October 13, 2006
COMPTROLLER FINDS 2007 NASSAU BUDGET PLAN CARRIES SIGNIFICANT RISKS
Major Budget Gap Seen for 2008
Comptroller Howard Weitzman today warned that Nassau County’s proposed 2007 budget, although balanced, includes revenues and cost savings that may not be realized, and therefore carries significant risks. The budget “marks a departure from the conservative budgeting philosophy of the Suozzi administration’s previous budgets,” he said.
“The county’s proposed $2.5 billion budget is balanced but contains a number of optimistic assumptions that may not come to pass,” Comptroller Weitzman said in comments following his testimony before the Nassau County Legislature’s Finance Committee. “As a result, our analysis finds a net budgetary risk of $34.2 million. While this amount represents just over 1 percent of the county’s budget, it is nevertheless a significant amount, exceeding the threshold established by the NIFA Act for a control period in the event of a deficit. We do not foresee such a deficit occurring, but under this budget there will be very little margin for error.”
“I want to stress that, overall, Nassau County’s financial condition is good and our fiscal recovery since 2002 is firmly established,” Comptroller Weitzman said. “But as we noted last August, the county is under increasing financial pressure, similar to other mature suburban counties where annual expenses typically grow faster than annual revenues.
“In order to minimize the need for cuts in programs or new revenues, the administration has fashioned a budget that incorporates aggressive assumptions about revenues, and potential savings from cost reductions. These assumptions are not impossible to achieve, but the administration will need to monitor carefully actual sales tax receipts and expense reductions in 2007, and react quickly with compensatory measures.”
The proposed budget includes cost-cutting initiatives that have not yet been achieved. For example, the budget includes $30.9 million in savings from labor concessions by the Police Benevolent Association, Detectives Association and Sheriff’s Officers Association. “While we agree with the administration that there are opportunities for savings as a result of negotiations with labor unions, the administration has never before budgeted for significant savings in the current year that depend on labor agreements not yet negotiated,” Weitzman said. “If those savings are not achieved, other expense reductions will have to be made to offset them.”
Another area of concern is sales tax. “Sales tax comprises approximately 40 percent of total county revenue but is subject to fluctuation,” Weitzman said. “Therefore, even a small hiccup in sales tax revenue can be a major jolt to the county's budget. In recent years the heavy dependency on sales tax revenue has been counterbalanced by conservative assumptions in other areas of the budget. We have no such assurance this year.”
As noted in the Comptroller’s previous report, Nassau’s financial trends are headed in the direction of lower operating surpluses, lower reserves, and a growing structural deficit, i.e., the degree to which recurring expenses exceed recurring revenues. The proposed 2007 budget uses approximately $80.8 million of reserves and operating surplus – all one-time revenues – to pay for recurring expenses, similar to the use of such revenues in the 2006 budget. Such revenue sources are unlikely to be available in 2008 and beyond, as the county will have substantially exhausted existing reserves and operating surpluses continue to shrink.
“As a result,” Comptroller Weitzman said, “the County Executive has predicted that a property tax increase is likely to be necessary in 2008 if expenses cannot be substantially reduced. I call upon my fellow elected officials not to lose sight of the heavy burden already borne by Nassau taxpayers and to minimize any potential increases by working in a bipartisan way to pare expenses as much as possible in the coming year.”
In a more positive vein, the Comptroller noted the continuing successful transition to “pay-as-you-go” funding of property tax refunds, estimated at approximately $50 million per year. The administration has dramatically reduced the outstanding liability for such tax refunds, allowing the county to pay for such expense out of operating costs rather than its former practice of paying for such refunds by increasing its long-term debt.
The administration’s updated multi-year financial plan projects significant future year budget gaps of $164 million in 2008, $208.8 million in 2009, and $256.2 million in 2010. “All municipalities that forecast multi-year plans show gaps in the out years,” Comptroller Weitzman said. “The issue is how the administration is proposing to close the gaps and whether it can build a consensus to support the necessary measures.” For 2008, the plan identifies a 3.9 percent property tax increase as one gap closing measure, and still requires at least $134.4 million in other new expenditure reductions and revenue initiatives, such as a home heating oil tax, an increased tobacco tax, video lottery terminals and additional labor concessions.
“Just as some of the 2007 budget assumptions are uncertain, these measures, too, will require the support of state and local officials and the cooperation of labor leaders. They are all subject to risk until county officials can build the consensus to take the necessary steps to reach budgetary balance.”
The full report follows.
Comptroller's Comments on the
Proposed 2007 Budget and Multi-Year Financial Plan
(32 pages ~ 263 kb .pdf file)