Federal court ruling in New York bolsters Nassau County's control board

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The powers of the state fiscal control board that has overseen Nassau County, New York, for seven years cleared a crucial hurdle with a recent federal court ruling.

U.S. District Judge Joanna Seybert upheld in an April 23 ruling a 2011 decision by the Nassau Interim Finance Authority to suspend raises for unionized county employees. The ruling, which upheld a state court decision, allows the suburban Long Island county of 1.3 million to avoid returning roughly $101 million in wages and benefit savings to the unions that challenged the freeze.

“Had the county lost the case, it would have faced substantial pressure regarding its cash position,” said Moody’s Investors Service analyst Robert Weber in a May 10 report that called the legal victory a credit positive. “NIFA's ability to implement a wage freeze is one of the most important powers the state-appointed fiscal oversight board has.”

Weber noted that the three-year freeze enabled the county to control its expenses, with savings helping to “significantly” improve the county’s cash position in 2012. He said NIFA provides “credit strength” to the county because it has kept finances in check through its ability to freeze wages as well as approving all debt issuances and reviewing budgets and large contracts. The federal court ruling is also credit positive, according to Weber, for the two other current New York fiscal oversight boards, the Buffalo Fiscal Stability Authority and Erie County Fiscal Stability Authority.

“The court decision will also benefit future boards by providing a model legislative framework that allows control boards to freeze wages that withstood constitutional challenge,” said Weber. “Other states and cities can look to the NIFA ruling and legislation that established NIFA as models for the establishment of oversight boards with meaningful power that will potentially withstand court challenges.”

Moody’s rates Nassau County A2, which is one notch below S&P Global Ratings’ A-plus rating. NIFA has controlled Nassau County’s finances since early 2011 after it failed to balance its budget.

NIFA rejected the county’s $2.99 billion 2018 fiscal year budget last December because of uncertain revenue assumptions. New County Executive Laura Curran submitted a revised spending plan on March 15 containing $54.7 million in new projected savings and revenue.

"The court's decision affirms our long-held belief that the actions taken by the board were valid," NIFA chairman Adam Barsky said in a statement. "This decision also preserves an important tool for NIFA as we continue to carry out our mission."

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