If Hempstead Town Board members are correct, they should be in line for a Nobel Prize for municipal finance for their groundbreaking theory of “less savings” in government budgets.
This is the theory that municipalities can reduce spending by adding a line to the budget for estimated savings resulting from employees retiring, which may or may not be achieved.
George Marlin, an investment banker specializing in municipal finances who served as a director of the Nassau Interim Finance Authority, said in a recent Blank Slate Media column that the theory “cannot be found in the annals of municipal finance.”
But there are two problems with handing out an award to the Hempstead council members. There is no Nobel Prize for municipal finance. And the theory of “less savings” does not work.
How do we know?
Hempstead officials employed the “less savings” theory in the 2017 budget and the result was an $8 million budget deficit.
Making matters worse, the Hempstead board borrowed the $8 million – a financial no-no shunned virtually every place in the universe except Nassau County.
This did not stop Hempstead’s six council members from recently rejecting Town Supervisor Laura Gillen’s sensible, gimmick-free spending plan and approving a $432.5 million budget that offered a 3.5 percent election-year tax cut based on $8.5 million in “less savings.”
Gillen, it is worth noting, became the first Democrat elected supervisor in the Town of Hempstead in more than 100 years, based in no small part on her predecessor’s participation in such financial schemes.
Town Comptroller Kevin Conroy defended the practice in October, noting that when employees retire their salary payments end.
But as Hempstead Town Director of Finance Averil Smith explained, the savings are only achieved if the retiring employees do not require replacements or their successors earn significantly less, and even then separation pay is a factor.
“It would basically need to occur in a vacuum to work,” Smith said.
Village of East Williston Mayor David Tanner, who serves on the New York State Conference of Mayors and Municipal Officials’ Finance Policy Committee and works in municipal finance, said that he has not looked at the town’s budget. But he was one of the few non-Town of Hempstead officials to say “less savings” doesn’t sound farfetched.
But he had concerns.
“As a concept in itself it’s reasonable,” Tanner said. “All budgets have projections of savings or where numbers are and could be. As long as those assumptions are reasonable,” Tanner said.
In the Town of Hempstead?
The six council members who voted on the budget – five Republicans and one Democrat who often votes with the Republicans – assumed that 113 employees will retire in 2019, that none of the vacancies will be back-filled and employee separation costs will average about $30,000 per employee for a total of about $3 million.
But, that $30,000 figure, which was the average payout in 2015, is understated, Marlin said. 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.
In their defense, the town council members said that if “less savings” is not achieved in 2019, they will not borrow to cover the deficit. Instead, they will drain the town’s reserves.
This, of course, ignores the purpose of reserves, better known as rainy day funds, which is to help municipalities weather a severe economic downturn.
“To tap into reserve funds during an economic boom is a grievous violation of a key commandment of municipal finance,” Marlin said. “Draining reserves in good times could lead the municipality to the edge of the fiscal abyss in lean times.”
So why use “less savings?”
Town Councilman Bruce Blakeman appeared to let the cat out of the bag in an interview with Newsday.
“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.”
This seems to be in keeping with the Hempstead board’s routine practice of placing political and personal financial gain above the average taxpayer.
During his final meeting as town supervisor after he was defeated by Gillen, Anthony Santino and his board supporters approved sweeping changes to the town’s union labor contract whose apparent aim was to tie Gillen’s hands and protect employees hired under Republican administrations.
Included was a provision that barred town union employees from being terminated for budgetary reasons — only for misconduct or incompetence.
The board also voted to grant appointments, promotions, transfers and raises to more than 161 employees. Care to guess the criteria?
Included was the transfer of Mike Deery, the town spokesman under Santino, to the office of receiver of taxes, where he continues to receive his $205,000-a-year salary as the “confidential assistant to the receiver of taxes.”
Asked by Newsday who last had the job of “confidential assistant to the receiver of taxes,” the town did not reply.
Don’t count on Deery being among those counted on under the “less savings.”