On Tuesday evening, Oct. 30, I attended the Town of Hempstead Budget Hearing to see the democratic process in action.
Frankly, I was appalled by what I witnessed. The Republican legislative majority acted like intemperate children, angry not because their hands were in the cookie jar, but because adults dared to call them on it.
Before I proceed, readers should know a little about my professional background.
I have been an investment banker for 41 years. The first 15 years specializing in municipal finance.
I have authored or edited 13 books including, “The Guidebook to Municipal Bonds.” My co-author, Joe Mysak, and I received an industry award for that work in 1991.
For the past 20 years, I have been chairman of a depository bank and trust company that manages assets of individuals, institutions and municipalities.
I have also had the privilege of serving two terms as Executive Director of the Port Authority of New York and New Jersy (1995-1997) and one term as a director of the Nassau Interim Finance Authority (2010-2014).
At the Port Authority, I cut the bloated operating budget for the first time since the 1940s, eliminated over 1,500 jobs while improving services, and did not increase tolls.
When I departed, then-Gov. Pataki said: “All New Yorkers owe Director Marlin a debt of gratitude for taking on this difficult job at a time when great changes were needed at the P.A. His professionalism, foresight and courage will be hard to replace.”
I would also be remiss if I did not disclose that in 1998, the political consulting firm, McLaughlin & Associates, brought me in to prep the Republican candidate for state comptroller on state finances and pension asset management.
That candidate’s name was Bruce Blakeman, presently a Hempstead board member.
With that background, I believe I am qualified to comment on the Hempstead budget process.
For several years, Hempstead Republicans have used the unusual term “Less: Savings” throughout their line item budgets. This practice, which appears to be a guesstimate of unspecified savings that may or may not be achieved, is a unique one that cannot be found in the annals of municipal finance.
The most transparent definition of “Less: Savings” was articulated to Newsday by Councilman Blakeman, who has supported this budgetary scheme in the past. “Less Savings,” he said, “is a way to pad money and hide money by removing it so there’s a surplus next year so whoever is running can say they’ll save taxes.”
That’s a perfect description of a fiscal shell game.
And Republicans who embraced “Less: Savings” in previous budgets are now appalled because Supervisor Gillen exposed this gimmick and refused to employ it in her proposed budget.
However, Republicans — who want their cake and to eat it — reinstated “Less: Savings” in the amended budget they approved; and, here’s the kicker – they also approved a tax cut that would be funded by the dubious savings.
The history of “Less: Savings” has not been stellar. When not achieved in 2017, Supervisor Gillen pointed out, the Republicans employed the worst possible remedy to fund the resulting budget deficit: they borrowed long term, about $8 million.
To cover themselves when questioned, the Republicans announced Oct. 30 that if “Less: Savings” is not achieved in 2019, they will not borrow; instead they will drain the town’s reserves.
Hmmmm.
The purpose of reserves (a/k/a “rainy day funds”) is to help municipalities weather a severe economic downturn (i.e., 2008 Great Recession).
To tap into reserve funds during an economic boom is a grievous violation of a key commandment of municipal finance. Draining reserves in good times could lead the municipality to the edge of the fiscal abyss in lean times.
The key to the GOP’s “Less: Savings” budget is the assumption that 113 employees will retire in 2019, that none of the vacancies will be back-filled and employee separation costs (i.e., accrued vacation pay) will average about $30,000 per employee for a total of about $3 million — which is allegedly baked into the budget, although no one can point to exactly where.
But, that $30,000 figure, which was the average payout in 2015, is understated. In 2016, 2017, and 2018, the average payout was closer to $50,000 per employee. That translates to an additional $2 million not included in the budget.
If the past is a prologue, the odds are the “Less: Savings” scheme will backfire on the Republicans — forcing them not only to drain reserves but possibly to increase taxes.
Longtime NIFA member, Chris Wright, C.P.A., best described the GOP’s antics: “I think that the Town Board missed an opportunity to take a good, thorough and balanced budget as proposed by the supervisor, and to amend it and make it a very good budget… But in the end, [Republicans] chose to play for the Team, rather than the Town.”
Taxpayers take note.
