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August 5, 2009
Comptroller Weitzman: ‘County’s 2009 gap-closing plan working, but more needs to be done.’
Midway through an economically arduous year, the County’s budgetary gap-closing plan is largely working, said Nassau County Comptroller Howard Weitzman, but more needs to be done. “The unprecedented severity of the national recession makes 2009 a year like no other for Nassau County,” said Weitzman.
Revenues, especially sales tax, have plummeted as County residents and businesses suffer from the impact of the recession. In April 2009, the Comptroller’s Office estimated the County faced a $137.5 million budget gap. The administration’s gap closing plan, including negotiated labor savings, federal stimulus funds, spending cuts and new revenues is bringing the County close to where it needs to be, but Nassau is not yet completely out of the woods. Comptroller Weitzman projects that the County still faces an approximately $11.5 million gap, which needs to be closed by year end.
"The national recession has left its imprint on our governmental revenues and expenditures,” Weitzman said. “To the credit of the administration, legislature and our labor unions, the County responded quickly with gap closing measures that have taken us close to where we need to be.”
The Comptroller reported that the budget shortfall must be offset with continued expense reductions through strict control over hiring and spending, and State authorization for increased revenues. If necessary, the County can rely on some of the accumulated prior years’ surplus to close the gap. (The details are presented in Table 1.)
At this mid-year point, Comptroller Weitzman projects that the County will finish 2009 with $111.4 million less in revenue and $99.9 million less in expenditures than budgeted. These projections are part of the Comptroller’s annual review of the County’s fiscal condition at mid-year, a report mandated by the Nassau County Charter.
-Sales tax-the great unknown
Sales tax remains the number one wild card in projecting 2009 results. Weitzman’s report anticipates that sales tax will drop 6% below 2008 receipts, or a projected $93.5 million under budget. The newly adopted sales tax on residential energy will reduce this shortfall to a projected $75.5 million under budget by year end.
"Sales tax is difficult to project and there is a potential for an additional decline in receipts given the national recession and the drop in the housing market and retail sales in general,” Weitzman said. The County could sustain as much as a 10% drop in sales tax by drawing on prior years’ surplus.
Closing the budget gap
To close the gap, the County has used $42 million in federal stimulus aid to the Medicaid program and negotiated $42.9 million in savings with its labor unions including a lag payroll and deferral of pay increases.
"The cooperation of the County’s labor unions in achieving the necessary savings in payroll and fringe expense was certainly a key to the achievements so far,” Weitzman commented.
The gap closing measures were dependent on State authorization for the County to borrow to pay termination and retirement incentive costs. Bonding normal budgeted levels of termination pay will save the County $38.4 million in 2009. Although the administration and the County Legislature have not yet resolved the details of what will be bonded, the report assumes that all expenses related to 2009 termination and incentive retirement pay will be included for a total of $66.6 million. Weitzman recognized in the report that the bonding was justified only because of the impact of the unanticipated and extraordinary national fiscal crisis.
The Suozzi administration clamped down on hiring as a gap closing measure. By not filling 283 budgeted positions, the administration will save $13.4 million in 2009. In addition, salary and fringe spending will be further reduced because the number of employees decreased by 104 between January 1 and June 30, 2009. More headcount savings will be found through the administration’s agreement with the CSEA to offer a retirement incentive, which 336 employees accepted. The report adopts a conservative administration assumption that no more than 150 of those positions will be backfilled.
The Comptroller’s report commends the administration for its progress in reducing overtime expense within the Police and Corrections Departments from $64 million in 2008 to a projected $54.9 million in 2009, although at $54.9 million, overtime will still be $6.4 million over budget.
The County looked to the State for permission to install red light cameras, impose a cigarette tax and place a surcharge on traffic tickets. To date, the State has only approved the red light cameras, which the report projects will provide $4 million in net revenue through the end of the year.
"I join the administration in calling on our State legislators and Governor to continue to work with us to authorize these fees, which will help close our budget gap,” Weitzman said.
The gap closing has also included a projected $6 million reduction in discretionary health and human services spending. The administration and County Legislature had anticipated using new State authorized revenues to help fund some of these contracts.
"It is extremely unfortunate that the impact of the national recession and the State’s failure to provide authority to raise revenues may diminish the quality of life for many needy County residents who depend on County programs,” Weitzman added.
-Structural balance
"Between 2002 - 2009, the growth in recurring County expenses has been held to a compounded 2.36%, substantially below the growth in the consumer inflation rate in the same period of 3.1%. Despite all the steps the County has taken to control its expenditures, the County still does not generate enough recurring revenue to cover its recurring expenses,” Weitzman stated. After 5 years of no property tax increase, the County raised the property tax in all funds by a combined 3.9% in 2009 (excluding property taxes from new construction) and extended the sales tax to residential energy in 2009. Even with these additional revenues, the estimated compounded rate of growth in revenues from 2002 – 2009 is only 1.91%.
The structural gap – the difference between recurring revenues and recurring expenses – is currently projected at $146.9 million in 2009, largely because of the extraordinary use of federal stimulus money and bonding termination pay. Over the long term, these one-time revenues and expense reductions will not be available.
"Because our taxpayers are already overburdened and the County has had no new large developments adding to its property tax base and because sales tax has plummeted with the economic slowdown, the County must do even more to bring expenditures into line with revenues in the years ahead,” Weitzman added.
-Controlling health benefit costs
The 2009 budget saw savings because Comptroller Weitzman and County Executive Suozzi identified that the New York State Health Insurance Program (“NYSHIP”) had unnecessarily accumulated hundreds of millions of dollars from taxpayers through premium overcharges. NYSHIP used part of the funds to reduce the 2009 premium increase from an anticipated 6.6% to 1.5%. The reduction in premium increase generated a savings of $11 million in 2009 fringe benefits for the County and an estimated $116 million in savings for all local governments that participate in NYSHIP.
-Property tax refunds
A continuing County trouble spot is the expense of paying real estate tax refunds. The County has to pay the refunds on any overpayments of the $5.1 billion in 2008-09 in school, town and special district taxes, in addition to County tax. The administration had budgeted $50 million for this expense, and projects the expense will be greater than $50 million by year’s end. The administration plans to make up the shortfall using $27.7 million in previously borrowed funds and $65 million in borrowing authorization, so the budget will not be affected.
"While the administration is to be commended for continuing its transition to paying for real estate tax refunds out of the operating budget, continued use of borrowed funds to pay for a portion of this recurring expense is not sustainable,” Weitzman said.
CHART: Revenue and Obligations Forcast for 2009
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