"The decay of the buildings has been in many ways symbolic of the decay of the county," says Arthur Gianelli, deputy county executive, alluding to the fiscal situation left behind by Republican County Executive Thomas Gulotta, who had run the county from 1987 to 2002. While local governments throughout the country were enjoying the prosperity of the 1990s, Nassau's bond rating was lowered to near-junk levels and New York State Governor George Pataki put an oversight authority in place.
That was then. This is now. The county offices are clean, if still a bit dowdy, but more to the point, Suozzi, the first Democrat to be elected county executive in Nassau in 40 years, has taken enough of the tough steps to bring the county back from the brink. Working under the political cover--and tough love--of the Nassau Interim Finance Authority, he and the Democratic majority on the county legislature (another first in decades) hung together to stem the tide of red ink on the county's balance sheet and win a one-step upgrade from the credit rating agencies.
But looking ahead, it's clear that Nassau's financial problems are far from over. During the next year or two, Suozzi's team must deal with labor contract standoffs, diminishing sales tax receipts and increasing costs as the fiscally stressed state shifts financial burdens down to its counties. The budget shortfall by 2006 is projected to be $400 million. Add to that mix bitterly partisan politics and the road to solvency has quite a few bumps in it.
GETTING A GRIP
When Suozzi, the mayor of Glen Cove, challenged Republicans for the county executive post (Gulotta didn't run), his platform was the promise of solvency. If voters were willing to wait for results, NIFA wasn't. It had already given the county some $200 million in additional state aid, and refinanced millions of Nassau's debt, only to receive half-hearted attempts at a balanced-budget plan from Gulotta's team.Under the leadership of Frank Zarb, the former chairman of Nasdaq, NIFA demanded Suozzi come up with a four-year plan--one that would include dealing with the immediate $428 million budget shortfall--by April. With a Democratic majority of one in the legislature, Suozzi closed three-quarters of the prospective deficit with spending cuts--a workforce slash of 15 percent, for instance--and the rest of it with revenue increases.
Among the harder pills to swallow was hiking county property taxes 19.4 percent. That didn't mean county homeowners would have to pay tax bills that were nearly 20 percent higher than the year before, however. The county accounts for only a small fraction of the total property tax bill, most of which comes from school district taxes. Therefore, homeowners will see their property tax bills go up only 3.8 percent, on average. For county coffers, however, the increase is big: It puts $115 million a year in the till.
Equally touchy was the question of property reassessments. Prior to 2002, the last comprehensive property assessment was conducted during the Depression; the only time a home was reappraised was when it was sold. That meant neighbors were paying wildly different tax rates, which resulted in many homeowners and businesses contesting their tax bills every year--and winning. But more financially damaging than the settlements themselves is a state law that requires Nassau to pay the full amount of the refund, even though the county is responsible for only 20 percent of the original bill. To pay off these judgments, Nassau borrowed $1 billion in the capital markets.
Under Suozzi's multi-year plan, the county will complete the review of outstanding grievances in 2004, and at NIFA's insistence, will move to a pay-as-you-go refund system by 2006. The refund hemorrhage should abate in time as a countywide property assessment gets underway.
THE BUMPY ROAD
The credit rating agencies, taking note of these actions as well as others, have upgraded the county's rating one notch. But agency analysts are far from sanguine. "This is not a slam dunk by any means," says Howard Mischel, director of public finance for Standard & Poor's Corp. "There are still a number of things that we're watching."Among them is the November election for county legislature members. That's when the Republican machine, which reigned supreme in Nassau for decades, will try for a comeback. The machine broke down in 1999, when Democrats surprisingly gained their one-seat majority in the legislature. When Suozzi won in 2001, it was the first time since 1917 that Democrats were in control of both the executive and legislative branches.
Suozzi has relied on that alignment to push through his biggest initiatives, such as the tax increase; the Republican minority, led by Peter Schmitt, has largely opposed Suozzi's plan. Throughout the process, Republicans and Democrats have been hypercritical of each other, and as the election nears, the partisan sniping is likely to grow even louder.
The bitterness of the politics could derail the county's progress. In a recent letter to Suozzi, NIFA's Zarb expressed his concerns. The legislative election season, he wrote, "is not known to bring out the best display of political courage." Alluding to NIFA's power, Zarb added, "We have come too far to fail now and go back to the possibility of hard controls."
Beyond the politics, though, there remain very real pressures. New contracts with the county's unions are due to be negotiated. During the Gulotta administration, unions received generous wage and benefit increases; the average Nassau patrolman's salary, for instance, is $103,000, among the highest in the country.
Labor costs comprise 45 percent of the county's spending, and unions are clearly more sympathetic to the generous Republican regimes. Yet Suozzi has pegged much of the success of the county's four-year plan to securing $65 million in union concessions. Among other things, he's asking employees to contribute to health insurance premiums, and he wants to cut back on police night-differential pay, which begins at 11 a.m. "I've done my part. Citizens have done theirs," Suozzi says. "It's time for labor to do its part."
So far, not much progress has been made. The unions disagree with Suozzi's assessment of the situation. Les Eason, executive vice president of the local chapter of the county's largest union, the Civil Service Employee's Association, says CSEA has already been generous enough with past concessions, such as an 18-month wage freeze and staggered raises.
Another must-do item on Suozzi's agenda is attaining New York state legislative approval to create a county sewer and storm water authority that would consolidate 27 sewer collection districts, three sewer disposal districts and storm water operations. County officials estimate $25 million in savings if they can move 136 employees to the authority and refinance debt. So far, with Nassau Republicans opposed, the state legislature has refused to act on the measure.
And that's not all. "One of the biggest threats to the county's future, " according to Comptroller Howard Weitzman, is the Nassau Health Care Corp., which bought the county's hospital and nursing home in 1999 for $82 million in exchange for the county's backing of $256 million in bonds. The corporation has bled money since and is projecting a $12.8 million deficit this year. If the corporation goes under, Nassau County will be responsible for repaying the bonds.
The original agreement, which took place under Gulotta, was entered into to keep the county from insolvency. Suozzi hopes to find ways to restructure the deal.
If Nassau fails to secure savings from these areas for the 2004 budget, Suozzi says he'll have to move to Plan B: layoffs and cuts in the county's $25 million of discretionary spending on youth and senior programs. NIFA's Frank Zarb is more pessimistic. He warns that economic problems outside the county's control may require Suozzi to implement Plan B regardless.
Among those factors are unfunded mandates. It's one of the few areas where Nassau's Democrats and Republicans are of one mind. "We need to agree on a strategy to address the unfunded mandates," says Peter Schmitt, the legislative minority leader. "They're killing us."
In particular, Schmitt takes note of rising Medicaid costs, which have hit New York counties especially hard. New York requires its counties to pay half of its share--25 percent of the total cost--of the Medicaid program. Nassau's Medicaid bills are rising at a 13 percent clip annually.
He also points out that New York is looking to counties to recoup some of its pension fund losses. Nassau used to pay in 1.3 percent of payroll for standard employees and 2.9 percent for sworn officers; next year, those formulas will change to 11 percent and 15 percent, respectively.
All in all, Nassau faces enormous difficulties, but at least it's in the same boat as everyone else--no better but, finally, not that much worse.
