Public Hearing to Review State Laws and State-Imposed Municipal Finance Oversight Boards in the Context of Fiscally Distressed Municipalities, and Hear Testimony as to New Initiatives That Provide Relief and Assistance to Fiscally Distressed Municipalities

President 14 Empire Center for Public Policy 15 Jerry Laricchiuta 115 131

President 16 CSEA Local 830 17 Eric Alexander 140 146

Executive Director 18 Vision Long Island 19 Jack Schnirman 152 169

City Manager, 20 City of Long Beach, New York 21 22 ---oOo--- 23 24 25 1 SENATOR MARTINS: Welcome to the 2 Senate Standing Committee on Local Government's 3 hearing on fiscally distressed municipalities, 4 preparing for and preventing municipal bankruptcy in 5 New York. 6 This is the third hearing that we will be 7 holding. 8 We've held hearings in Syracuse and Buffalo 9 last week. 10 We're here in Nassau County this week. 11 Syracuse first, because Syracuse is one of 12 those upstate cities and communities that is 13 teetering on the brink, and, certainly, we heard 14 about that when we took testimony in Syracuse, and, 15 certainly, Mayor Miner was very eloquent in her 16 analysis of their position. 17 But, certainly, that is replicated throughout 18 Upstate New York with other cities, Rochester, 19 Utica, and, certainly, is a wake-up call for all of 20 us. 21 We held hearings in Buffalo. 22 Buffalo, not only Erie County, but the 23 city of Buffalo themselves have control boards, and 24 so the focus in Buffalo was on those control boards, 25 and how effective they've been, and whether or not 1 there's a model and a best practices to be learned 2 as a result of both control boards. 3 And we're now here in Nassau County, another 4 community that has a control board, now, for 5 13 years. 6 And I guess the hope today is, one, let's 7 talk about some of the pressures that we have on our 8 local municipalities, and things that we can do, 9 hopefully, to address those pressures; 10 But, two, let's talk about that interface 11 between the control boards and local governments, 12 and what works, what doesn't work, and perhaps 13 better approaches to dealing with issues of 14 municipal insolvency as we move forward. 15 As I have said before, I do not believe that 16 bankruptcy is an option for municipalities. 17 I think that's a very dangerous precedent in 18 New York State. 19 I believe that the model that New York has 20 used in the past with these control boards has been 21 more appropriate, but let's learn from our past 22 practices, and move forward. 23 We have a wonderful list of experts and 24 witnesses and municipal experts with us today. 25 Looking forward to hearing the testimony. 1 Senator Marcellino. 2 SENATOR MARCELLINO: Thank you, 3 Chairman Martins. 4 [Inaudible] as you know, shortly, I will be 5 going around the state with my colleague 6 Senator John DeFrancisco, who chairs the 7 Finance Committee of the Senate. I chair the 8 Committee on Government Operations. 9 And we're going to be looking at the tax 10 system of the state of New York, and how we might 11 reform that system to make it [inaudible] -- 12 Excuse me. 13 -- some of these local municipalities that 14 are in distress, and see if we can bring job 15 creation as a result of that, and take some of the 16 burdens off our taxpayers, and off the businesses 17 that we would like to encourage to come here. 18 We will be hearing -- holding hearings in 19 Albany next week. 20 Syracuse, then Buffalo, back to Nassau County 21 right here in this room [inaudible], and 22 New York City. 23 So we're kind of, like, working together on 24 this [inaudible] counties and [inaudible] is going 25 to be an integral part of that process. 1 [Inaudible] in a little bit [inaudible]. 2 SENATOR MARTINS: Let's get started. 3 Our first witness is 4 Lieutenant Governor Richard Ravitch, who is the 5 co-chair of the Advisory Board, State Budget Crisis 6 Task Force. 7 Governor, good to see you again. 8 RICHARD RAVITCH: Nice to see you both. 9 SENATOR MARTINS: Thank you. 10 RICHARD RAVITCH: Senator, let me begin by 11 saying how much I respect you for convening these 12 hearings. 13 The question of local government distress is 14 grossly underreported in our media. 15 There is nothing unique about New York State. 16 This is a problem that affects practically 17 every local government throughout the country, some 18 with greater severity, obviously, than others. 19 We all know about Detroit. 20 You will soon be reading about Puerto Rico. 21 And, you know about cities in California that 22 have filed under the federal bankruptcy code. 23 And you will continue to hear a myriad of 24 stories, states like Illinois and New Jersey, have 25 no capacity whatsoever to -- financial capacity to 1 meet the pension obligations that they have incurred 2 and that are [inaudible]. 3 The State of Colorado has announced that it 4 would require an expenditure of $15,000 for every 5 taxpayer in the state to make that system whole. 6 Respected economists believe that the 7 public-pension funds of the states of this country 8 could be underfunded by as much as $4 trillion. 9 And this problem is getting worse. 10 And the reason it is getting worse is because 11 retirement expenditures and health-care expenditures 12 are growing at a much faster rate than our revenues 13 at state and local levels. 14 And, there is -- fiscal stress rolls 15 downhill. 16 So, as the federal government addresses and 17 argues about how to reduce the federal deficit, and 18 they cut, in some cases, as a result, through the 19 system of sequestration, in some instances, through 20 the approval of [inaudible] developmental budgets, 21 programmatic budgets, which have been cut. 22 And, if you examine those cuts and 23 sequestration carefully, you will see a very 24 significant percentage of that comes out of the 25 $650 billion or so that constitutes the part of the 1 federal discretionary budget that is passed through 2 to states. 3 And you have to remember that about 4 30-odd percent of state expenditures come from the 5 federal government, and almost the same percentage 6 of local government budgets around the country come 7 from states. 8 So, it is intellectually impossible to deal 9 with the subject without understanding the 10 interrelationship between the three levels of 11 government. 12 And I have to say, one of the reasons why I 13 commend you so much for having this hearing, is that 14 the political system, at all three levels, have not 15 really looked at this in the -- in accurate context. 16 So there are, I would respectfully suggest, 17 three fundamental issues: 18 One is, what can you do about it from -- to 19 avoid having to face the question, Mr. Chairman, 20 that you raised about bankruptcy versus control 21 boards? 22 How do you get to the point where local 23 governments have sufficient revenues to meet their 24 obligations, their -- provide the essential services 25 that they are charged with providing for their 1 citizens? 2 How do you do that in a meaningful way? 3 Well, I would respectfully suggest that, the 4 first step, is to require that cities, 5 school boards, counties, budget in accordance with 6 generally accepted accounting principles. 7 The most significant thing that we did, and I 8 had the honor of being very involved in this in 9 state government in the '70s, the first thing we 10 did, when the city of New York was facing the 11 possibility of filing bankruptcy, was to pass a law 12 requiring that they budget in accordance with GAAP, 13 which means, in simple language, that their 14 recurring revenues have to match their recurring 15 expenditures; that they couldn't use borrowed money 16 to balance their operating budgets; that they 17 couldn't use their capital budgets to balance their 18 operating budgets; which is what the City of 19 New York had notoriously done. 20 And I have to say that, even though the 21 city of New York has gone through some ups and 22 downs, not the least of which was 9/11, that there 23 was never been a budget crisis in New York City, and 24 I believe that is due largely to the fact that they 25 have this statutory obligation to budget carefully. 1 Now, the State has no such obligation. 2 And, unfortunately, the State has used, over 3 the last 20-odd years, massive amounts of one-shots 4 and borrowings to balance its operating budget. 5 And as a result that of, as more and more 6 attention is focused on the use of those methods for 7 balancing budgets and opposing some constraint, and 8 I hope the elected officials of the state recognize 9 that that's a no-win strategy, we -- we -- the State 10 is now facing, and engaging properly in, significant 11 reductions in the levels of State expenditures, be 12 it Medicaid, which is the largest consumer of 13 State dollars, or education, where you, as you well 14 know better than I have, put a cap on the 15 [inaudible]. 16 And all of this has a very, very significant 17 effect on local governments, on school boards, and 18 on mayors. 19 And, in an effort to address the 20 extraordinary level of real-estate taxes that was 21 growing as a source of revenue, which mayors and 22 [inaudible] exercised in order to have the cash to 23 meet their obligations, you legislated a 24 property-tax cap; a very popular measure, and you 25 made provision for local governments to override 1 that cap under certain limited circumstances. 2 And -- but the fundamental issue here is, 3 that, as I said, the fiscal stress rolls down hill, 4 so state and local governments are in for a growing, 5 growing pressure -- budgetary pressure. 6 This is not a circumstance that was created 7 by the economic catastrophe that hit our country in 8 2008, 2009, and that the problems was structural, 9 around the country at a state and local level. 10 And we made promises, as a society, which we 11 can't -- under our current system of revenue 12 collection, we can't pay for. We can't pay for the 13 obligations we assume. 14 They were made in good faith. Serves no 15 useful purpose going back and criticizing what 16 people did 20 years ago, or 10 years ago. 17 They did it. 18 We were -- we believed we had the ability to 19 fulfill the obligations that we incurred, but we do 20 not today. 21 And, again, this is not unique to New York. 22 So, I believe that by moving to budgeting on 23 a GAAP basis, and giving local governments some 24 period of time, because a lot of them can't get 25 there overnight, and because banks are perfectly 1 willing to extend credit and not pay much attention 2 to how the money is used, a practice that has 3 contributed significantly to the growing fiscal 4 pressures that you wisely are attempting to deal 5 with and understand. 6 And as we know, in Detroit, the federal 7 courts are going to decide whether or not the 8 obligations to pension beneficiaries are superior, 9 inferior, or equal to the obligations to debt 10 holders, and that's a very, very important decision. 11 It will be challenged in courts. 12 And a discussion of that is already in the 13 courts. 14 It's in the courts of Rhode Island, where 15 they passed a very significant pension-reform 16 system, and it is being challenged in the courts as 17 being unconstitutional. 18 In Illinois, which has language very similar 19 to the New York State Constitution about the 20 sanctity of public benefits, there is litigation 21 arising from the fact that some of the more 22 distinguished lawyers in Illinois believe that that 23 constitutional constraint does not prevent the 24 legislature from amending the benefits for those 25 employee -- for the balance of the terms of the 1 current employees, let alone change them for future 2 employees. 3 And I could go on and on, but there's 4 litigation all over the country about the nature of 5 these obligations, and the power of state 6 legislatures to modify them. 7 And -- so having, I hope, proved that we're 8 not unique in New York, and -- though -- but we are 9 one of 31 states, only 31 states, that have the 10 statutory power to file under Chapter 9 of the 11 federal bankruptcy statutes. 12 States themselves are not permitted, 13 constitutionally, to file because of the 14 11th Amendment to the Constitution. 15 Local governments can file under the terms of 16 the bankruptcy statute itself only when authorized 17 by state law to do so. 18 And those laws can be limiting, can define 19 what can happen in bankruptcy, how large a city; how 20 large a population has to be for a city to be 21 eligible to file bankruptcy. 22 And New York has, as a result of amendments 23 to the federal bankruptcy statute that follow the 24 near -- the insolvency of New York City in the 25 mid-'70s, we have a fairly flexible powers, if we 1 file under the -- if the City files under the 2 bankruptcy statute. 3 By the way, that would apply equally to 4 counties or to school districts or to public-benefit 5 corporations; they're all in the same category. 6 So I've tried to outline what I think are the 7 things that can prevent getting -- local governments 8 from getting to the point where they are faced with 9 the necessity of having to do some very, very 10 drastic things. 11 Let's talk about if distressed municipalities 12 get to the point, where as many are in New York, and 13 others will be over the next couple years, 14 particularly if sequestration continues at the 15 federal level, and very much dependent on what you 16 do with the state budget this year, and this coming 17 spring, and an election year, and the year after 18 that. 19 But on the assumption that the political 20 constraint, and I don't say this in any way to 21 denigrate politics, I believe in politics, and the 22 reason I think bankruptcy is a dreadful option, is 23 because it's an acknowledgment that democracy can't 24 solve its problems, and that we're turning it over 25 to a judge to decide which creditors should get 1 preference over other creditors. 2 And in a democracy, if we fail to have people 3 elected to office make those decisions, either 4 because they don't have the guts to do it, because 5 they were very happy making promises and not 6 worrying about how they were going to be paid for, 7 is irrelevant. 8 It's still a dreadful, dreadful result. 9 I have to tell you, with all respect, that I 10 don't think control boards are as much of an answer 11 as some people do, either. 12 Number one, other than the possible ability, 13 which the courts upheld, I believe, in 14 Nassau County, the right of a control board to 15 freeze wages, I'm not sure that there is any power 16 conferred to a control board that can't be conferred 17 to a mayor. 