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Injunction Denied – Supreme Court Allows NIFA ‘Control Period’

Mangano Responds With Major Budget Cuts for Nassau

“I can’t get no satisfaction from the judge,” sang Chuck Berry in a lyric that may well articulate emotions around Nassau headquarters this week after an injunction County Executive Edward P. Mangano was seeking against NIFA’s takeover was denied in New York State Supreme Court and plans for major budget cuts began in order to fill what NIFA views as a deficit.

State Supreme Court Justice Arthur M. Diamond issued a 30-page decision dated March 11, 2011 in favor of the Nassau Interim Finance Authority (NIFA), dismissing Nassau’s efforts to prove that the control period enacted on Jan. 26 of this year was unconstitutional.

“…only as a last resort will courts strike down legislative enactments on the ground of unconstitutionality,” Justice Diamond cited in his decision, explaining that the county had to meet “the burden of showing beyond a reasonable doubt that the control period… is unconstitutional.” He went on to explain which provision in the New York State constitution allowed for the statute empowering NIFA’s takeover.

Diamond then dismissed the county’s objection to the control period related to a claim that NIFA’s authority had in fact ended in 2008. He addressed the issue, explaining that in 2000, New York State created NIFA through a legislative act that authorized the agency to issue new debt on behalf of the county to help restore its financial standing, and in the process to also oversee an “Interim Finance Period” that involved strict reporting. That period was scheduled to end in 2004, he wrote, but was extended by the state, over then-County Executive Thomas R. Suozzi’s objections, into 2007 and then 2008.

While the Interim Finance Period is over, Diamond explained that NIFA’s authority over the county holds as long as debt it issued on behalf of Nassau is still outstanding. This could be “January 1, 2030 or… the date when all bonds of the authority are refunded, discharged, or otherwise defeased,” he wrote.         

So, the justice continued, “The parties all agree that the interim finance period expired in 2008… [but] ....NIFA’s authority to declare a control period… continued while the bonds remain outstanding.”

Awaiting The Next Decision

One aspect of the county’s legal arguments that Justice Diamond has not dismissed, and regarding which he will issue a second decision, relates to what Nassau has called the “arbitrary and capricious” way that NIFA imposed a control period this year for problems that it allowed in past budgets, namely, the county has complained, those submitted by a Democratic administration.

County leaders argue that NIFA surprised them with a change in the accounting it allowed this year. Previously, the agency allowed for certain borrowing and other funds to be counted as revenue in the budget, and the county argues that by forbidding that revenue now, NIFA has unfairly created the illusion of a deficit.

However, the justice did include in his decision this week that NIFA was clearly already moving away from allowing these accounting practices, especially counting money borrowed to refund tax grievances as revenue. Diamond wrote that in a 2009 report, “NIFA commented ‘the county’s actions are troubling because the [accounting method in question] masks as imbalance that many would characterize as a deficit and also exacerbates the budgetary gaps that must be resolved in future years.’”

Diamond went on to write that NIFA expressly told the county to “phase out” counting borrowed money as revenue in the budget, saying that “…while efforts had been made from 2006 to 2010 [to change this practice] the 2011 budget reverted to 100 percent borrowing for tax certiorari obligations which was being treated as operating revenue, in direct contravention of not only the historic path away from that but more importantly, NIFA’s goals.” He added that, “NIFA stated that the county was returning to practices that precipitated the enactment of the NIFA act,” and that NIFA considered the budgetary risk for 2011 to be twice that of 2009.

Justice Diamond directed both the county and NIFA to submit arguments regarding the “arbitrary and capricious” issue ahead of his next decision. In the meantime, Mangano has said he believes that NIFA is pushing him to raise taxes in order to fill what its members have called a deficit. However, he “refuses to increase property taxes” and he said he will effect “major budget cuts for 2011 that protect taxpayers from a 21.5 percent property tax increase” that would otherwise be necessary.   

$121 Million in Budget Cuts     

On Wednesday, March 16, the county executive proceeded to detail over $121.2 million in budget cuts that include $60.5 million in employee-related spending reductions, $40 million in across the board budget cuts and $20 million in lower tax refund liability. He also called on NIFA to impose a wage freeze to stop automatic union pay increases coming in April.

“Since the last thing Nassau families need in these tough economic times is a double-digit property tax increase, I will submit a revised financial plan next week that cuts county spending by over $121 million,” said Mangano. “These cuts will affect every area of the county and the services we provide. That’s unfortunate, yet necessary in the face of NIFA’s decision to change accounting practices and create a paper deficit.”

 The $121.2 million in budget cuts announced by the county executive were said to include:

• $60.5 million in employee-related spending reductions, including: $50.5 million in savings from layoffs and the elimination of vacant positions; and $10 million in savings by calling on NIFA to freeze employee wages.

• $40 million in across the board budget cuts, including:  $15 million from the reduction of contractual expenses; $15 million from the restructuring of the police department; $5 million from ending the county’s relationship with the MTA to run Long Island Bus service; and $4.5 million from the privatization of inmate healthcare.

• $20 million in lower tax refund liability than projected by NIFA.