State watchdog takes over NY county's finances

A state financial watchdog has voted to take control of the finances of a wealthy suburban New York county struggling to close a budget deficit.

A state financial watchdog has voted to take control of the finances of a wealthy suburban New York county struggling to close a budget deficit.

The Nassau Interim Finance Authority decision halts Nassau County's short-term borrowing for operating expenses.

It could eventually lead to a wage freeze for thousands of county employees. A freeze was not immediately imposed, however.

County officials were prepared to fight the authority's decision in court. County Executive Edward Mangano had lobbied hard to prevent the takeover.

Nassau is hardly alone in dealing with the consequences of the Great Recession. A June 2010 survey by the National Association of Counties found 65 percent of responding counties reported between $100,000 and $50 million in budget shortfalls.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

GARDEN CITY, N.Y. (AP) — It's one of America's wealthiest counties. Crime rates are low, public schools are generally excellent, parks are well-kept. The average property tax bill last year was $11,500, nearly the highest in the country.

But wealth has not insulated Nassau County, just outside New York City, from financial troubles afflicting local governments across the country.

Nassau's struggles, which date back at least a decade, have taken on a new immediacy as officials fight to stave off a takeover by a state fiscal watchdog amid a dispute over the severity of the county's financial problems. With a takeover, county workers could face a wage freeze and short-term borrowing would stop.

"These are the real world consequences of the worst recession in 70 years, and the federal and state response to it," said Lawrence Levy, executive dean of the National Center for Suburban Studies at Hofstra University. "Unlike presidents and congressional leaders, mayors and county executives live with the consequences."

A June 2010 survey by the National Association of Counties found 65 percent of responding counties reported between $100,000 and $50 million in budget shortfalls. "Things are pretty dim," said Jacqueline Byers, association's director of research and outreach. "We're waiting with bated breath to see how much worse it gets in 2011."

The Nassau Interim Finance Authority, a state watchdog created in 2000 when Nassau first had fiscal difficulties requiring a $100 million state bailout after years of little or no tax hikes, is currently reviewing the county's $2.6 billion 2011 budget. The seven-member board is appointed by the governor, state comptroller and the two leaders of the state legislature.

If the authority decides the county risks operating at a 1 percent or higher deficit, it could step in and take over the county's finances. The agency meets Wednesday, although Edward Mangano, the county executive, is lobbying hard against a takeover. County legislators also have threatened legal action.

Mangano, a Republican who ran as a "tax revolt" candidate in 2009, maintains the current budget is balanced and says the authority is treating him differently than his predecessors.

He said he inherited a $133 million deficit when he took office, and kept a campaign promise to eliminate a $40 million home energy tax, but argues the county now has a $5 million surplus obtained through staff cuts and other savings. He complained that recent chatter over Nassau's finances led Moody's late last year to downgrade the county's credit rating, making it more expensive to borrow money.

"When you create doubt where none exists, it costs dollars," Mangano said.

The authority, however, has raised questions about the county's bookkeeping and has expressed concerns that labor concessions Mangano expects to negotiate may not be realized. George Marlin, an authority board member who ran for New York City mayor as a conservative in 1993, said if the watchdog does step in, it would work with Mangano to solve the budget problems.

"Nassau County for many years believed it could continue to spend at a rate that far outpaced the growth of revenues," Marlin said. "That resulted in major problems a decade ago. Unfortunately the politicians didn't learn; there are expensive union contracts. Ed Mangano has inherited a huge fiscal mess."

Nassau has had to contend with shortfalls in sales tax revenue, increases in employee health care and social services costs, police overtime and other issues.

But E.J. McMahon, a senior fellow at the Manhattan Institute and expert on New York state issues, also noted that for decades after World War II, as Long Island evolved into quintessential suburbia with a current population of 3 million, county politicians made spending decisions their successors have come to regret. The average police salary approaches six figures, and 400 retired county officers currently receive pensions of more than $100,000, he said.

Other counties are hurting, too.

In the past month, officials in Harris County, Texas, which includes Houston, began notifying 14 employees of layoffs in an effort to trim its $1.3 billion budget for the fiscal year that begins March 1. In Ohio's Cuyahoga County, including Cleveland, workers are facing a third straight year of being forced to take five unpaid days off to help balance the budget. In Boyd County, Ky., 17 county employees were laid off earlier this month.

In Nassau County, a takeover would open the possibility of a wage freeze for county workers, which could save $10 million annually. Mangano boasted an agreement this week with the Civil Service Employees Association, which represents 5,600 full-time county employees and nearly 1,400 part-timers and seasonal workers, creates substantially more yearly savings, and $70 million over five years.

"This contract represents real structural savings and real pay scale reform," he said.

Mangano also has tried to overhaul the county's convoluted tax assessment system. Nearly 65 percent of a county property owner's tax bill is dedicated to school taxes, although the county has no say over school district spending. Despite that, in an arrangement created decades ago, the county pays refunds to property owners who claim their school tax assessments are too high.

Nearly a decade ago, the county legislature voted to revamp the system, spurred in part by the threat of a lawsuit claiming it was racially discriminatory because homes increased in value much faster in white neighborhoods than in minority areas. That left minority homeowners paying a higher percentage of home value in taxes.

While changes were made, Hofstra's Levy and others note the county still owes tens of millions in refunds for overassessments. Brian Nevin, a senior adviser to Mangano, said the county has passed additional assessment reforms, but they don't kick in until 2013.

According to Levy, the system is so flawed that virtually every business or homeowner that challenges their assessment rate wins. That forces Nassau to borrow $100 million annually to refund homeowners.

The county portion of a homeowner's tax bill is only 16.4 percent of the total, but the Manhattan Institute's McMahon points out that is an average of over $1,800 a year.

"There are people in other parts of the country whose entire tax bills are not that much," he said.

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