18 And if, therefore, control boards exist in 19 many places simply to provide a cover for elected 20 officials to be able to say, I can't do X, Y, and Z, 21 or, I must raise taxes, or, I must cut -- close 22 firehouses, or, I must reduce the number of 23 police officers, because if I don't, the 24 control board won't approve my budget; and that 25 serves a useful function, particularly for people 1 holding political office that don't have the guts to 2 make the tough and unpleasant decisions themselves. 3 But I don't think that's really an answer. 4 It can buy you some time, but if the 5 fundamental economics are continuing to go south; 6 that is, revenues are -- growth is not equaling to 7 expenditure growth, then a control board isn't going 8 to solve that problem. 9 And it is time, therefore, to examine three 10 things: 11 I was delighted to hear, Senator, that you 12 are going to be conducting an investigation of the 13 tax system in this state. 14 That is long overdue. 15 I know the Governor created a commission. 16 I happen to know the chairman. He is one the 17 brightest, most able people. 18 And I believe they're coming out with a 19 report in November. 20 And if you have not talked to them, you 21 should, off the record, before their report becomes 22 public, because they've done very exhaustive 23 research for the last year on that subject. 24 And, obviously, intending to look at the 25 question of whether or not we're taxing fairly and 1 equitably and distributing the burden in a sense of 2 the way that comports with economic growth, which 3 I'm sure are the objectives that you have in that 4 study as well, but one of the inevitable 5 consequences of such an examination is, also, to 6 review the potential for revenue growth for the 7 state and local governments. 8 And that's very important. 9 There are mandates created by federal law and 10 state law that impose burdens on local governments 11 that were, again, motivated by honorable people. 12 The reasons were good and sound public policy, 13 reasons comported with people's sense of fairness 14 and equity. 15 We passed a law in New York State called the 16 "Taylor Law," which prohibited public employees from 17 going on strike. 18 I'm very familiar with that, having been the 19 chairman of the MTA during strikes in metro north, 20 the Long Island Railroad and the Transit Authority, 21 and despite the existence of that law. 22 But the feeling was, in the Legislature, that 23 in order to address some equities, that instead of 24 having an expired contract be viewed as no 25 contractual relationship at all, and have the public 1 employer being under no obligation to do anything 2 with its employees, the Legislature passed an 3 amendment known as the "Triborough Amendment," which 4 says that the contract shall remain in full force 5 and effect until no contract is entered into. 6 So we have this situation in New York City 7 today, where we have no outstanding 8 collective-bargaining agreements, and I believe 9 that's increasingly true around the state. 10 And it's, ultimately, not a healthy thing for 11 our society, because, over a long period of time, 12 unions can't exist without collective-bargaining 13 agreements, and governments can't budget without 14 having some rational basis for determining what 15 their costs are gonna be over the few years. 16 So I think that issue has to be examined. 17 I would suggest to you that you look 18 carefully at the question of whether or not cities 19 in this state should be relieved from the provisions 20 in state law that I believe was enacted in 1967, 21 that says, pension benefits, and terms and 22 conditions of public pensions, are not bargainable. 23 Maybe they should be. 24 Maybe cities should be given the ability to 25 establish their own pension systems, and not 1 necessarily be subject to the same requirements that 2 state employees are subject to. 3 This is not a suggestion made for the purpose 4 of diminishing, or necessarily diminishing, the 5 pension benefits of municipal employees, but it 6 enables mayors to say, We're not responsible for the 7 near insolvency we're facing, because our 8 obligations to pay benefits were set by the 9 legislature, and not by us. 10 So maybe you ought to think about giving them 11 the responsibility in the future to do that. 12 I think that the obligations which are now 13 extremely costly -- the OPEB obligations, the 14 health-care obligations -- they're all contractural, 15 but because of Triborough, unless there's a mutual 16 agreement to modify those, they are in full force 17 and effect. 18 And we didn't even know what they were until 19 the Government Accounting Standards Board, a few 20 years ago, decided to require cities and states to 21 make them public. 22 So we now know, New York State has 23 $65 billion unfunded OPEB liability to its 24 employees. The city of New York has an unfunded 25 OPEB liability of over $100 billion. 1 And every other city in this state has those 2 obligations as well. 3 And third of all, we have to recognize that 4 the obligations to finance things that cross 5 municipal and county boundaries, regional issues, 6 have to be addressed as well. 7 So, the questions of how the burden gets 8 shared to pay for the transportation systems in the 9 New York metropolitan region is a very, very 10 critical question, because the MTA does not have the 11 resources to fund another 5-year capital plan, and 12 that has to be taken into account in evaluating 13 these systems as well. 14 So, I don't find control boards -- to 15 anticipate a question that you may throw my way, I 16 don't find a control board a -- anywhere near as 17 violative of the principles of a democratic 18 political process as I do bankruptcy. 19 And if it shores-up the backbones -- I'm 20 mixing my metaphors, forgive me -- stiffens the 21 backbones of some politicians who don't want to make 22 tough decisions, that's fine, but it is no solution 23 for the underlying fundamental disparity between the 24 growth of revenue and the growth of expenditures in 25 American society in 2013. 1 SENATOR MARTINS: Thank you very much, 2 Governor. 3 Senator Marcellino, any questions? 4 SENATOR MARCELLINO: Just one. 5 Governor, if you had a magic wand, and you 6 could pick one issue or one action that would 7 probably do the most to solve some of the problems 8 we just were talking about, that you just were 9 discussing, what would it be? 10 RICHARD RAVITCH: Well, I'm not saying this 11 to be polite. 12 I would certainly think that what you're 13 examining about our tax system is critically 14 important, because the revenue growth is absolutely 15 important. 16 Whether that can come by fixing an existing 17 tax system which is inequitable in many respects, in 18 which people who should be paying taxes are not 19 paying taxes, and that is certainly very, very 20 critically important. 21 I think, second of all, the disconnect that 22 exists politically between the State and the cities, 23 which you are wisely addressing by doing this 24 hearing, and perhaps by legislative recommendations 25 when you're finished, that disconnect is even more 1 severe between the federal and state level. 2 Let me give you an illustration. 3 I had occasion recently to meet, it was more 4 a social circumstance, it wasn't a one-on-one 5 meeting, where the Chairman of the House Budget 6 Committee, Paul Ryan, very able man, and I asked 7 Congressman Ryan, whether or not, when he submitted 8 a budget that the House of Representatives in 9 Washington had it approved, did he make any effort 10 to measure the impact that his budget had on state 11 and local governments? 12 And the answer was, no, he did not, because 13 he didn't think that was part of his responsibility. 14 His responsibility was to address the federal 15 budget. 16 And he asked me why I was so concerned. 17 And I said: Well, one of the recommendations 18 that you made, and so did the Bowles-Simpson Report, 19 and all the other -- or, many of the other federal 20 budget proposals to reduce the federal deficit, they 21 all recommended that the eligibility age of Medicare 22 be shifted from 65 to 67, thus saving the federal 23 government hundreds of billions of dollars over 24 time. 25 And I said it to the Congressman, and others, 1 I said: Are you aware of the fact that states have 2 contractural obligations, every state, to pay 3 health-care costs of their employees until they 4 enter the Medicare program? So you are not saving 5 money, you are merely transferring a burden from the 6 federal tax base to the state and local tax bases. 7 And there was hardly any recognition of that, 8 and you've never seen any discussion of that 9 publicly. 10 So the second thing I would do, is begin to 11 make the members of Congress from our state aware 12 that there is a political price to pay if you don't 13 examine the issue of your budget actions on state 14 and local governments. 15 And it isn't good enough to be able to say, 16 Well, they voted for federal aid to education, they 17 voted for this program or that program, if, in fact, 18 the net result of it all is to impose greater and 19 greater requirements on state and local governments. 20 If the federal government reduces its -- I'll 21 give you another illustration: 22 A failure to provide revenue for the highway 23 trust fund has severely limited the federal 24 government's ability to pay, in part at least, for 25 the transportation investments that are absolutely 1 essentially required in New York if our economy 2 isn't going to collapse. 3 And you both, I'm sure, understand that very 4 well. 5 But by limiting the amount of federal 6 funding, we're imposing, again. 7 If we want to do what has to be necessary to 8 maintain a state of good repair, then that's going 9 to be a greater and greater burden on the state and 10 local tax bases, which is just the opposite of what 11 we need at this point in our history. 12 So I would say those three things are -- 13 would have my highest priority in addressing the 14 issue. 15 SENATOR MARTINS: Governor, thank you very 16 much for being with us today. 17 I appreciate your testimony. 18 You know, when we look at the model in 19 dealing with municipal insolvency, and you look at 20 other states and what they're doing, certainly, we 21 can see that the northeast cities in the northeast, 22 and in the midwest, and those states are dealing 23 with this issue somewhat differently than other 24 parts of country. 25 There are legacy costs associated with an 1 industrial base that has left those cities, left 2 them in different circumstances, but those legacy 3 costs remain. 4 In New York, obviously, we followed the 5 control-board model even though bankruptcy is 6 statutorily permissible. 7 In your opinion, is that the appropriate 8 approach, control boards geared individually for 9 specific communities that are in distress; or, is 10 there another model that you believe would be 11 preferable and more effective? 12 RICHARD RAVITCH: Well, I tried to say that 13 it is far more important, since I think the 14 economics are making the conditions that lead to 15 municipal distress, are growing. 16 It's more important to try to head off a 17 growth of the gap that we're trying to avoid, rather 18 than figure out just remedy once a city clearly has 19 no more access to credit. 20 And I've suggested there are three ways to 21 address that. 22 I thought, and perhaps I didn't make it 23 clear, control boards serve useful functions; 24 primarily, providing cover for union leaders and 25 elected officials to do the things they know they 1 have to do. 2 And other than having the power to freeze 3 wages, which the courts so far have upheld, I'm not 4 sure that control boards can do things that the 5 Legislature couldn't give the power of mayors -- to 6 mayors to do themselves, if they're willing to. 7 A lot of them want to high [unintelligible] 8 on control boards. 9 SENATOR MARTINS: And that's the next, 10 I guess, point in my -- or my next question was: If 11 we give those -- that authority and those powers 12 after a municipality has gone over the proverbial 13 cliff, as was made quite clear in our hearings in 14 Syracuse, options exist just before that, that won't 15 necessarily exist after the municipality has gone, 16 literally, over that fiscal cliff. 17 So, are we better off intervening and 18 providing that relief before beforehand, as opposed 19 to just waiting till there's an outright emergency? 20 RICHARD RAVITCH: Well, let me put it to you 21 this way: 22 I think providing one-shots, like spin-ups, 23 you vote spin-ups, the State provides spin-ups to 24 help municipalities, that is an absurd way to solve 25 a problem, frankly. 1 They're one-shots. 2 So you may solve it for this year, but then 3 next year, if you don't continue the same thing, you 4 know damn well the city is going to be insolvent, 5 from a credit point of view. 6 So one-shots help if the circumstances that 7 led to a municipal deficit are of a unique nature. 8 If they're a one-time event, like 9/11 hit 9 the city of New York, and the City came to Albany 10 and said, You got to give us special authority to 11 borrow money, because we have this great tragedy 12 that is likely to have a dramatic effect on the 13 revenues of the city. 14 So you do one-shots on the revenue side to 15 deal with one-shots on the negative side, but it is 16 the stupidest way in the world, and I use that word 17 advisedly, and I understand I'm criticizing many of 18 my friends in the process, it is a stupid way of 19 addressing what is a structural underlying 20 deficiency that I've described of -- the 21 rate-of-growth differential between revenue and 22 expenditure. 23 It gets you until next year, but all you can 24 do is hope that the dog will talk. 25 And the dog ain't gonna talk, Senator. 1 SENATOR MARTINS: I don't disagree with you, 2 and so back to your point of multi-year budgeting, 3 going out beyond, perhaps, the political term of the 4 person who's doing the budgeting, we tend to, in a 5 political world, budget based on the immediate as 6 opposed to the long term. 7 And so the idea of adopting business 8 practices and carrying those forward, and having 9 recurring revenues and recurring expenditures meet, 10 certainly, is a much more commonsense approach, and 11 a greater indicator of the fiscal stability of that 12 municipality over the long haul. 13 So, I do appreciate your comments, 14 I appreciate your suggestions, and thank you for 15 joining us this morning. 16 RICHARD RAVITCH: My pleasure. 17 Thank you. 18 SENATOR MARTINS: Our next witness this 19 morning is former Assemblyman Richard Brodsky, who 20 has joined us, who is a senior fellow with DEMOS. 21 RICHARD BRODSKY: Good morning, Senators. 22 SENATOR MARTINS: Good morning. 