Just days after Meredith Whitney, a respected financial analyst, predicted on 60 Minutes that there would be 50 to 100 defaults on municipal bonds in the coming year, a state oversight board announced that Nassau County has failed to close its budget deficit. This means that the Nassau County Interim Finance Authority could take control of the county’s finances before the end of the year.
If that happens NIFA would have the authority to demand that the county produce a balanced financial plan and would have the power to approve contracts, borrowing and spending. The authority was created 10 years ago when the county was rescued by a $100 million bailout from the state.
No such bailout is likely to happen in 2011. The state is on the brink of its own financial disaster and unlike municipalities, the state cannot declare bankruptcy. Governor-elect Cuomo is inheriting a financial mess and it’s not likely that he’ll find any money to help one of the richest counties in the nation.
The chairman of this obscure authority, Ronald Stack, said he has no interest in running the county. He told Reuters, “Our role as an oversight is just to look at the numbers, and not to try to discern the reasons why or why not.” The budget, he said, is “just not balanced.”
Nassau County will have to get its house in order and it will have to do so quickly.
Nassau County Executive Edward Mangano disagrees with the assessment. He threatened to take the authority to court if it tries to impose controls. In a statement, his office said, “Because of strong management practices, the 2010 budget will end with a surplus. Throughout 2011, we will manage our finances and ensure the fiscal year ends in balance.”
Other analysts say Whitney is exaggerating the dangers that the municipalities like Nassau County are facing. But no one doubts that if the public loses faith in municipal bonds places like Nassau County will face very hard times. Raising taxes is not an option. Nassau County already has the second highest property taxes in the nation. At the same time the county’s deficit is approaching $350 million, according to NIFA.
Without wanting to sound like the Tea Party, it appears clear that Nassau County will have to find ways to dramatically reduce spending or risk the imminent takeover by NIFA. If the unions want to retain jobs and avoid layoffs, they will have to work with Mangano to find ways to cut labor costs, including pension benefits.
The predictions of Whitney are frightening. So is the prospect of allowing an authority to run the county’s finances.
Mangano was elected on his promise to get the county’s finances in order.
He has moved in the right direction, but he has a long way to go in a very short time.
Editorial
Blank Slate Media
