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Michael Miller

Viewpoint

By Michael Miller
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Can It Happen Here? (Part I)

In December 1931, Nassau’s County attorney and county treasurer sat at a desk and called each of the 60 banks then in existence in this county. The county government needed some short-term loans totaling $1.6 million to meet some end-of-the-year obligations. One by one, every one of the banks turned them down. The county was able to get almost all the money from New York City banks, but a month later even that source dried up. Local governments at that time ran up much less long-term debt than they regularly do today, but they still relied on short-term borrowing against anticipated tax collections to get through the year. Credit was disappearing everywhere.

In February 1932, the county had no apparent means to meet its $525,000 monthly payroll or upcoming bond payments totaling $1 million in March and April. County leaders appealed to the state legislature, asking permission to temporarily divert taxes collected for the public schools to local government. Hundreds of school board trustees attended a mass meeting to protest the maneuver. County officials announced that without this or some other way to generate funds fast, the county could default on its tax notes and virtually all county departments would close on March 1. Prisoners in the county jail would be released and whatever payments the county absolutely had to make would be issued in scrip.

The county specifically blamed one weak link in the tax chain for its problems. Long Beach, that City by the Sea, had fallen into a financial hole in 1926 and never dug itself out. The city had collected $600,000 in property taxes on behalf of the county and state, but misused the money to pay for its own expenses. Now the county was trying to collect. Lawsuits, countersuits and even some indictments were flying. The mayor of Long Beach blamed the property tax assessment system, which he said was “antiquated and detrimental to homeowners, placing a false value on property” and making it hard to secure mortgage money to pay back taxes. Things were getting so bad in Long Beach that the city was unable to repair its deteriorating boardwalk along the ocean and offered to hand the whole thing over to Nassau County. Showing incredible short-sightedness, the county legislature wouldn’t even consider it.

Long story short, Nassau County was able to borrow its money (they paid very high interest rates) and local governments used what tools they had to get through the credit crunch of 1932. They played games with property assessments, particularly in Oyster Bay, which doubled and tripled assessments on some mansions and farms. Five Roosevelts alone filed protests against the assessments Oyster Bay town slapped on their estates for 1933.

Mostly, in the long term, our local governments built their way into profit. Building fees provided more than enough revenue for a long time. By the fall of 1937, Oyster Bay town government found that it had a large surplus and didn’t need to charge property taxes for 1938. In fact, from 1945 to 1957 there was no town tax in Oyster Bay. From 1940 through 1962, there was no town tax in Hempstead. The music ended in most communities by 1959, but a few years later we still had a couple of school districts in this county that actually reduced their tax rates while they were still building schools. That’s how fast entire neighborhoods were going up, how fast farms and open lots were being sold for $4,000 or $5,000 an acre and being converted into $160,000 an acre of houses.

Today there is another financial crisis, and some very smart people believe that “the worst is behind us.” I hope so. I don’t think so. There are ominous signs that things may get rougher, and Long Islanders were already facing multiple freight trains bearing down on us before anyone heard of credit default swaps. Choices are dwindling. Stagnant revenues and high energy prices are going to force changes. We can try to control the trains and influence their course, or not.

Michael Miller is a freelance writer, designer and strategic consultant who has worked in state and local government. He lives in New Hyde Park.

Michael Miller is a freelance writer, designer and strategic consultant who has worked in state and local government. Email: millercolumn@optimum.net