23 Thanks for being here. 24 RICHARD BRODSKY: Let me express my pleasure, 25 again appearing before my colleagues in the 1 Legislature. 2 As Senator Marcellino and I go back to when 3 we both were chairing the respective committees on 4 the environment in the Assembly and Senate, and 5 learned to work with each other effectively then, 6 and I'm delighted to see him again. 7 And, Senator, this is my first time to meet 8 with you, and I appreciate this opportunity. 9 SENATOR MARTINS: I appreciate that. 10 Do you miss the Assembly? 11 RICHARD BRODSKY: Only if I aim low. 12 The opportunity to speak to you today on 13 issues of municipal finances was first brought to my 14 attention by the title of this hearing, which I 15 thought was extraordinarily carefully set forth: 16 Preparing for and preventing municipal bond [sic]. 17 To do two things at once is a great skill, 18 and I agree with you, wholeheartedly, that that is 19 the task at hand. 20 I do believe, however, that the inexorable 21 forces -- economic and political forces that are now 22 in play, which is going to make it likely that 23 bankruptcies will occur in New York. 24 The forces that are taking us to that point 25 are largely beyond the control of municipal and 1 state officials. 2 The heart of the municipal problem here is a 3 model for the governance and taxation of those 4 cities that was created over 200 years ago, based 5 upon a property tax which was largely then paid by 6 industrial and commercial property taxpayers. 7 In most urban areas of the state, those 8 taxpayers have disappeared. 9 Kodak in Rochester, Otis in Yonkers, 10 Carrier in Syracuse, have become poster children for 11 the breakdown in the property-tax system. 12 There are, to be sure, other elements of this 13 crisis that need to be thought about and admitted. 14 Those include, labor issues, local budgeting and 15 state budgeting practices that are unsound and 16 dishonest, reductions in state and federal aid, and 17 a variety of -- a litany of problems of which I 18 believe both of you gentlemen are aware. 19 But, until and unless we address the 20 fundamental economic model, we're going to end up in 21 the case we're in now, in which, not only are the 22 gaps growing, they are being bridged by a set of 23 dishonest budgeting practices. 24 The borrowing, for the purposes of meeting 25 operating expenses, is the most unsound practice 1 that the State or the municipalities can engage in. 2 And for better or worse, the 3 pension-smoothing process is the -- is an example of 4 that. 5 I say that, having voted for the initial 6 program in 2010. 7 I am not proud of that vote. 8 But if that becomes -- that remains, I should 9 say, the policy of the State, the inexorable 10 bankruptcy of cities and counties and other 11 municipalities will be upon us within months to 12 years. 13 I come to this, in my post-legislative 14 experience, having chaired with Governor Ravitch, a 15 commission on -- of inquiry into the fiscal 16 circumstances of the city of Yonkers. 17 I was asked to do that by the new mayor. 18 We did an analysis, we established what the 19 out-year gaps were, we established a set of 20 parameters for how you measure fiscal health. 21 And I -- one of the things we did in that, is 22 urge that the mayor, in the failure of the state to 23 require it, adopt a 4-year financial plan. 24 It is the second -- the end to borrowing is 25 the first and most important thing the State can do. 1 The second is to require 4-year plans. 2 The lack of information, for example, in the 3 city of Albany, which has most recently conceded a 4 16-to 18-million-dollar budget gap -- operating 5 budget gap, but doesn't really know what it's 6 accumulated operating deficit is, doesn't really 7 know what revenues it's already pledged to have 8 spent in the out-years, that is the second most 9 important thing. 10 And the third most important thing that can 11 be done in specific terms, is to begin a statewide 12 conversation about the, extent, depth, of the 13 problem, and the remedies that may be available. 14 The failure to convoke a statewide 15 conversation about this will come back to bite the 16 State in its proverbial posterior. 17 The problem is infinitely worse than has been 18 admitted. The timetables are not any longer within 19 our control. 20 Let me give you an example. 21 We have projected, a year and a half ago, 22 that the next annual operating gap for the city of 23 Yonkers, on a budget base of about $1 billion, will 24 be about $140 million. 25 If the City were to raise every tax it has 1 now the legal ability to impose to its maximum, it 2 could raise $30 million. 3 Those sorts of gaps are appearing all over 4 the state. 5 And the -- again, to go back to what I said, 6 to respond to that, by having the State lend the 7 money without a real workout, the bills on borrowing 8 for some of the counties, they borrow, and nothing 9 changes. 10 It's not -- it's coming. 11 And to the extent you can begin the process 12 of actually facing up to this now, you will do a 13 great service to the people of the state. 14 Let me conclude with an examination, again, 15 of why lending money by the State to distressed 16 municipalities doesn't work. 17 In the fiscal crisis of the 1970s, the 18 private-equity markets, the credit markets, provided 19 the discipline that eventually forced action. 20 In other words, they looked at the fiscal 21 condition of some of the people seeking credit, and 22 said, You can't pay us back, we're not going to lend 23 to you. 24 That precipitated the set of political and 25 economic consequences which yielded change. 1 The State has become the lender of last 2 resort when the market won't be. 3 If you believe in private-equity markets, 4 private-credit markets, as a force for discipline of 5 fiscal practices by public entities, you're 6 undercutting your own market-based approach to the 7 problem by just keeping writing checks and hoping it 8 will get better. 9 It won't. 10 So, three practical things: Stop lending; 11 4-year plans; get a conversation going. 12 As to bankruptcy itself, as I'm sure both of 13 you are aware, the law on bankruptcies in New York 14 require -- nationally, as it would affect New York, 15 requires that the municipalities be insolvent, not 16 merely "bankrupt" in the sense we use the word. 17 That means they don't have the cash to pay 18 their bills today. 19 They could, theoretically, be relatively 20 fiscally sound, but they run out of cash, they can 21 file for bankruptcy. 22 Or, they can be desperately out of whack; 23 and, yet, if they have cash on hand because they're 24 borrowing from you guys, they're not eligible for 25 bankruptcy. 1 The -- the -- bankruptcy is a real option, 2 and it is a real option, as opposed to control 3 boards, and I confess here, a second error, I was 4 the author of the Yonkers City Control Board Act. 5 These are the only two errors of my career, 6 but, it so happens that this is the subject of 7 today's hearing. 8 I authored that statute. 9 Control boards do the following: 10 They inflict pain on taxpayers -- local 11 taxpayers; 12 They inflict pain on people who use municipal 13 services; 14 The inflict pain on municipal employees; 15 And they leave lenders untouched. 16 A bankruptcy, on the other hand, brings 17 bankers and Wall Street into the process. 18 In political terms, I don't think the State 19 Legislature will be able to craft remedies for 20 legislative solutions to municipal problems, fiscal 21 problems, that leaves one sector of this process 22 untouched. 23 It's why you hear the howls from Wall Street 24 about Detroit and elsewhere. 25 But if you're gonna address this with any 1 equity, you're gonna have to realize that bankruptcy 2 has advantages that control boards of New York have 3 never had. 4 And with that, I thank you for your interest 5 in the subject; 6 I thank you for the invitation to testify 7 today; 8 And I would be glad to answer any questions 9 you have. 10 SENATOR MARCELLINO: It's good to see you 11 again, Richard. 12 You haven't lost a step over the years. 13 I will say quite -- well, to a certain 14 extent, we'll brag a little bit here, but, I think 15 the environment was never better, was never treated 16 better, when you and I butted heads as part of the 17 environmental process in the Assembly and in the 18 Senate. 19 We did a lot of good work together. 20 Sometimes it was a little bloody, sometimes 21 it was a little loud, but we got a lot of good 22 things done. 23 So I appreciate your efforts, and I 24 appreciate your comments here today. 25 Let me ask you the same question I asked 1 Governor Ravitch. 2 You mentioned the four things, I understand. 3 What's the key? 4 What would be your key thing? 5 RICHARD BRODSKY: Stop lending. 6 SENATOR MARCELLINO: Stop lending? 7 RICHARD BRODSKY: It is -- it's one of those 8 things that, when you're back out of the process and 9 you're looking at it, and you're dealing with it, 10 let's say, as I did with the Yonkers situation, and 11 you realize they're borrowing their certiorari 12 bonding, their spin-ups, their pension-smoothing, 13 and you look at what's going on, where there's a 14 structural gap, and it's being filled increasingly 15 by borrowed money, it can't work. 16 That's the single most important thing you 17 can do. 18 SENATOR MARCELLINO: Thanks, Dick. 19 SENATOR MARTINS: Thanks for being here. 20 You mentioned the disparity in that analysis 21 you did in Yonkers: 100 million versus the 22 30 million. 23 What was the cause of that, of that, I guess, 24 expense, or that $100 million shortfall, for the 25 city of Yonkers? 1 Was it legacy costs? 2 Are we dealing with pensions, health care? 3 The issues that we've dealt with the past, 4 are there commitments to retirees? 5 Are they commitments and structural issues in 6 providing current services and paying for current 7 employment? 8 Are they poor collective-bargaining choices 9 in the past? 10 What led to that $100 million shortfall? 11 RICHARD BRODSKY: I will leave three copies 12 of the commission's report with you, to take a look 13 at it. 14 And the simple answer is, all of the above. 15 There were -- but, the level of expenditures 16 for things like pension costs, health care, what you 17 call "legacy costs," is an important, but by no 18 means dispositive element of the municipal crisis in 19 Yonkers, and elsewhere. 20 Part of the reason that they are -- have 21 attracted so much attention, is that, when the stock 22 market collapsed, municipal contributions to the 23 pension system went way up. 24 That's about to reverse. 25 I had conversations with the Comptroller, in 1 which he believes that the pension costs, the cities 2 and counties, are going to start going down, unless 3 they borrow it under pension-smoothing, in which 4 case, they will not benefit from the rebound of the 5 stock market. 6 The -- it is a grave mistake to characterize 7 the municipal crisis in New York as a crisis of 8 overspending. 9 Overspending is an element of it, but until 10 you address the fundamental economic causes of the 11 gap, which is the breakdown of the economic model 12 that we've had for 200 years here, which is a 13 state-created system for which you are responsible, 14 as I was, then there will be no solutions. 15 There has been a tendency on the right -- and 16 you can my friend E.J. McMahon, I believe, say 17 what he said to me before, that this is about 18 expenditures excesses and labor contracts. 19 And you hear from the left, often, we don't 20 tax the rich enough. 21 Neither of those can solve the problem, and 22 neither of them is, if you will, in the fundamental 23 sense, true. 24 They are both elements of the problem, but 25 they cannot, in any sense, solve them. 1 You could deal with spending, and you could 2 deal with revenues, and you'd still face a gap, and 3 that gap is based on the economic model of cities. 4 SENATOR MARTINS: And so the economic model 5 of cities today, outside of New York City, is a 6 property tax-based revenue-stream model, with some 7 sales tax thrown in and some mortgage tax thrown in. 8 Are you suggesting that that's the model that 9 needs to be re-evaluated: how do we fund basic 10 services in our municipalities? 11 RICHARD BRODSKY: Yes. 12 And that formulation of the question, if I 13 may continue, Senator, is exactly right. 14 And it's up to the Senate, the Assembly, and 15 Governor to have that conversation. 16 I would also add, that if I did anything 17 right in the Yonkers Control Board Act, we imposed 18 an income tax on the city of Yonkers without any 19 political controversy. 20 It's kept property taxes relatively low in 21 the city, and has worked fairly well, until the 22 recession, essentially, killed the property-tax base 23 in the city. 24 SENATOR MARTINS: And, certainly, there are 25 people who would say that that income tax would be a 1 more equitable way of addressing provision of 2 services than a property tax. 3 But, the model becomes important, and that 4 discussion becomes important in how we address it, 5 because, we're not just talking about the city of 6 Yonkers, we're not just talking about the city of 7 Syracuse and Utica and Rochester. 8 We're talking about our school districts, 9 we're talking about our villages, we're talking 10 about our towns and our counties; 11 And, so, the model becomes rather 12 complicated. 13 RICHARD BRODSKY: It's extremely complicated, 14 full of pain and bad news. 15 Reductions in services are likely, increases 16 in local taxes are likely. 17 There should be an end to the diminution of 18 State cuts to municipal governments. 19 That's a real factor in this. 20 But, I am not capable today of sitting here 21 and saying, And by the way, here's the model that 22 will work. 23 I can tell you what won't work: 24 I can tell you need the statewide 25 conversation; 1 And I can tell you that, until there's a 2 political buy-in by the leadership class, the 3 political class, and the people of the state, into 4 the notion this is not about finger-pointing and 5 overspending and handouts. 6 It was incredibly unfortunate for the 7 Governor to talk about this: the mayors of the state 8 seeking handouts. 9 It's nonsense. It's not helpful. 10 And in the end, this will land on your desks 11 and his desks, with a thud, within a reasonable 12 amount of time. 13 SENATOR MARTINS: Thank you. 14 RICHARD BRODSKY: Thank you, both. 15 SENATOR MARTINS: Good to see you. 16 Next we have Nassau County, Deputy County 17 Executive Ed Ward. 18 ED WARD: Good morning, Senate Committee. 19 SENATOR MARTINS: Good morning, how are you? 20 ED WARD: Senator Marcellino, 21 Senator Martins, I want to thank you for being here. 22 I am pleased to -- for the opportunity to 23 address you today on behalf of Nassau County's 24 1.3 million residents. 