From the Right, All Things Political : Gov. Hochul: Please fix NIFA

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From the Right, All Things Political : Gov. Hochul: Please fix NIFA

Dear Governor Hochul,

Nassau County is once again at an administrative and financial crossroads, finding its finances improving and in a position to lead to financial self-determination on the one hand, and facing what may be a new administration with the potential to derail that progress on the other hand.

As former directors of the Nassau Interim Finance Authority, we are very concerned about the future financial stability of Nassau County and, therefore, urge you to focus on the composition of the membership of the NIFA board before recent progress is derailed.

While we belong to different political parties, (Haber is a Democrat and Marlin is a Conservative) we have come together in a bipartisan spirit to apprise you of the gravity of the situation.

Before getting to the crux of our concerns, here’s the historical background:

For most of the 20th century, the Republican political machine controlled the levers of Nassau County’s government. And after decades of mismanagement, cronyism, and corruption, the County government, led by Republican County Executive Tom Gulotta and Republican Bruce Blakeman, presiding officer of the county Legislature, became financially insolvent in 1999 and was facing bankruptcy.

In a nutshell: the county had to be saved because it was teetering on the edge of a fiscal precipice.

To help restore the county’s fiscal health, the newly-elected Nassau County Legislature (Blakeman and others were defeated for re-election, resulting in a Democratic majority) unanimously approved in 2000, a home-rule message requesting Albany to create a state oversight panel with the power to guide the County’s budget policies.

Responding to this request, then-state Assemblyman Tom DiNapoli, (D-Great Neck), and then-state Sen. Dean Skelos, (R-Rockville Centre) crafted NIFA legislation that was intended to fix Nassau’s financial mess and to protect taxpayers from future irresponsible political behavior.

The state Legislature adopted the act to fulfill its constitutional duty “to restrict the power of taxation, assessment, borrowing money, contracting indebtedness and loaning the credit of municipalities so as to prevent abuses in taxation and assessments and in the contracting and loaning of credit by the County.”

This bipartisan bill was signed into law by Republican Gov. George Pataki on June 23, 2000.

Modeled on New York City’s Emergency Financial Control Board and the Municipal Assistance Corp., NIFA is an independent public authority that has had budgetary oversight responsibilities and the power to provide the County with budgetary relief, to transmit state assistance grants and to issue NIFA bonds.

The authority’s governing body consists of seven members who serve without compensation. Four are appointed solely by the governor, and one each by the governor upon the recommendation of the Senate majority leader, the Assembly speaker, and the state Comptroller.

By asking for an independent public authority possessing budgetary oversight powers, the Nassau legislators conceded that they could not trust themselves to manage the county’s finances responsibly. They were correct.

Portions of the NIFA Act did reward elected officials for failure by providing various financial benefits including $100 million in state funds. (Lest we forget during the 1975 fiscal crisis, New York City did not receive one dollar from the state.)

To give elected officials time to reform the tax certiorari mess and to achieve a structurally balanced budget, the NIFA Act also permitted the county to borrow, and count as “operating revenues” (since borrowing is never otherwise considered or to be considered revenue), money to pay down accumulated Tax Certs refunds.

Tax Cert borrowing, which totaled $947 million between 2000 and 2007, and accounted for 45 percent of total bonded debt issued during that period, was in effect a backdoor tax increase to be incurred when the bonds are paid.

Taxpayers, their children, and their grandchildren were then and now stuck paying the bill for the County’s fiscal operating shenanigans.

In 2001, angry voters overwhelmingly rejected the GOP at the polls. Tom Suozzi was elected county executive (the second Democrat to hold the post in 80 years), and his party maintained the control of the County Legislature which they had won in 1999.

Suozzi had the good sense to work with NIFA, and, as E.J. McMahon of the Manhattan Institute noted in City Journal, he “stabilized County finances for a time by raising taxes and restraining spending.”

In 2010, when Republican Ed Mangano took over the reins of Nassau County’s government, and Republicans regained their majority in the county Legislature, GOP pols quickly reverted to bad fiscal behavior.

Tax Cert reform did not materialize; the county failed to pay refunds out of operating revenues. The backlog of unpaid Tax Certs began to grow and continue to grow.

Tax Cert borrowing, which reached a low of $12 million in 2007, grew significantly: $58 million in 2008, $64 million in 2009, and $42 million in 2010.

The report of the Assessment Reform Team, created by County Executive Mangano, with much hoopla, turned yellow in a bureaucrat’s bottom desk drawer.

Ed Mangano proved time and again that he was ignorant of Generally Accepted Accounting Principles that apply to the management of operating budgets.

He foolishly thought the county could issue long-term debt (which is not revenue) to balance operating budgets (which requires revenues to equal or exceed expenses)—forever.

“The more [Mangano] did, the more he showed people he doesn’t have a grip,” E.J. McMahon told Bloomberg Business Week in 2011.

Mangano rejected NIFA’s warnings that he was running statutory operating deficits.

Instead, Mangano argued that NIFA was the problem, not his fiscal stewardship.

“The deficit,” he said, “is in their minds, not in reality.” Mangano believed NIFA was making a power grab intended to discredit him.

