At its June 30, 2016 meeting, the board of directors of the Nassau Interim Finance Authority unanimously approved a resolution that ordered county officials “to submit a supplemental gap-closing plan within 30 days that delineates the actions it is taking to ensure that the [budget] deficit does not exceed the $80 million GAAP deficit that was permitted by NIFA.”
This was a bold but necessary move because the Mangano administration has been employing, since NIFA declared a control period in January 2011, fiscal tricks to avoid achieving a truly GAAP balanced budget — whereby total tax and fee revenues match or exceed expenditures.
To wean the county off its addiction to issuing long-term debt to cover budgetary shortfalls (particularly after the sham, purportedly “cost-neutral deal” with the unions to lift the wage freeze that — as predicted — has added $70 million annually to county expenditures), NIFA required the county to limit its GAAP deficit to $80 million in fiscal year 2016.
Another proviso: If it is projected the operating deficit will exceed the $80 million deficit limit at the end of a given quarter, spending cuts are required to eliminate the variance.
Hours before the NIFA board was scheduled to meet on June 30, the deputy county executive for finance issued a rosy self-congratulatory letter alleging that “the initial risks NIFA estimated have proven to be less because of actions taken by the Administration to reduce many of the identified risks….”
The letter concluded, “the continued strong fiscal management by OMB will guarantee that the County’s fiscal results for 2016 will be within NIFA’s parameters.”
True to form, however, the county’s projections are once again delusional.
NIFA’s budget status report prepared by its analysts concluded that the 2016 budget “contains risks that, if not mitigated in the coming months, could lead to a deficit of approximately $122.2 million on a GAAP basis.”
And if the county manages to eliminate $19.2 million of NIFA-identified budgetary risks, the GAAP deficit would still come in at $103 million; $23 million over the permitted $80 million deficit.
Compare that depressing scenario with the county’s rosy projection that it will end fiscal year 2016 with a budgetary surplus of $3.6 million.
How can there be such a huge discrepancy between the county’s and NIFA’s numbers?
In addition to overly optimistic revenue and expense projections, the county includes $60 million in revenues from bond proceeds to pay tax certiorari refunds “and $40 million in bond premium proceeds to pay debt service, which will free up an equivalent amount to pay judgments and settlements.”
In other words, the county is borrowing to meet current expenses.
They are sticking present and future taxpayers with paying off bonded debt for the next 30 years to fund their fiscal follies. They are, inexplicably, continuing to attempt to count borrowed money as “revenue,” or as legitimate increases to “fund balance.”
That practice is analogous to one taking out a second mortgage to cover current food, insurance, utility and mortgage payments.
Instead of fixing the problem, one is left with more debt and protracted cash-flow problems.
Because the county refuses to come to grips with its structural GAAP deficit, NIFA’s staff had no alternative but to recommend “the County be ordered to provide its corrective action plan immediately….”
At the June 30 NIFA meeting, Chairman Adam Barsky rightly insisted “Nassau must cut expenses to get their GAAP deficit to $80 million.”
He also pointed out that using $40 million in bond premiums as “revenues” and paying NICE bus service $3 million from county reserves is “problematic because these moves simply increase the deficit.”
NIFA had no choice but to order a supplemental gap-closing plan.
But, Nassau officials have ignored NIFA resolutions in the past; and the county’s initial response to the order appears to be more of the same.
In fact, six years and counting into the control period, the county’s elected and appointed officials still can’t bring themselves to admit that the county’s budgets have incurred deficits.
Perhaps the debt-and-deficit-addicted county should avail itself of a fiscal 12-step program — with the first step being the admission of a problem: the existence of a massive deficit which requires a control period.
One can only hope that if the county defies NIFA, the control board uses its statutory powers — which includes getting a court order or removing from office, recalcitrant county officials — to enforce its resolution.
Stay tuned…