25 And on a personal note, I'd just like to make 1 mention, Richard Ravitch was here and testified 2 before. 3 I had attended St. John's University in the 4 late '70s, and I remember we took a course in city 5 politics, city government. And I submitted a paper, 6 which said -- the heading, which it all came 7 flooding back to me this morning, that, 8 "Richard Ravitch personally saved the city of 9 New York." 10 I remember that professor gave me a "C." 11 And I would love to find him today, to tell 12 him my testimony was following that of 13 Richard Ravitch, but, I don't think I will be able. 14 Nassau County, like all counties in 15 New York State, has experienced fiscal stress over 16 the past several years. 17 Poor fiscal planning, paired with the great 18 recession, the worst economic downturn since the 19 Great Depression, created a $378 million deficit 20 before County Executive Mangano took office in 2010. 21 These economic conditions, coupled with 22 escalating costs for employee health insurance and 23 rising expenditures for New York State-mandated 24 programs, created a perfect storm that nearly 25 crippled local governments like Nassau County. 1 Faced with these harsh economic necessities, 2 or realities, the Mangano Administration chose to 3 cut expenses rather than tax the 4 already-overburdened county residents. 5 The choices were tough, but necessary, to 6 protect and energize the local economy. 7 In the area of workforce reduction, in 2009, 8 the county's budgeted workforce was 9,177 full-time 9 employees. 10 Under County Executive Mangano's directions, 11 we have reduced the county workforce to historic 12 lows, through a combination of voluntary-separation 13 incentive programs, layoffs, and attrition. 14 The administration has mitigated the impact 15 these reductions would have on service deliveries 16 through a series of consolidations. 17 Leveraging advances in technology and 18 communications, the administration successfully 19 consolidated police precincts, from eight, to five. 20 By streamlining precinct administrative 21 functions, more offices were signed to patrol 22 functions, and we were able to maintain all 23 177 patrol cars in their current neighborhood 24 assignments. 25 As a result of County Executive Mangano, the 1 county's budgeted workforce was reduced to 2 7,395 positions for 2013, and our current on-board 3 positions total 7,307 positions; a 20 percent 4 reduction from 2009's authorized levels. 5 Going forward, we plan to maintain these 6 levels to ensure budgetary balance. 7 In the area of assessment reform, over the 8 past two years, a successful effort to settle cases 9 on the tentative role was resolved, all residential 10 assessment appeals prior to finalizing the tax 11 roles. 12 This will reduce future tax cert liability 13 for the County. 14 Utilizing public-private partnerships: 15 Public-private partnerships have also played 16 a vital role in controlling costs and restoring the 17 county's finances. 18 On January 1, 2002, the 19 Mangano Administration entered into a successful bus 20 public-private partnership with 21 Veolia Transportation, that delivers bus service to 22 Nassau residents at a cost that is $33 million less 23 than what the MTA proposed, and provides significant 24 operational benefits. 25 The public-private partnership with 1 Veolia Transportation has improved fleet deployment 2 and on-time performance, as well as the quality of 3 the buses that they run daily. 4 The Mangano Administration was able to 5 generate savings for taxpayers by privatizing the 6 delivery of inmate health-care services at the 7 Nassau County Correctional Center. 8 The initiative, with Amor Correctional Health 9 Services, commenced in May, 2011, and has 10 generally -- annually saving $7 million for the 11 county. 12 The "Hurricane Sandy": 13 "Hurricane Sandy" came, and after weathering 14 the economic storm, the county has had two major 15 storm events in consecutive years. 16 On October 29, 2012, Nassau County and its 17 residents felt the horrific impact from 18 "Superstorm Sandy." 19 Residents' homes were destroyed and lives 20 uprooted. 21 The county's significant -- suffered 22 significant damage to its Bay Park sewage treatment 23 plant, and incurred substantial costs for cleanup, 24 debris removal, and public safety. 25 Today, county residents are rebuilding from 1 the destruction wrought by "Superstorm Sandy." 2 The County has been working closely with 3 federal and state disaster resources to document the 4 damages sustained as a result of the storm, and to 5 recover the costs. 6 In accordance with an order from 7 President Obama on May 23, 2013, eligible 8 "Superstorm Sandy" expenses will qualify for 9 90 percent federal reimbursement, and Nassau is 10 seeking assistance from New York State to recover 11 the remaining costs. 12 To date, Nassau County has received FEMA 13 approval for over $100 million of its 14 emergency-response and debris-removal costs. 15 We have some positive results in 16 Nassau County. 17 The good news here in Nassau is that the 18 extensive actions the administration is taking have 19 finally placed Nassau on the road to recovery. 20 While we were once the highest property-taxed 21 county in the nation, this moniker no longer 22 applies. During the Mangano Administration, there 23 have been no property-tax increases, expenses have 24 been cut, and we are now seeing signs that the 25 economy is recovering. 1 Our year-to-date sales-tax revenues have 2 increased 10.3 percent from the same-period 3 prior-year actuals. 4 Unemployment in July fell from 6 percent to 5 5.9 percent. Nassau's unemployment number is lower 6 than both New York State's and national numbers, 7 which are 7.6 and 7.7, respectively. 8 In fact, the State Department of Labor 9 recently reported that Nassau County leads the state 10 in job growth. 11 Arizona Ice Tea, a cornerstone of 12 Nassau County's food and beverage industry, chose to 13 keep its home in Nassau County, and when it outgrew 14 its corporate headquarters and needed a new 15 facility. 16 Grumman Studios built a six -- 17 1600-square-foot production facility, to turn 18 Nassau County into a true hub for film and TV. 19 These are signs that businesses are willing 20 to put their faith in Nassau County. 21 Professional sports remain alive and well in 22 Nassau County. 23 The New York Cosmos have begun to play in 24 their temporary home at Hofstra University while 25 they await word on a $400 million stadium 1 development proposed at Belmont. 2 Hain Celestial chose Nassau County as home to 3 its international headquarters over that of the 4 state of New Jersey. 5 Most recently, County Executive Mangano 6 announced Forest City Ratner companies as the 7 winning developer for the renovation and continued 8 operation of the Nassau Veterans Memorial Colosseum. 9 This promises to keep Nassau County as a 10 destination for world-class sporting events, 11 concerts, and traditional family entertainment for 12 generations to come, without any county taxpayers' 13 subsidies. 14 In conclusion, I would like to say that 15 Nassau County has seen the light at the end of a 16 dark tunnel. 17 The actions that the Mangano Administration 18 have taken have been difficult but necessary. 19 We are now beginning to see the benefits from 20 these actions, and must stay the course to safeguard 21 that our residents continue to receive a high level 22 of service and a great quality of life here in 23 Nassau County at an affordable price for families to 24 live, work, and raise a family. 25 And I thank you. 1 SENATOR MARTINS: Mr. Ward, thank you very 2 much. 3 You know, it's an important point, and 4 certainly a point I think we'll touch on with some 5 of our mayors who are here today, and, certainly, 6 it's something that Governor Ravitch touched on 7 before, the idea that economic development, 8 redevelopment, expanding the tax base, looking for 9 opportunities to expand the tax base, whether it's 10 through recreational redevelopment or otherwise, 11 becomes important, because those revenues will then 12 supplement, you know, the expenses. 13 And, again, the need to balance revenues with 14 expenses becomes critically important. And in many 15 instances, or in some instances, perhaps even the 16 possibility of providing some relief by increasing 17 that tax base through redevelopment. 18 So, I appreciate your testimony, and thanks 19 for joining us this morning. 20 ED WARD: Thank you very much. 21 SENATOR MARTINS: Next up this morning -- 22 ED WARD: Thank you. 23 SENATOR MARCELLINO: (The Senator nods head.) 24 SENATOR MARTINS: -- we have a friend, former 25 Assemblyman, former county executive of 1 Suffolk County, Steve Levy, president of 2 Common Sense Strategies. 3 STEVE LEVY: Thank you. 4 Thank you very much, Senators Martins and 5 Marcellino. 6 I am joined by some members of our board: 7 Ed Kelly, who is president of S&P Insurance; 8 Sal Turano, who is the president of 9 Abstracts, Incorporated; 10 Also joined by some folks in the audience, 11 Anita McDougall and Laura Pantelakos, who are from 12 the Long Islanders For Tax Reform; thank you very 13 much. 14 And thank you, Senators, for focusing the 15 spotlight on what may be a fiscal Armageddon for 16 many localities through this state. 17 I thank as well, Lieutenant Governor Ravitch, 18 as well as E.J. McMahon, who will be following 19 after this presentation, for sounding the alarm 20 many, many years ago. 21 And I just wish their comments had been 22 adhered to long ago, and maybe we wouldn't be in the 23 mess that we are now. 24 I'm the president of, and the executive 25 director of, the Center For Cost-Effective 1 Government. We're an organization that was put 2 together in 2012. 3 It's a group of about one hundred of the most 4 prominent business and community leaders throughout 5 the Island, dedicated toward making Long Island and 6 New York State a more affordable place in which to 7 work, do business, and to live. 8 They've been looking at issues, from 9 consolidation, purchasing consortiums, but the thing 10 that's really striking our attention right now, 11 getting our attention, is mandates, and the crushing 12 impact that it has on localities. 13 As you know, before this stent as the 14 executive director of this organization, I had 15 served 15 years as a county legislator, 3 years as a 16 State Assembly member, so I got to know how things 17 were working up in Albany, and 8 years as a 18 county executive. 19 And I was, at one point, the president of the 20 County Executives Association. 21 And I want to thank the Senate, because the 22 Senate was always there for us. 23 Whenever there was a proposal by the governor 24 to cut back on aid to localities, the Senate was the 25 go-to guys. 1 We would go to you guys and you would be 2 there for us. 3 We would get the money back, or at least try 4 to keep our heads above water. 5 What was attempted to do to the localities 6 was, We're going to cut your money, but we're going 7 to keep the same mandates that are in place the 8 previous year, and you have to keep paying out all 9 this money, but we're going to give you less help to 10 do so. 11 So you were always there to help us make up 12 that difference. 13 What we're asking for now, is your help in 14 removing the mandates from the very first instance. 15 Now, when I came into office as 16 county executive in 2004, localities were being 17 crushed, especially counties, with the behemoth of 18 Medicare -- Medicaid, excuse me, unbelievable 19 exponential increases from year to year; 17 percent, 20 18 percent, 15 percent, year over year. 21 We're looking for a solution. 22 Some of the county executives had asked me my 23 advice, having been in the Assembly. 24 And I said, The only way you're going to fix 25 this, you have to get the Speaker of the Assembly 1 and the Senate Majority Leader in the same room, at 2 the same time, to agree to a two-House bill, the 3 same bill. 4 And they said, It's a great idea. You know, 5 we never went down that path, but it's probably 6 impossible. 7 But you know what? 8 With a lot of pressure from the 9 Association of Counties and taxpayer groups around 10 the state, we actually got it done. 11 The Speaker and the Senate Majority Leader 12 sat down with us in the same room, agreed to one 13 bill, not a one-House here and a different one-House 14 bill there. 15 They came together on the same Medicaid bill. 16 We passed it. 17 And we breathed a sigh of relief, all the 18 county executives. We thought we had gotten by. 19 Well, for a year or two, we did; we got the 20 cap in place, and thank you very much, it was 21 tremendous. 22 But a few years later, we're starting to see 23 that the Medicaid behemoth was being dwarfed by 24 something else: the pension behemoth, unbelievable, 25 out of control. 1 To show you how bad it was: 2 We were getting an increase in Suffolk County 3 alone, and I know it was mirrored by our friends in 4 Nassau, $45 million. 5 That was not our bill. That was the increase 6 from the previous year alone, just on pension, 7 $45 million; matched by another $45 million the next 8 year. 9 Every three or four years, the pension 10 obligation was doubling, not just with us, but with 11 all the other municipalities around the state. 12 You wonder why they're going toward collapse? 13 Add to that the fact that police salaries 14 were increasing $40 million a year, Nassau and 15 Suffolk County. 16 I'm not talking about more brick-and-mortar 17 and more cars and more equipment; just the salaries 18 alone. 19 So here you are as an executive, nickel and 20 diming, trying to save $50,000 here, $100,000 there, 21 and then you go, Oh, my gosh, we just got a bill for 22 $45 million of new money we have to come up with for 23 a pension, and $40 million in new money we have to 24 come up with for police salaries, just two items. 25 Our General Fund is $49 million, and we have 1 to come up with these increases every year. 2 So you see how unsustainable it is. 3 We would pass a balanced budget in November, 4 December, the bill would go out. 5 For the following year, we're balanced. 6 But on January 1, we're already thinking, in 7 the back of our mind, when we have to put the next 8 year's budget together in September of that year, 9 we're $90 million in the hole. 10 We have to come up with this new money. 11 Where are we going to get it? 12 This is the problem that localities are 13 facing. 14 And we were able to -- you know, you were 15 able to get away with a little bit because stimulus 16 came in after the collapse in 2008, and it held you 17 over for a couple of years. 