurring expenses and raise revenues wherever possible. "Failure to achieve any part of the Administration's plan for reducing that deficit - including the creation of a Nassau Sewer and Storm Water Authority and additional labor concessions - will in our opinion trigger the need for additional layoffs and service cuts that the county can ill afford, and which county residents are unlikely to find acceptable."

In the long term, several factors continue to threaten the county's fiscal health, some within the county's control and some not. For example, starting in 2006 NIFA will require the county to pay costs associated with property tax refunds out of its operating budget, Mr. Weitzman said. Costly programs mandated, but unfunded, by state and federal governments also must be addressed.

"As is the case with counties throughout New York State, our county's cost for Medicaid is rising in double digits every year," he said. "Meanwhile our revenues remain relatively flat. These issues point to the need for a fundamental change in the relationship between the State and its counties. Otherwise many more counties besides Nassau may be brought to the financial precipice."

In a transmittal letter to County Executive Thomas Suozzi and the Nassau County Legislature, Mr. Weitzman outlined other highlights of the Annual Report, including:

• The county's net outstanding indebtedness at the end of 2002 was 25.4% of its constitutional debt limit, representing a decrease of 1.4% from 2001.
  
• Although the county is still relying on non-recurring revenue enhancers (one-shots) to close the current budget gap, that reliance has been reduced dramatically from just a few years ago.
  
• NIFA generated $58.3 million of savings to the General Fund from the restructuring of outstanding county debt.
  
• The county's capital improvement program has been negatively affected by the substantial amount of debt incurred to pay successful property tax assessment challenges, of which close to $1 billion in bonds remain outstanding. During 2002, however, the county has been able to complete major public works projects previously under way, including: $9.7 million of road, parking lot and recreational area rehabilitations, $10 million of aeration tank improvements at the Bay Park Sewage Treatment Plant, and $9.4 million of various sewer and pond dredging projects.
  
• Building construction and improvements included completion of the $22.6 million Cradle of Aviation Museum, $7.2 million for a number of Fire Academy Burn Buildings, $2 million of Americans with Disabilities Act improvements at the Supreme and County Court buildings, and $1.3 million of other miscellaneous building improvements.
  
• Sales tax receipts increased 4.1 percent over the prior year, although the increase in the net amount actually received by the county was only 2 percent, due to the increase in the amount set aside for repayment of debt issued by NIFA.

Beginning with Nassau's 2002 annual report, all financial statements issued by the Comptroller's office will follow a new governmental accounting standard known as GASB 34 (Governmental Accounting Standards Board Statement No. 34 - Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments). The new accounting model incorporates significant changes intended to make annual reports more comprehensive and easier to understand. The changes include presentation of the county's net asset value, including infrastructure assets and depreciation, as well as use of the full accrual basis of accounting and consolidated financial statements for all county operations.

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2002 Comprehensive Annual Financial Report (~ 5,216 kB .pdf file - 151 pages)
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