How a large suburban county drained its rainy day fund

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Long Island’s Nassau County, under the oversight of a financial control board since the start of the century, began the fiscal year with a new hole in its defenses against any unforeseen emergency.

New York State’s sixth most populous county finished the 2017 fiscal year with a negative $68.8 million rainy day fund, according to a new comprehensive annual report released in early July. The fund plummeted from positive $46.8 million at the close of 2016. The unassigned fund balance is the lowest since 2011, when it hit negative $135 million, according to Rob Weber, an analyst at Moody's Investors Service.

“Nassau County is in a fiscal crisis bordering on a fiscal emergency,” said new Nassau County Comptroller Jack Schnirman, who authored the report. “Our ability to borrow money or cover an unexpected, catastrophic event is severely limited.”

Schnirman, who took over as comptroller in January, said the plunge was driven largely by the county failing to borrow $60 million last year for owed property tax settlements. Nassau, which is located just outside New York City, also was forced to set aside $43 million to fund legal judgments for two men exonerated from a 1984 rape conviction.

The report also showed that Nassau finished 2017 with a $122 million deficit, making the budget process for new Democratic County Executive Laura Curran that much more challenging. Schnirman said the county entered the year with more than $500 million of outstanding tax certiorari liabilities and nearly $400 million of owed litigation payments. He stressed that the county also owes more than $200 million for payments to the New York State Pension System.

“The comptroller’s report once again illustrates that the prior administration drained the county’s cash and spent more in 2017 than they did in 2016 without a source of funding,” said Curran, who assumed office in January following former Republican county executive Ed Mangano's eight years in office. “The outstanding tax certiorari payment debt continues to be the No. 1 fiscal challenge for Nassau County.”

An April Moody’s report found that Nassau’s reserves were drawn down an estimated $43.2 million last year as a higher-than-expected fund balance prompted county officials to use the monies for tax certiorari liabilities instead of issuing debt. The suburban county, whose population was 1.3 million in the 2010 U.S. census, has bond ratings of A2 from Moody’s and A-plus from S&P Global Ratings. Both rating agencies have stable outlooks on Nassau’s general obligation debt.

Across the U.S. there were 12 other counties with negative unassigned fund balances, including neighboring Suffolk County, the only other New York county on the list, Weber said.

Larry Levy, executive dean of the National Center for Suburban Studies at Hofstra University, said Nassau’s fiscal woes stem from decades of mismanagement from both Republican and Democratic administrations. He said the new county executive has few easy solutions, since raising existing taxes or imposing new ones would be met with opposition from the Republican-controlled legislature as would cuts to spending on popular programs.

“There are a few obvious or easy for school gimmicks left to try,” said Levy. “Even Curran’s own party is unlikely to support major cuts or tax hikes, but that's what it is going to take to balance the budget over the long haul.”

The Nassau Interim Finance Authority, a New York State fiscal control board, rejected a $2.99 billion 2018 fiscal year budget last December because of uncertain revenue assumptions and Curran submitted a revised spending plan on March 15. She later advocated for state legislation that would allow NIFA to borrow $400 million more to pay commercial property tax refunds, but Nassau Republicans thwarted the measure before it reached Albany.

“NIFA was created to access credit markets at better rates, and the county’s legislative majority neglected this assistance,” said Curran. “This was shortsighted.”

Nassau County received some help from Albany when New York Gov. Andrew Cuomo signed a bill on July 10 that enables it to use a “Disputed Assessment Fund” for commercial tax refunds. Curran said the legislation would enable the county to combat a backlog of grieved assessments without resorting to taking on more debt.

“The normal course of business in Nassau County has been to borrow for that money, and we won’t have to do that for future commercial certs,” said Curran. “This is a tremendous victory for Nassau County.”

Schnirman said “clearing the backlog of tax certiorari payments” is essential in order to restore Nassau’s fiscal health. He also stressed that the county is also hindered by a broken assessment system, years of deferred costs and “severely outdated” financial software. He hopes a newly revitalized Independent Audit Advisory Committee comprised of local residents with deep financial backgrounds will yield recommendations that can steer the county on the right fiscal course.

“They need a plan to improve the structure of the county,” said Schnirman, who previously held a city manager post in Long Beach, N.Y. “We’re dealing with an antiquated system that is archaic.”

Nassau has been under the oversight of NIFA dating back to 2000 when the county was in the midst of a funding crisis that nearly led to insolvency. NIFA original chairman, former chairman and CEO of Nasdaq Frank Zarb, was tapped by Curran in May to chair a new Fiscal Planning Advisory Panel that will form recommendations to combat the county’s repeated pattern of facing past deficits. The task force, which is slated to release its first report this summer, also features former state Senator Charles Fuschillo; former New York City First Deputy Mayor Marc Shaw; Elizabeth McCaul, a former Goldman Sachs investment banker and previous superintendent of banks for New York State; and Nassau County Deputy County Executive for Finance Mark Page.

“From some of the highest salaries in the nation to a habit of borrowing to pay what others might believe should be covered by operating expenses, Nassau — one of the richest large counties in America — has been in structural deficit for decades,” Levy said. “In the end the ultimate adult supervision may be pressure from the fiscal control board and from public markets.”

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Budgets County of Nassau, NY Nassau County Interim Finance Authority New York