18 And then what happened after that, with the 19 schools and the towns and the counties? 20 You had some reserves, but now they are 21 exhausted. 22 And that is why we have a situation, where 23 what we are seeing in Detroit, and what we've seen 24 in San Bernardino, California, and Stockton, and 25 Vallejo, what the whole premise of this meeting is 1 all about, you may be seeing that here in localities 2 throughout the state of New York. 3 Now, a couple of years ago, the Governor put 4 together a panel on mandates, and they asked me my 5 reaction to it after I read it. 6 And I called it "89 pages of fluff." 7 It did nothing, it said nothing. There were 8 no specifics. 9 If we want to get out of this hole, we have 10 to go back to the tactic we used with Medicaid. 11 You have to have a very specific bill, or a 12 series of bills, and get both sides, the Senate and 13 the Assembly, to come on board. 14 So what do you need? 15 You have to know, "What is the problem?" 16 number one; 17 Number two, you need to know what the 18 solution is; 19 And, three, and most importantly, you have to 20 have the will to implement the solutions. 21 There's four major problems that we see, as a 22 center, that should be tackled immediately: pension 23 obligation; mandatory arbitration; the 24 Triborough Amendment; and worker-disability fraud. 25 If we can tackle those issues in 2014, I 1 think our localities can survive. 2 But if we continue to talk in generalities, 3 like changing the tax system, or doing something 4 that we know is not going to happen for years down 5 the road, if it ever happens at all, many of these 6 localities are going to collapse. 7 I'm just going to quickly go over pension. 8 What's the problem? 9 We guarantee a rate of return for the pension 10 years. 11 It doesn't happen in the private sector. 12 You put in money, it's matched by the 13 employer, and it rises and falls with the market. 14 But, here, we're guaranteeing a 7 1/2 to 15 8 percent rate of return. 16 What happens if that doesn't materialize? 17 We, the taxpayers, make up that difference. 18 And you can get away with that when it's the 19 boom '90s, but when the bubble burst in 2000 and 20 2001, and then you add September 11th, 10 years 21 worth of growth dissipated in a month. 22 And then the comptroller, whoever that may be 23 at the particular time, comes to the localities and 24 say, You have to make that all up in one year. 25 "In one year." 1 Well, then we got the opportunity to borrow, 2 and you wonder why they had to borrow? 3 Because you're asking localities to make back 4 10 years of growth in one year. 5 It's impossible. 6 And then when they borrow, they have to pay 7 interest on the borrowing, which shouldn't be the 8 case, by the way. 9 If you had to borrow to get by, at least make 10 it interest-free. 11 But beyond that, the bigger problem is the 12 guaranteed rate of return. 13 Why do we have that? 14 There's no need for that. We shouldn't have 15 a defined benefit system. 16 We should have a defined contribution system 17 as you have in the private sector. 18 I submit, and I concede, that that cannot be 19 done on existing employees, but at the very least, 20 we can do it on prospective employees. 21 I thought that was going to be done a couple 22 of years ago when they talked about pension reform. 23 They punted; it never happened. 24 So that's one solution. 25 Let's go to defined contribution: 1 Secondly, overtime in the base. 2 We have situations where there are some 3 public-safety retirees making $184,000 per year on 4 the pension. 5 The "Wall Street Journal" notes that there 6 are now 3700 individuals throughout the state of 7 New York with pensions over $100,000 per year. 8 People in the private sector say, This is 9 nuts! How does this happen? 10 Do you know the income you have to have to 11 get a pension of, a hundred and twenty, 12 a hundred and thirty thousand dollars a year as a 13 public employee? 14 What's happening? 15 We know. 16 The last couple of years, they're bilking up 17 the overtime to the max. 18 So that means that someone with a base pay of 19 ninety might be making a hundred and eighty grand in 20 the last year, and they're factoring that in to the 21 pension base, and that's how you get these 22 outlandish, outlandish pensions. 23 We see here that there are now, in 24 New York City, 13 police officers, who retired at 25 age 40, making $100,000 a year. 1 Unbelievable. 2 28 workers making over $195,000 a year on the 3 pension. 4 So what do we do? End it. 5 End overtime going into the base. 6 Now, the previous suggestion that I had with 7 the defined contribution, that's for prospective 8 employees. 9 We're not going to see any immediate saving 10 from that. 11 But if you want to have some real saving 12 right now, stop overtime now on existing employees 13 from being factored into the equation. 14 Not in 5 years, not in 10 years, not in 15 30 years; right now, so that when people are putting 16 their budgets together, they don't have to worry 17 about another $184,000 pension. 18 And, that, I submit can be done. 19 And if someone wants to challenge it, let's 20 go to court and let a court make the decision on 21 that. Okay? 22 Then you have, not only these individuals 23 making too much money on the pension, we have too 24 many of them making too much money. 25 The 20-year retirement is something we really 1 have to reconsider for public-safety individuals. 2 You could have an individual, comes in at 23, 3 is retiring at 43. That person who replaces him 4 retires at 43. 5 When that original person is 83, if he lives 6 that long, you have 4 people being paid for for that 7 one police-officer position. 8 That has to change. 9 So, we have solutions here; it's just a 10 matter of having the will to implement them. 11 Let me add this as well: 12 When we talk about these reforms, they have 13 to be real reforms. 14 I was getting very excited a couple of years 15 ago when I saw that panels were being put together, 16 they were talking about pension reform. 17 The Tier 5, the Tier 6, it was 18 window-dressing, at least for the near term. 19 Changing it from 62 to 63 for new employees 20 to retire, that's nice. It doesn't save you a heck 21 of a lot of money right now. 22 Asking for more contribution, that's good. 23 It should be done; it was done. 24 But you're not going -- that's only for the 25 new employees. 1 You're not going to see much money filtering 2 in now to save these localities on the cusp of 3 bankruptcy. 4 Let's go to the next topic: mandatory 5 arbitration. 6 "$200,000 police officers" is not an 7 exaggeration anymore. It's here. It's 8 unbelievable, but it's happening. 9 Now, that not only impacts your ability to do 10 proper police work, to put officers on the street, 11 but it's gobbled up the entire budget. 12 I mean, our General Fund, as I said, 13 $49 million, whatever, you look at a tax bill in 14 Suffolk County, it's $100 for the General Fund. 15 Look at the police district, which is 16 separate, $1,000. 17 The police district, a small part of the 18 budget, it dwarfs the General Fund. 19 There's no discretionary part of the budget 20 left. 21 Between the mandates and the money that goes 22 into the police department, there's nothing else 23 left for anyone else. 24 And that's why all these not-for-profits, all 25 these groups, these services, they're being 1 decimated. 2 You know, Willy Sutton was once asked, 3 "Why do you rob banks?" 4 And he said, "Because that's where the money 5 is." 6 If you ask a county executive, Why do you 7 look for money from the police department? 8 "Because that's where the money is." 9 That's where all the money is spent. 10 It's not just that mandatory arbitration has 11 brought us to these outlandish salaries, but you 12 have to look at the benefits and the work rules that 13 are embedded in these crazy decisions. 14 In Suffolk County, and I know it's matched in 15 Nassau County, it's not just that there's a $200,000 16 officer. 17 There's 26 sick days every year; 18 25-plus X-days, which are just extra days 19 off; 20 13 paid holidays; 21 Up to 6 weeks vacation. 22 It could be up to 100 days "paid" off each 23 year. 24 So it's not only this tremendous amount of 25 money you're paying out, but it's the number of days 1 off that makes it prohibitively expensive. 2 Now, some people would say, Well, you were a 3 county executive. Why didn't you get rid of that? 4 How can I get rid of that? 5 I can't go in there on my own and say, This 6 is outrageous, this is unconscionable. Stop it. 7 They go to PERB, and they win. 8 Why? Because they can go to the arbitrator, 9 and the arbitrator sides with them, time after time. 10 "Well, you can negotiate it out." 11 What do you think, they're just going to give 12 it back to me? 13 If I'm gonna want to get some of these work 14 rules back, I'm going to have to give them a 15 6 percent salary increase every year for the next 16 10 years. 17 It doesn't work. We need help. 18 We've got to get rid of the mandatory 19 arbitration system. 20 So how can we do that? 21 Two ways: 22 Number one, just get rid of it altogether, 23 which should be the case. 24 By the way, federal public employees, their 25 law enforcement, they don't have mandatory 1 arbitration. 2 Some people say, Well, you need that because 3 you don't want them to strike. 4 You can't strike at the federal level either. 5 You don't have mandatory arbitration. Okay? 6 But we thought again, you know, I got 7 excited, because the Governor was talking about 8 doing something, that I've been recommending, that 9 E.J.'s been recommending, let's have the 2 percent 10 cap on awards, like Chris Christie in New Jersey did 11 a couple of years ago. 12 Okay, he's talking about it's gonna to be 13 done. 14 It's put in the budget; it's taken out of the 15 budget. 16 But what was put in the budget was full of 17 loopholes. 18 They accepted step increases, and it wasn't 19 applying to every locality, just a few localities. 20 So, let's get a real 2 percent cap. 21 The Governor put together a panel. 22 "We're gonna have the unions in there, we're 23 gonna have business people in there, we're gonna 24 have legislators in there. They come up with 25 something and then I'll support it." 1 Nothing happened. 2 Why? 3 Because unless everyone comes to a consensus, 4 we're not going to do anything. 5 Do you think the union was going to support 6 that? 7 Can you imagine, if you put the union on the 8 panel for the property-tax cap? 9 Do you think you'd have a property-tax cap 10 right now? No way. 11 You have to move forward and make the tough 12 decision. 13 So, let's get a real, hard 2 percent cap. 14 Hello, Senator Boyle. 15 Third, Triborough Amendment: 16 The main thing about the Triborough, why it's 17 so insidious, is that it totally eviscerates the 18 unions' incentive to negotiate, or to give back. 19 So I might want to be very eager, as a county 20 executive, and say: Look, these work rules are a 21 bit nuts. We've got to get rid of them or I've got 22 to give you zero percent; or, I need to you to 23 change this or that; or, get a contribution for your 24 health care...for instance. 25 They say, you know, Go pound salt, because I 1 still get my increases. 2 Now, look, if the contract expires, is anyone 3 going to be so cold-hearted or foolish to say, 4 "Okay, all you employees, you don't get a paycheck"? 5 Of course not. 6 These people have families, they have to pay 7 their bills. 8 Of course you get a paycheck. 9 What the Triborough Amendment did, is 10 continue the steps even after the expiration of the 11 contract. 12 So you're sitting back and you're getting a 13 raise, even though you haven't -- you don't have a 14 contract in place. 15 We in New York are the exception. We are the 16 anomaly when it comes to this crazy doctrine. 17 It's time it goes. 18 No other state around the union deals with 19 this kind of craziness. 20 That's why there's no incentive to negotiate. 21 Please, get rid of the Triborough Amendment. 22 It's the most complained of thing from our 23 school districts and our localities today. 24 Finally, disability fraud: 25 Take a guess at the percentage increase in 1 the number of people who have gone on some kind of 2 worker's disability, from 1959 to today? 3 Think of a number. 4 Try 640 percent. 5 You cannot tell me that our workplace is that 6 much more dangerous than it was in 1959. 7 I would submit, it's probably a lot more safe 8 today than it was back then. 9 Something has changed. 10 The culture has changed. It's become a 11 cottage industry today. 12 Some of these statistics are just incredible. 13 You know, we heard, we saw, what happened in 14 the Long Island Railroad, this culture of, Oh, it's 15 just a, you know, part of the system. 16 Even in New York City, according to the 17 "New York Post," one-third of all New York City 18 Police Department retirees have some type of 19 disability pension. 20 The problem in New York is, we have a 21 presumption, a law that's written into the books, 22 that says: If you have a heart or a lung ailment, 23 it is presumed that it was related to the job. 24 Thus, you have all of this disability payout, 25 which is starting to bankrupt the system. 1 So we have solutions here. 2 Go on -- on the pension side, let's get rid 3 of the overtime factored into the equation, and 4 let's go for the long term into a defined 5 contribution system; 6 Get rid of mandatory arbitration, or, at the 7 very least, get a 2 percent hard cap; 8 Get rid of the Triborough Amendment; 9 And get rid of the presumption in our 10 disability rules. 11 Now, you know, I'm going to have a pension 12 pretty soon, whether it's, I'm at 55, or 62, as, 13 hopefully, you all will as well. 14 People ask me, Well, you know, are you saying 15 things that are going to hurt yourself? 16 Let me tell you, I'm the first one to say, I 17 think I should be paying more as a future pensioner. 18 Why? Because I want to have a pension in 19 20 years. 20 You know what happens in Detroit and 21 San Bernardino and Vallejo when they go bankrupt? 22 It's not just the bondholders who pay. 23 It's the retirees who are going to pay a lot 24 more than even the bondholders. 25 So if we don't give in a little bit right 1 now, there's going to be doom at the end, and you 2 killed the goose that laid the golden egg. 3 Retirees, present employees, in 4 Suffolk County pay zero on their health-care 5 contribution. 6 "Zero." 7 Who gets that? 8 It's nuts. It has to stop. 9 How do we make these changes? 10 We've been talking about control boards, 11 bankruptcy...whatever. 12 Again, the Governor got me excited there for 13 a while, saying, We're going to get control boards 14 throughout the state. 