Reacting to Mangano’s fiscal follies, on January 26, 2011, NIFA directors voted unanimously to declare a control period on a projected deficit for fiscal year 2011 of $176 million.

As NIFA Chairman Ronald Stack said at the time, “the deficit is real, the deficit is substantial and the deficit is in accordance with GAAP as it must be according to state law.”

Stack added, “it is not a NIFA deficit. It is not a paper deficit. It is a statutory deficit which comes largely from trying to borrow money and counting it as revenue. That is contrary to GAAP. That is contrary to common sense.

If you take a home equity loan of $10,000, you do not look at your family’s budget and say, we made $10,000 more this year. You made what you made and you borrowed more. Borrowed money is not revenue and to claim it as such is simply nonsensical.”

The county sued NIFA claiming, among other things, that:

NIFA acted arbitrarily and capriciously;NIFA’s imposition of a control period was unconstitutional.

The New York Supreme Court ruled on March 11, 2011, that the County “failed to meet their heavy burden of showing the unconstitutionality of the control period statute… beyond a reasonable doubt.”

The Court found “no merit to petitioners’ claim that NIFA should not be able to utilize a projected budget gap in determining … that there is a substantial likelihood and imminence of the occurrences that the County shall have incurred a major operating funds deficit of one percent or more in the aggregate results of operations of such funding during its fiscal year.”

The Court concluded that “the determination that there existed a substantial likelihood and imminence of the county incurring a major operating funds deficit of one percent … reported in accordance with GAAP does not appear to be arbitrary and capricious.”

Based on these findings, the court denied the County’s motion for a preliminary injunction.

NIFA’s control period remained in effect throughout Mangano’s eight years in office. In his second term, Ed Mangano was indicted by the U.S. Attorney for various crimes. He was convicted in March 2019 and awaits sentencing in Federal court.

After Mangano was found guilty, Eastern District U.S. Attorney Richard Donoghue rightfully concluded: “Ed Mangano abused his power as a public official by taking bribes and kickbacks from a businessman in exchange for helping him obtain loans worth millions of taxpayer dollars.”

Mangano’s top deputy, former GOP state Assemblyman Rob Walker, was also indicted and pleaded guilty to taking bribes. He is to be sentenced by a federal judge this month.

Oddly, while Republican Mangano was committing crimes and fighting NIFA, he had a Democratic supporter in Albany — Gov. Andrew Cuomo. Their bond was their distaste for a common foe: former County Executive Tom Suozzi, who was attempting a comeback in 2013.

Hoping to exact revenge on Suozzi in 2013, and also to carry Nassau County by a large margin in his quest for a second term in 2014, Cuomo surreptitiously aided Mangano — who subsequently endorsed him for re-election.

Cuomo helped Mangano in September 2013 by removing NIFA Chairman Ron Stack, a renowned municipal finance expert, and by appointing sympathetic NIFA board directors. In doing so, he actually approved Mangano’s recommendations for the NIFA board.

Fortunately, Mangano’s successor, Laura Curran, like Tom Suozzi, worked with NIFA to solve the County’s fiscal woes.

During her four years in office, Nassau’s operating deficits, based on GAAP, not only declined—the County incurred operating surpluses for the first time in years.

In 2019, the GAAP operating surplus was $76.8 million and in 2020 it was $102.9 million. A 2021 surplus is likely, as well, given strong sales tax receipts and the receipt of substantial Federal pandemic relief aid.

And it is possible NIFA will be able to lift the 10-year-old control period provided that the cert claim backlog and concerns about the Nassau University Medical Center debt (for which the County could be contingently liable) are resolved.

However, the fiscal progress made during the Curran years could now be in jeopardy.

Republican Bruce Blakeman, the presumptive county executive-elect, was justly described by the Newsday editorial board as “not prepared to take on the challenge of leading Nassau County.”

Remember, Blakeman was a key member of the GOP machine that brought down the county in the 1990s. And if history is a guide, the Blakeman administration could be Gulotta/Mangano redux.

Governor, you have an opportunity to prevent another fiscal meltdown in Nassau County by revitalizing the NIFA Board of Directors.

Presently, the terms of all of the four gubernatorial appointees on the NIFA board have expired, and one of those seats is already vacant.

We urge you to take this opportunity to appoint truly capable people to NIFA who are above the fray and not susceptible to pressure from local politicians or lobbyists.

We also urge Assembly Speaker Heastie to move with due dispatch to recommend a member of NIFA to replace the late Howard Weitzman, who recently passed away.

Your predecessor didn’t care for public authorities and seemed to like having holdovers in place so that he could make changes at will. We hope you don’t share his views of public authorities, but we also hope that you do recognize the hidden gift his negligence has given you: you could, in one move, appoint a majority of the NIFA board.

We believe that you should, and urge you to do so, and to do so with members who are fiscally savvy and focused on the mission of serving on NIFA with a view toward actually putting NIFA out of the business of having to control the county’s budget.

If you do act, you will do a great service to the county and its taxpayers and voters: if you don’t, the County could be set back in ways that may require even many more years of recovery. We believe that the picture and the choice are clear. Please act.

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