Friday, February 24, 2006

Nassau County's In The Black, But. . .

$78.3 Million Dollar Surplus for 2005 ~ Balanced Budget In 2006 ~ What Happens In 2007?

Nassau County achieved a budget surplus in 2005 of $78.3 million, its fourth annual surplus under the Suozzi administration, Comptroller Howard Weitzman announced today in his annual end-of-the-year review of the county’s finances.

“The good news is that we are generating consistent budget surpluses, year after year, without having to resort to annual tax increases,” Comptroller Weitzman said. “There are concerns on the horizon, such as the disappointing growth in sales tax revenues, the county’s single largest source of revenue. But thanks to conservative budgeting and the practice of using annual surpluses to establish reserves for future budget relief, the county has been able to absorb normal expense growth since 2003 without raising property taxes, in effect returning the money to taxpayers.”

The Suozzi administration plans to use the entire surplus to fund reserves to help balance future budgets. Subject to approval by the Legislature, the county will earmark $50 million of the surplus to set aside funds for property tax refunds in 2006. Under Nassau County Interim Finance Authority (NIFA) rules, the county is no longer permitted to issue debt to pay for property tax refunds, except for $15 million in 2006 and $10 million in 2007. Another $25.3 million will be added to reserves for pension contributions, and $3 million will be reserved for payment of judgments and settlements.

“Nassau County has continued in 2005 to exercise smart management, control labor costs, budget realistically and avoid fiscal gimmicks,” Comptroller Weitzman said. “That’s why we have enjoyed 11 upgrades in our bond rating since 2002. Even so, it is only going to get tougher to balance our budgets with each new year, as we predict little or no revenue growth, inevitable cost increases, and the exhaustion of existing reserve funds.

“One indication of this increased difficulty is that, whereas in 2003 and 2004 the county would have achieved small surpluses even without the use of “one-shots” (i.e., non-recurring sources of revenue or expense reduction) in 2005 our surplus could not have been achieved without them,” he noted. The 2005 structural gap – i.e., before the application of one-time revenues – was approximately $37 million. “But all one-shot revenues are not created equal,” he observed. “The use of non-recurring revenues in 2005 to maintain taxes and generate a surplus was prudent and not based on fiscal gimmicks. For example, during 2005 the county used about $34 million of one-time revenues from the Hevesi pension relief law approved by the state in 2004. While some other municipalities spent that windfall in 2004, in Nassau we set it aside in a reserve fund for the purpose it was intended – to pay for employee retirement expenses and thereby help to forestall future tax increases.”

In total, there were $115.3 million of one-shots in 2005, including $23 million in proceeds from tobacco securitization, $7.5 million from funds previously reserved to cover the cost of police severance, and $12.3 million of aid from NIFA.

Looking forward, Comptroller Weitzman indicated that, although the county adopted a fiscally sound, balanced budget for 2006, in order to do so it had to close a structural gap of $110 million. “Given the slowing pace of sales tax revenue and the growing structural gap,” he said, “my greater concern is for 2007 and beyond. The administration, however, has a proven track record of successfully responding to fiscal challenges as they arise.”

In 2005, gross sales tax totaled $953.8 million, $10.9 million under budget, and receipts grew only 1½ percent over the prior year. Recognizing the potential negative future impact of this slower than historic growth, County Executive Suozzi took action last week to address a projected shortfall in 2006 sales tax revenues, including imposing a freeze on most new hiring and purchasing.

Among other financial issues clouding the horizon are the fiscal condition of the Nassau Health Care Corporation (NHCC) and the county’s liability for future health insurance costs for its retirees. In December, Comptroller Weitzman expressed renewed concern over NHCC’s financial condition and called for immediate action on the part of management to institute cost-cutting measures called for in the hospital corporation’s rescue plan. NHCC, whose $300 million-plus debt is guaranteed by Nassau, is on the verge of running out of cash.

In addition, under recently adopted accounting rules affecting all municipalities, within two years the county must begin to report the projected liability for all future health insurance costs for its employees and retirees. “This number will be in the billions of dollars,” Comptroller Weitzman said, “and will bring into sharp focus the financial impact of this costly unfunded future benefit for employees.”

Among other highlights of the 2005 results:
-Investment income was $8.8 million over budget due to a conservative budget estimate and larger than expected increases in interest rates;
-Police Department overtime totaled $52 million, $16.1 million over budget, while overtime at the Correctional Center totaled $22.7 million, $1.1 million over budget. “I continue to be concerned about the management of police overtime and hope that the planned study of police manpower needs to be completed this year will help in the management of this situation,” Comptroller Weitzman said. By contrast, the numbers for the jail indicate a welcome recent decrease in overtime;
-Without police and corrections overtime, salaries and fringe benefits were $30 million under budget, primarily the result of unfilled employee positions, health insurance savings, and savings from negotiated union contracts;
-Non-Medicaid-related state aid was $9.5 million over budget;
-The county realized $8.2 million in 2005 savings from the recently enacted Medicaid cap legislation;
-The county received $114.5 million of federal aid, $8.9 million under the $123.4 million budget.

“The string of surpluses since 2002 provides further proof, if any more is needed, that Nassau's fiscal recovery is real and ongoing," Comptroller Weitzman said. "Nevertheless, we will have to remain vigilant in the future as we continue to deal with the financial impact of stagnant revenues."

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