15 I've never been an executive who feared 16 control boards. I think they're great. 17 I think they're a great tool that gives you 18 the power to do things you'd otherwise be unable do. 19 We should embrace them. 20 But the kind of control boards the Governor's 21 talking about, again, it's fluff. 22 "Oh, we're going to put this panel together, 23 and we'll tell localities, we'll confirm, Yeah, you 24 got a problem." 25 Well, thanks for telling me something I 1 already know. I know I got a problem. I need 2 authority to do the very tough things that have to 3 be done. 4 So, Senator Marcellino, when you ask, "What's 5 the number one thing that has to happen here?" 6 there's got to be the authority to undo some of 7 these insane contracts. 8 That's the way these places are surviving 9 around the country. 10 And I, vehemently, I respect Assembly Brodsky 11 tremendously, a very, very bright man, and very 12 committed to his views, but when, you know, he 13 criticized E.J. McMahon, saying, who said "It was 14 a spending problem," and, it's not a spending 15 problem; 16 It is a spending problem. And it's not just 17 something that's going to go away without tackling 18 the spending. 19 That's where it all emanates from. 20 He says, Well, the cities are collapsing. 21 The cities are collapsing because they've 22 overspent in their obligations. 23 What's the root of the problem? It comes 24 back to the spending. 25 So, long story short, we've got to get an 1 outline, we've got to get a bill of specifics. 2 No more generalities. No more sweeping it 3 under the rug. 4 I commend the Senate, because you've always 5 been in the lead. 6 And I understand how frustrating it can be, 7 to put up a bill, where you become a target now, and 8 you don't have it mirrored, you know, in the 9 Assembly. 10 You're saying, What am I putting it up for if 11 it's going nowhere anyway and I got to take all 12 these barbs? 13 Well, I can promise you this: If there's 14 leadership from the Senate in 2014, with the type of 15 reforms that we've laid out here today, the 16 Center For Cost-Effective Government will have your 17 back; 18 Unshackle it, the state will have your back; 19 The Empire -- I'll let E.J. speak for 20 himself, but I know the Manhattan Institute and 21 taxpayers throughout the state will have your back. 22 Assembly Brodsky is right, there has to be a 23 conversation, but it can't be in generalities 24 anymore. 25 These localities are on the brink of 1 collapse. 2 It has to be now; 3 It has to be specifics; 4 It has to be with a real set of bills put in; 5 It has to come from the Senate. 6 We will make sure that we get the Assembly 7 leaders in the same room, put the pressure on them, 8 and then let the people of this state see that there 9 is some light at the end of the tunnel. 10 So thank you all, very, very much, for your 11 time, your consideration. 12 And, I hope we made a few points that were 13 cogent. 14 SENATOR BOYLE: Thanks. 15 SENATOR MARTINS: I just want to recognize 16 Senator Boyle. 17 Senator, thanks for being here. 18 Next up we have, Mayor David Tanner, who is 19 from the village of East Williston, who is the 20 president of the Nassau County Village Officials 21 Association. 22 UNKNOWN MALE SPEAKER: Just one minute. We 23 just found out we have a technical difficulty to 24 project the PowerPoint presentation [inaudible.] 25 SENATOR MARTINS: So let's move on to the 1 next speaker, and we'll come back. 2 UNKNOWN MALE SPEAKER: [Inaudible.] 3 UNKNOWN MALE SPEAKER: [Inaudible.] 4 SENATOR MARTINS: Mayor, would you -- David? 5 MAYOR DAVID TANNER: Yes, sir? 6 SENATOR MARTINS: Would you prefer we went on 7 so you can get your PowerPoint presentation? 8 MAYOR DAVID TANNER: No, that's okay. I'll 9 just talk you through it. 10 SENATOR MARTINS: Thank you. 11 MAYOR DAVID TANNER: I know we availed the 12 presentation to the Senators up there, so, that's 13 fine. 14 Thank you, anyway. 15 SENATOR MARTINS: Good morning, how are you? 16 MAYOR DAVID TANNER: Nice to see you again. 17 SENATOR MARTINS: Likewise, thank you. 18 MAYOR DAVID TANNER: Senators, nice to see 19 you again. 20 Senator Boyle, actually, we've had an 21 opportunity to meet. 22 I'm David Tanner, mayor of East Williston. 23 I'm here to -- this morning, as the president 24 of the Nassau County Village Officials Association. 25 And as some background: 1 We represent 64 villages in Nassau County, 2 equates to about 450,000 residents; 3 And we pride ourselves on being a 4 non-partisan caucus representing the interests of 5 villages in Nassau County, and throughout the state. 6 I have a presentation that we availed to you, 7 to the Senators, this morning. 8 There is a particular issue I just want to 9 bring to your attention, to talk about in more 10 detail. 11 It's an issue that affects the counties, 12 villages, and cities, not only in Nassau County, but 13 also in New York State as well, throughout the 14 state. 15 But before I do that, I just want to tag a 16 couple of bases for you, very quickly. 17 We wanted to be on record to support one of 18 the legislation that I understand, Senator Martins, 19 I believe you're backing; that is, the legislation 20 that requires, in order for IDA tax benefits to be 21 passed through to the -- to an applicant, they 22 require the approval of the underlying jurisdiction. 23 That does tend to be a very important issue 24 for us. 25 Obviously, as has been stated before, and I 1 don't want to belabor it at this point, because I 2 think it's been covered already as well, the need 3 for pension reform. 4 Unfunded mandates, such as electronic voting 5 machines that we're being required to use at this 6 time, does cost our village quite a bit of tax 7 dollars. 8 Some of the larger villages are reporting 9 that it increases $45,000 to run their elections, 10 which otherwise cost them maybe $5,000. 11 So in the big scheme of things, $35,000, 12 $40,000, may not mean a lot, but it certainly does 13 to some of the smaller budgets. 14 We also hear anecdotal information that some 15 of our member villages are being stressed by an 16 overwhelming majority of their tax base, or a good 17 percentage of their tax base, being not-for-profits, 18 which take them off the tax role itself. 19 There are a couple of municipalities, in 20 particular, that has brought that to our attention 21 too. 22 So, again, just wanted to tag those bases 23 with you before we move forward. 24 And if you turn to page 3, I do want to focus 25 your attention on the issue of property-tax 1 collections, as that does tend to be a leading 2 indicator of fiscal stress. 3 The benchmark usually used by the industry, 4 and also represented or recognized by the rating 5 agencies, is a 95 percent tax collection annually. 6 And that essentially is, when you look at 7 what -- it's a percentage of total collected over 8 total tax levy. 9 So if you have $100 million -- or let's say, 10 $100 million tax Levy, 95 percent would be 11 95 million. 12 So that's the basis in which we're using that 13 percentage with you this morning. 14 But in the mid-2000s, Detroit was already 15 showing signs of fiscal stress by virtue of its 16 tax-collector record, which was tapering towards the 17 "95," and actually going below that as well. 18 As I mentioned earlier, this is an issue that 19 does affect upstate, as well as downstate. 20 And as a reminder, I know the good 21 Senator Martins, as a former mayor, you don't need 22 to be reminded of this; however, the property taxes 23 are the dominant source of revenue for our local 24 municipalities. 25 Again, [unintelligible] cities who do benefit 1 a little bit more from the sales tax than the 2 villages, though, however. 3 As a bit of a -- some background: 4 There are, essentially, three stages of 5 problems, or, as it progresses: 6 If you [unintelligible] property taxes, most 7 healthy municipalities have 100 percent collections. 8 What does tend to happen, the first signs of 9 it, is that they trend down below the 199 percent, 10 towards 97 percent where a lot of municipalities can 11 still survive. 12 At the 97 percent level, they tend to sell 13 tax liens to make themselves whole, and that works 14 for a period of time. 15 But eventually what happens is, those same 16 municipalities are forced to sell the tax liens for 17 their own villages. They're also selling liens for 18 the county collections as well. 19 So at some point, those properties start to 20 become underwater; and, therefore, become other 21 underlying economic problems to their economic-base 22 problems too, which is evidenced, when you look at 23 the tax-receivables number that are carried on the 24 municipalities' audits, as well as deferred 25 revenues. 1 So, a "tax receivable" being the accumulated 2 taxes that have gone unpaid, historically. It's a 3 look-back number, if you will. 4 I have for you this morning, three sample 5 municipalities to discuss. 6 One is a city in Nassau County, one is a 7 village in Nassau County, and the other is a city in 8 Upstate New York. 9 Essentially, the city in Nassau County still 10 will have, or has, about a 97 percent tax-collector 11 levy. They're stable, they're surviving. 12 They're averaging, I mean, 2012, for example, 13 on about a $32 million budget, they had $621,000 in 14 uncollected taxes. 15 Interestingly enough, this one municipality 16 is "triple-B" rated. It does have its own 17 fiscal-stress issues; however, it's not really a 18 function of its tax collections itself. 19 It's most likely functions of just pure 20 operational budgets. 21 And you can also see by -- on the next page, 22 page 6, the receivables do tend to be stable as 23 well; that is, that the amount of taxes owed, from 24 year to year, are not going up. They're being 25 managed. 1 If you look at the chart on the right, that 2 we provided, again on page 6, 2010, there was an 3 annual increase in receivable about 3.7 million. 4 That's been reduced by 2.8 in 2011, and 5 further reduced by almost 600,000 in 2012. 6 Going to the second example that we provided 7 with you this morning, is the tax-collection record 8 of a village in Nassau County. 9 The variances that this village is collecting 10 in their tax -- their tax monies, for example, in 11 2012, there was about a $2.4 million shortfall. 12 This is on, I believe, about a $64 million 13 budget. And even though, while $2.4 million may not 14 sound like a lot, it does tend to be the difference 15 between an operating deficit and an operating 16 surplus. 17 And as operating deficits do continue, that 18 forces cash-flow borrowing, and that is -- it almost 19 becomes a point of no return. 20 It's very difficult, as you may see by some 21 of the cities in Nassau County are experiencing 22 right now. 23 While this particular municipality has an 24 "A" rating, what they've been able to do is manage 25 this over time, either, through selling leans, and 1 also, probably, through some budgetary 2 contingencies. 3 That's the only way, really, to remain this, 4 but at some point, again, that still remains a 5 short-term solution. 6 Their receivables have been increasing, 7 again, now -- accumulated over time. 8 They had an annual increase in the tax 9 receivable, in 2012, of 1.1 million. 10 The prior year, 2011, 900,000. 11 Again, this is often the difference between 12 operating surplus and operating deficit. 13 The last example I have for you this morning 14 is an upstate city. 15 This city has, I believe it's an "A-," "A-3," 16 rating. 17 One of the rating agencies has them on 18 negative outlook. 19 And what -- typically what happens is, if you 20 have an "A" rating, and when you drop, it's often 21 not unusual to drop two or three positions. 22 It's not unusual to drop from a low "A" to a 23 low "B" -- low to mid-"B," especially under certain 24 circumstances, like we're observing here, for 25 example. 1 This particular municipality has had 2 uncollectible taxes in the range of 2.5 million for 3 the last three or four fiscal years. 4 And, obviously, at what point is that 5 sustainable? 6 And they're even a smaller budget. They're 7 going to have a budget, probably, about 35 million. 8 And they've already trended below the 9 95 percent level of tax collections. 10 Their receivables are mounting even higher, 11 again, the amount of taxes that remain uncollected 12 over time. 13 They have now, a uncollectible receivable of 14 $19 million. 15 There was an annual increase last year of 16 2.6 million. 17 The year before, that receivable increased 18 $6 million as well. 19 So, these are huge, huge numbers. 20 Again, it's a good tracking system. It's a 21 good indicator of fiscal stress. 22 Why are we presenting this to you this 23 morning? 24 We'd like the -- you to consider amending 25 some of the legislation, that would allow the 1 municipalities to clear some of these properties at 2 some point, bring them back into the market; 3 To consider the use of land banks; 4 Consider the use of, maybe, low-interest 5 loans, to help, again, bring the properties back 6 online, bringing some economic vigor back to the 7 communities. 8 If there's anything that could be done to 9 help expedite the sale of tax liens. 10 There was a firm doing this in 2003, called 11 "Leperc," L-E-P-E-R-C. There was some sort of 12 lien-securitization process in place, which ended up 13 in mixed results. 14 However, again, some of these municipalities 15 with $19 million in tax receivables, even if you can 16 clear, you know, 5, 10 percent of that, that 17 certainly would be real dollars to these 18 municipalities, because they're, by law, not 19 permitted to write these off. County law does not 20 permit that. 21 What they end up doing is, moving it from a 22 receivable to a deferred revenue, so, it's just a 23 technicality on that. 24 But, again, anything that the Legislature 25 could see fit, state government could see fit, to 1 help expedite lien sales, facilitate, again, no 2 securitization. 3 And, also, possibly urban homesteading 4 programs in some of these communities. 5 That reckons us back to the early '70s, I 6 believe. Late '70s. 7 I'm aging myself now. 8 And, again, potential tax breaks. 9 And, that's it. 10 Thank you very much for this opportunity. 11 SENATOR MARTINS: As we look out at villages 12 in our county, you know, go to Senator Marcellino's 13 question, what would you say is the number one issue 14 facing fiscal stability in dealing with this fiscal 15 crisis? 16 MAYOR DAVID TANNER: Villages in 17 New York State, or villages in Nassau County like 18 I'm focused on? 19 SENATOR MARTINS: Nassau County. 20 MAYOR DAVID TANNER: Nassau County? 21 Most the villages in Nassau County don't have 22 this problem. There are a couple that do the tax 23 collections. 24 Although, again, it is an indicator of fiscal 25 stress, so I did want to, you know, focus on that 1 per se. 2 Besides the opportunity -- a lot of this 3 comes down to the tax collections. Again, we're 4 responsible that -- makes up, about, 80, 90 percent 5 of our revenue generation. 6 There are some of us that have -- are 7 fortunate enough to have a broader tax base, where 8 they can garner 40 percent of the budget via 9 non-tax revenue, or 30 percent, which tends to be 10 pretty high. 11 It has to be cost controls. 12 Again, I'll tell you that, based on the 13 pension costs, that is high. 14 The unfunded mandates that I mentioned as 15 well. 16 The lack of control of having our own -- over 17 our own tax base too. 18 I think that would be the two key. 19 And medical costs as well. 20 SENATOR MARTINS: I appreciate it. 21 MAYOR DAVID TANNER: Okay. 22 SENATOR MARTINS: And thank you. 23 MAYOR DAVID TANNER: Thank you very much. 24 SENATOR MARTINS: Next up we have, 25 E.J. McMahon, from the Empire Center for Public 1 Policy. 2 E.J. McMAHON: Good morning. 3 SENATOR MARTINS: Good to see you again. 4 How are you? 5 E.J. McMAHON: I think it's still 6 "good morning." 7 SENATOR MARTINS: It is still morning. 8 And, thanks for joining us. 9 E.J. McMAHON: Thank you. 10 Thank you, Senator Martins, 11 Senator Marcellino, Senator Boyle. 12 Well, it's been mentioned here this morning 13 already, what we've been experiencing in the past 14 five years, and what our local governments and state 15 have been experiencing, is actually something new 16 and unprecedented in the post-World War II Era, 17 which is, a prolonged period of sluggish economic 18 growth, coupled with a pronounced disinflationary 19 tendency, so that revenues not only plummeted, they 20 have barely recovered to where they were. 21 But, it's important to recognize the 22 recession, or the so-called "Great Recession," did 23 not cause the problems now faced by many counties, 24 municipalities, and school districts; rather, the 25 recession exposed a fundamental structural imbalance 1 in our state and local budgets, budgets that had 2 been geared to run on average annual revenue 3 increases that were unsustainable in the long run. 4 An important point to make, and not to be 5 forgotten, I think, is that the largest single 6 component of local budgets, indeed, typically, 7 two-thirds or more of municipal spending in 8 particular, and a somewhat higher percentage of 9 school-district spending, is employee compensation. 10 Local government is a people business on both 11 sides. 12 And in New York, the wages and salaries of 13 employees are -- and their benefits are driven by 14 inflexible collective-bargaining agreements, 15 essentially, locked into place under the Taylor Law. 16 Now, the crucial question for the Legislature 17 to consider here is, whether there is a State 18 interest in preventing local governments from 19 drifting into insolvency. 20 In New York, the answer, up until now at 21 least, has always been yes. 22 The framework for heading off municipal 23 bankruptcy in New York, since the mid-1970s, has 24 been to create a financial-bailout vehicle, coupled 25 with a state control board to oversee local 1 finances. 2 And this has been put into effect 3 a half dozen times since the New York City fiscal 4 crisis, including twice in the case of Yonkers. 5 Now, no one would claim that control boards 6 are a cure-all; although, I would agree with some 7 previous speakers who pointed out that they've an 8 effective way to at least temporarily restore 9 stability and to forestall much more serious 10 financial problems in places where local leaders and 11 other stakeholders have been unwilling or unable to 12 voluntarily make the decisions that need to be made 13 to restore those attributes to the system. 14 But control boards are no substitute for 15 permanent fundamental structural reform. 16 The problem is, that existing state laws, 17 including but not limited to the Taylor Law, make 18 such structural reforms very difficult to 19 accomplish. 20 If you're looking for a more effective 21 alternative to the financial-control-board model, 22 here it is: 23 Give local officials more tools to fix their 24 own problems, and then get out of their way. 25 That would mean embracing, not ignoring, 1 needed Taylor Law reforms, such as repeal of the 2 Triborough Amendment. 3 Parenthotically -- parenthetically, I'd like 4 to add, by the way, and I've heard some of this 5 today, I -- few issues in state law are as poorly 6 and widely poorly misunderstood as the 7 Triborough Amendment. 8 In the early '70s, the Public Employee 9 Relations Board, through an arbitration agreement or 10 mediation, established something called the 11 "Triborough Doctrine." 12 The Triborough Doctrine, which has the force 13 of law, protects and locks in place all so-called 14 "mandatory items of negotiation" after a contract 15 has expired. 16 "Mandatory items of negotiation" include pay 17 benefits and work schedules. 18 The Triborough Amendment, which was enacted 19 in 1982, goes beyond that, to lock in non-mandatory 20 items, the principal one being step increments -- 21 step pay increments. 22 If you repeal the Triborough Amendment, you 23 are not, repeat "not," repealing the 24 Triborough Doctrine. 25 If you repeal the Triborough Amendment, you 1 are not leaving unions bereft of all protection and 2 at the mercy of employers who can completely 3 eradicate their benefits or salaries. 4 That's not true. 5 So I would urge you to keep that in mind. 6 Giving local officials more tools to fix 7 their own problems would also mean overturning 8 PERB rulings and decisions that have curtailed 9 management prerogatives in some significant ways, 10 such as those protecting costly so-called 11 "past practices" and shielding unit work from 12 competition or consolidation. 13 And it would mean reopening the compulsory 14 binding-interests-arbitration provision you just 15 extended, this time, to impose a tight cap on 16 overall costs of arbitration awards to police and 17 fire unions in all localities, without exception, 18 not just those that are already broke. 19 The goal, ultimately, should be to force more 20 power and accountability down to the local level by 21 giving local officials more of the bargaining 22 leverage they need to restructure labor contracts 23 they can no longer afford. 24 Unfortunately, in lieu of either 25 strengthening the "control board and state 1 oversight" model, or, finally giving local officials 2 the tools they need to manage and restructure more 3 effectively on their own, the Governor and the 4 Legislature seem to have been embracing a vague, 5 irresolute, and inconsistent approach that won't 6 solve fundamental problems, and, in fact, is more 7 likely to perpetuate them. 8 A troubling precedent was set in recent 9 legislation -- in the last session, actually, when 10 two -- when both Houses passed measures clearing the 11 way for the issuance of deficit bonds by 12 Rockland County and the City of Long Beach, 13 respectively. 14 In the case of Rockland County, which already 15 has the second highest per-capita debt of any 16 county, the Legislature authorized additional 17 deficit financing of $96 million. 18 Now, this would equate to, roughly, 19 80 percent of that county's property-tax levy, which 20 is the equivalent of allowing New York City, for 21 example, to issue $16 billion in 10-year deficit 22 notes. 23 In the case of Long Beach, the authorized 24 deficit borrowing of $12 million is the equivalent 25 of $12 billion in deficit financing by the state of 1 New York. 2 The only string attached to the 3 Rockland County deficit bond is a requirement that 4 the state comptroller annually review the 5 county executive's budget, and pass on 6 recommendations to the Legislature which needs to 7 take account of them. 8 The Long Beach deficit borrowing is 9 completely unconditional, no strings attached, which 10 is completely unprecedented. 11 Both these bills represent a further dilution 12 of the already watered-down approach taken in the 13 Newburgh Fiscal Recovery Act, Chapter 223, of the 14 laws of 2010, which gave that city the ability to 15 issue of up to $ 15 million in deficit bonds without 16 the involvement of a control board. 17 That bill also, I would suggest, was 18 problematic, but Newburgh, at least, was subject to 19 many more conditions than Rockland County or 20 Long Beach would face if their bills are signed. 21 Newburgh doesn't just have to have a -- 22 submit to comptroller's annual review of the budget, 23 There are detailed requirements for quarterly 24 financial-plan reports and updates, and for the 25 issuance of a long-term financial plan in Newburgh. 1 The original Newburgh bill was over 2 seven pages long. 3 The Rockland County bill is less than 4 two pages long. 5 The Long Beach bill is a single page. 6 This, I would suggest, is not progress. 7 This kind of legislation creates an enormous 8 moral hazard. 9 You send a signal to local officials 10 throughout the state in the same way that these 11 repeated spin-ups, that Governor Ravitch mentioned 12 earlier, have sent a certain signal; and the signal 13 is: When you're up against the wall, we'll let you 14 off the hook. 15 If the Governor signs these bills, 16 Rockland County and Long Beach will get to buy time 17 with borrowed money, without any assurance that they 18 have taken firm steps to identify and address their 19 problems, or any proof to you that they have done 20 so. 21 And others will be in line, you can be sure, 22 for similar treatment. 23 Now, the Local Government Restructuring 24 Board, established by Chapter 67 of the laws of 25 2013, also fall short of what's needed. 1 Chapter 67 is a passive and voluntary 2 approach, basically, all carrot and no stick, 3 seemingly designed to keep problems at bay almost 4 indefinitely without forcing anyone to actually 5 confront them and fix them. 6 I respectfully suggest that Chapter 67 was a 7 misfire. It's not the answer, and the issue needs 8 to be revisited. 9 The buck has to stop somewhere, and it's up 10 to you -- and you're looking at this today -- it's 11 up to you to decide where. 12 The Governor and the Legislature need to 13 consider and choose among three separate different 14 options than the ones they're looking at -- than 15 looked at earlier: 16 One would be to adopt a strengthened model of 17 State intervention in distressed localities, 18 establishing clear and measurable benchmarks, such 19 as a combination of low or non-existent reserves and 20 mounting out your budget shortfalls. That would 21 trigger the imposition of some sort of control 22 period. 23 And as part of this, you would expand the 24 power of state control authorities to reshape 25 unaffordable elements of contracts and other 1 spending commitments; 2 Or -- or, you could enact the sweeping 3 Taylor Law reforms of the sort I cited earlier, 4 which counties and municipal leaders have been 5 calling for over two decades; and I would note, 6 elected officials in both parties all over the 7 state. 8 And then challenge them to basically put up 9 or shut up. Challenge them to use their new 10 leverage to fix their problems. 11 "You asked for it, you got it," is 12 essentially the message. 13 Or, one other approach: 14 Take the same approach as California: stand 15 back and allow some counties and municipalities to 16 go bankrupt. 17 This would at least allow some of them to 18 [unintelligible] contracts they could not afford, 19 and to reduce, possibly, some of their debts. 20 And as Mr. Brodsky pointed out, in terms of 21 market discipline, bankruptcy has advantages that 22 control boards lack. 23 On the other hand, it's an unpleasant 24 experience for all concerned, not the least, the 25 people who live in these insolvent communities. 1 I'd like to close with a reform idea that's 2 downright easy, by comparison with some of the 3 challenges I've thrown in front of you just over the 4 past few minutes. 5 This fits in with, and should be viewed as, 6 an absolute prerequisite to any approach or 7 combination of approaches you decide to take to 8 local fiscal distress, and here's what that reform 9 idea consists of: 10 Counties, municipalities, and 11 school districts throughout New York State should be 12 required to produce long-term financial plans, 13 including spending and revenue forecasts covering at 14 least four future years. 15 That would include, in other words, next 16 year, and three years following that. 17 Those plans should be posted online, and made 18 readily available in print form, to ensure the 19 fullest possible public awareness and engagement in 20 the budgeting process. 21 This is not, repeat "not," a costly and 22 daunting new mandate. 23 The tools for this budgeting reform are 24 readily available to those who want to use them. 25 A multi-year planning guide for local 1 governments has been developed by the 2 Controller's Office, which also offers training to 3 local officials in building long-term plans off of 4 simple spreadsheet templates. 5 Basic guidelines for long-term financial 6 plans have been issued over the years by the 7 Government Finance Officers Association, to which, 8 virtually, all local budget officials belong. 9 We've got models out there. 10 New York City has provided that with a strong 11 model of long-term financial planning. 12 Other examples have been provided by a 13 handful of New York counties and municipalities, 14 including Nassau, that in the -- at the outset, were 15 forced to begin developing their own long-term plans 16 as part of financial-control situations. 17 To its credit, by the way, Yonkers' 18 Mayor Spano has also voluntarily begun issuing 19 4-year financial plans, which have made clear the 20 extent of his problem, and also where it stems from. 21 Now, in fact, this is nothing new. 22 I don't know if you're aware of this: 23 Some, indeed, I suspect most, local 24 government and school-district officials in schools 25 and localities of any size, beyond the tiniest 1 level, already do this. They already develop 2 long-term projections as an internal planning and 3 management tool. 4 But, they fail to routinely share their 5 projections with the public as part of their annual 6 budget process. 7 Now, in the absence of such information, it's 8 almost impossible to independently evaluate claims 9 by many local governments and school districts that 10 they're approaching their own steep fiscal cliffs, 11 although, the available evidence suggests that many, 12 indeed, are. 13 But think about this for a moment: 14 Here we are today, questioning whether some 15 municipalities might not be far from insolvency; and 16 if so, what you might do about it. 17 In the absence of multi-year plans, we, 18 literally, don't know what we're talking about. 19 "We don't know what we're talking about." 20 You hear talk of Syracuse? Where's their 21 long-term plan? 22 I got news for you, it doesn't exist in 23 public. 24 Where is Long Beach's long-term plan? 25 Where is Rockland's long-term plan? 1 Actually, Rockland's long-term plan is 2 online. 3 Absurdly, the Legislature there insisted that 4 it be, quote/unquote, "balanced." 5 And so, every year, the budget director in 6 Rockland plugs in a property tax -- the assumption 7 of a property tax, like, large enough to fill their 8 yawning out-year gaps; so, it's useless. 9 This is not hard. 10 And if any excuse you hear for why this is 11 not done -- 12 And I'll be glad to discuss it in a Q&A if 13 you want. 14 -- is, simply, it will not hold water. 15 It's high time you simply require this. 16 They -- there's just not enough localities 17 are doing this and getting on the stick. 18 Now keep in mind, multi-year plans are not 19 binding commitments. They're guidance documents 20 reflecting where a government is headed if current 21 reasonably foreseeable trends continue. 22 By showing where and when revenues diverge 23 significantly from expenditure, these plans provide 24 an early warning of potential trouble ahead and give 25 local leaders and the public time to make 1 adjustments. 2 Now, long-term plans won't, by themselves, 3 solve problems or guarantee better results. They're 4 a tool. 5 By requiring local officials to consider the 6 long-term impacts of short-term decisions, it will 7 promote more responsible fiscal behavior. 8 Beyond the numbers, it can also provide a 9 vehicle for establishing performance goals and 10 objectives, and for measuring a government's project 11 in meeting -- process -- pardon me, progress in 12 meeting them. 13 So, I think that, while I raise a lot of 14 tough issues with you, and that were implicitly 15 critical of some things you've done, I think, in the 16 end, one thing that just about everyone can agree 17 on, and, in fact, I think most speakers today have 18 agreed on, is the need to begin systematically 19 requiring a systematic preparation and public 20 issuance of multi-year financial plans, and to 21 require that they be updated in the matter they are; 22 for instance, in New York. 23 With that, I conclude my testimony, and I'd 24 be happy to talk with you. 25 Oh, by the way, I gave you copies of a paper 1 we've done at the Empire Center, on long-term plans, 2 that has some detailed background in it, in case you 3 have any further questions on that. 4 SENATOR MARTINS: Thank you. 5 E.J. McMAHON: Thank you. 6 SENATOR MARTINS: The issue of multi-year 7 planning, "real" multi-year planning, out 8 three years beyond the current year, is a recurring 9 theme in each of our hearings. 10 It is oftentimes the lowest-hanging fruit 11 from the suggestions of things we can do. 12 And I think it makes -- obviously, makes a 13 lot of sense in terms of contextualizing where we 14 are. 15 Having said that, I think we can all agree 16 that cities like Yonkers, Syracuse, Rochester, and 17 Utica, for a number of other factors beyond 18 long-term planning, are in very difficult straits. 19 There are circumstances, most having to do 20 with legacy costs that they have, and decisions that 21 were made, that have placed them, and other 22 similarly situated, in some rather difficult 23 positions. 24 And, you know, the question arises: What is 25 the responsibility of the current generation, or the 1 current elected executive or city council or 2 Legislature, to deal with, and what is the ability 3 of them to deal with, these legacy costs, and 4 decisions that were made, 10, 20, 30, 40 years ago? 5 The way the system is configured today, there 6 is very little, if any, opportunity to renegotiate a 7 decision, a poor decision, that was made years ago, 8 leaving the current population with no option but to 9 pay for those bad decisions over and over again. 10 And so I think part of our discussion is: 11 How do we unwind that? 12 How do we allow for some parity that allows 13 for true negotiations in an environment that will 14 only benefit the tax base, as well as, frankly, the 15 long-term viability of that employment base, and the 16 stability of our benefit, pension, health-care, 17 base, going forward? 18 Because, we have to unravel that. 19 "How?" becomes a whole different issue. 20 And I understand the challenge here, and I 21 appreciate your insight, but that still becomes the 22 issue: How do we unravel it, and how do we allow 23 for renegotiation of issues that have been legacy 24 decisions in many of these cities, including 25 Syracuse, et cetera, for decades? 1 E.J. McMAHON: Well, I think that's a real -- 2 I think you framed the question very, very well. 3 That is a key issue. 4 I would like to suggest an answer relating to 5 the largest of those legacy costs. 6 The largest legacy cost in municipalities 7 across New York State, and particularly including 8 the municipalities you mentioned, the upstate 9 cities, for instance, the largest legacy cost is 10 retiree health benefits. 11 In fact, Syracuse, as well as Buffalo -- and 12 I'm not sure whether the case is yet true with 13 Rochester -- Syracuse, in its annual budget, now 14 spends more every year on retiree health benefits 15 than it spends on health benefits for active 16 employees. 17 Because, retiree health benefits, unlike 18 pension benefits, which are prefunded through large 19 pools of invested assets in a statewide fund, and, 20 essentially, are paid for in advance through a 21 savings plan, to simplify it a bit, retiree health 22 benefits are not paid at the time that the person 23 earns them. They are paid by the next generation 24 when the person collects them. 25 It is done on a so-called "pay-go basis." 1 Imagine if you were paying pensions now to 2 retirees straight out of your pocket on a pay-go 3 basis, out of annual taxes, rather than having the 4 pension fund pay them. 5 That's the way we do retiree health benefits. 6 And, again, in a growing number of places, 7 including, I know, Buffalo and Syracuse, the bill 8 for retiree health benefits right now, already, is 9 higher on an annual pay-go basis than it is for 10 active employees. 11 Now, the collective net-present value of 12 what's been promised to employees in those cities is 13 enormous, and it's enormous statewide. 14 In fact, we've done a calculation that, 15 statewide in New York, every level of government in 16 New York -- state's, cities', public authorities -- 17 everything that has a public component, the unfunded 18 liability for retiree health obligations comes to 19 $250 billion, according to the official reports of 20 those entities. 21 That's a quarter trillion dollars of 22 completely unfunded liabilities. 23 The good news is, you can begin to unwind 24 those -- to a significant extent, those liabilities; 25 although, every year we delay, it will get harder. 1 Here's why, and how: 2 First of all, retiree health obligations are 3 not part of and subject to the constitutional 4 prohibition on diminution of retirement benefits 5 that are earned through the pension system. 6 They are not covered by that. They are not 7 untouchable. 8 In many cases, they're not even contractual. 9 They're the subject -- they are the product 10 of some past resolution or local law, which can be 11 changed. 12 Even where they are contractural, people who 13 are -- there's a clear legal -- there are clear 14 legal precedence indicating that people, once -- the 15 union members, once retired, are no longer 16 represented by unions. 17 So how do you begin to unwind these things? 18 Well, one common attribute of retiree health 19 benefits throughout the state, is that employers 20 pick up or reimburse the full cost of Medicare 21 Part B premiums for people once they've turned 65. 22 Now, that's a fairly token amount. 23 It comes to about $120 a month, and it's 24 means-tested. 25 And the federal government put that small 1 token premium payment into Medicare, back in the 2 Lyndon Johnson Era, as a way to give recipients some 3 skin in the game; to give you some sense that you 4 were contributing to this program. 5 Again, it's a trivial amount, but when you 6 have a large number of retirees, it adds up -- it 7 can add up to a significant amount, even in a 8 small -- relatively small city. 9 I think there's little justification for 10 making -- for paying or reimbursing Part B Medicare 11 premiums for people who have higher retirement 12 incomes than the average city resident. 13 Remember, you're talking about people who, if 14 they worked a career in government, have higher 15 retirement incomes than their neighbors, and can 16 afford to pay the Part B premium. 17 In any case, you'd get means-tested. 18 Secondly, the principle reason that the cost 19 of retiree health obligations is so expensive, is 20 that government employees, by and large, on average, 21 retire early, before they're eligible for Medicare. 22 And this is particularly the case with police 23 and firefighters who retire in their 40s; and, thus, 24 spend up 20 years receiving free or heavily 25 discounted health insurance under, not a "Cadillac" 1 plan, more of a "BMW" platinum plan, that's 2 completely paid for by taxpayers after they've 3 retired. 4 And then when they get into Medicare, it 5 becomes a supplement to their Medicare coverage. 6 That's, how, why, it's expensive. 7 You can begin now, there's two ways to get at 8 that cost. 9 First of all, is to begin to change the 10 nature of the deal that's promised to current 11 employees, and to increase the share that's paid by 12 retirees. 13 Governor Cuomo is doing this, subject to 14 legal challenge, on the state level. 15 He negotiated an increase in the 16 contributions for active state employees, and is 17 applying the higher contribution levels to some 18 retirees. 19 Now, it's being challenged in court, but, the 20 unraveling process, ultimately, comes back to one of 21 the issues I mentioned earlier. 22 If you don't give these local officials the 23 flexibility under the Taylor -- more flexibility 24 under the Taylor Law, including Triborough repeal, 25 and a really hard cap on arbitration, that makes it 1 less desirable for unions, and makes it more 2 desirable for unions to actually negotiate, unions 3 are not going to get of their dime and negotiate 4 changes to health benefits. 5 And if they don't negotiate changes to health 6 benefits, you're going to find it hard to negotiate 7 changes to retiree health benefits. 8 Let me -- in the final analysis, here's what 9 happens when places go insolvent: 10 It's already happening in Stockton; it's 11 happening in Detroit -- it's going to happen in 12 Detroit; and it's happening right now in Chicago. 13 What's the first thing to go? The retiree 14 health benefits. 15 Okay? 16 Chicago is throwing its retirees into the new 17 Affordable Care health-care exchanges. 18 You will, mark my words, see that in 19 New York, sooner or later, if localities don't -- 20 aren't given the tools to come up with different 21 approaches on their own before then. 22 And there are other approaches: self-funded 23 retiree trusts, with -- that were union-managed, 24 that could provide retiree health care and insulate 25 them from these problems. 1 But, nobody can talk about these things -- 2 can talk about doing anything, other than taking 3 some benefit from a retired -- a person who's 4 already retired, or, requiring a person who's 5 already retired to pay more. 6 Nobody can get at these unfunded liabilities 7 unless you get at these Taylor Law provisions I was 8 talking about. 9 That's it, pure and simple. 10 They're not uniform statewide. 11 It's impossible to make a case for the State 12 getting involved and assuming them. 13 Although, you created another very bad 14 precedent when you assumed the retiree health-care 15 obligations of the New York City OTB, I would point 16 out. 17 That was a small amount of money that is 18 putting you at the top of a slippery slope you do 19 not want to fall down. 20 One final suggestion: The need to unwind 21 these things, as you pointed out, is really 22 important, and finding ways to unwind them is really 23 important. 24 A corollary to a sort of Hippocratic Oath 25 approach to government is: First, do no harm; or, 1 second, don't do anymore harm. 2 Bills have been introduced in the Legislature 3 each and every year, for the past 10 years, that 4 would extend a provision already applying to 5 school-district employees only, and make it 6 impossible to restructure retiree health-benefit 7 obligations, unless the exact same change is 8 negotiated with unions representing employees. 9 Those types of bills would have the effect of 10 further locking in and locking down legacy costs, 11 and making it impossible, or very difficult, to get 12 out from under them. 13 And those types of proposals simply should no 14 longer be entertained by the Legislature, because 15 they're untenable. 16 They're not passing, but, again, they're put 17 in every year, and they are union priorities. 18 So, there is -- there are paths. The paths 19 differ somewhat by locality, to dealing with this. 20 I'd urge you to look at the White Plains 21 case, for instance, which has resulted in some 22 litigation, so far, won by management, in which 23 White Plains began to restructure its retiree health 24 obligations for some of its uniform unions. 25 It's not always pleasant, because it tends to 1 focus on people who are already retired, when the 2 focus should actually be on current active 3 employees. 4 It's the reverse of the situation you hear 5 about. 6 You know how when unions negotiate contracts 7 with concessions? 8 The old word is, "they killed the unborn," so 9 to speak; 10 Or, they get the newly hired persons -- the 11 new hires are the ones who have a lower pay 12 differential, or some other deal. 13 The opposite thing tends to happen when it 14 comes to retiree health benefits. 15 It's the old who tend to get stuck, when you 16 really need to make the big savings in what you've 17 promised to the people who are still working and who 18 are younger. 19 So, it's a long discussion, but I think it's 20 absolutely the right question. 21 And the good news is, there are answers to 22 it. 23 It's not a "one size fits all" answer in all 24 cases; although, the Medicare Part B issue is one 25 that should be addressed everywhere, and I think can 1 be done, in many cases, without negotiation but by 2 local law. 3 SENATOR MARCELLINO: Thank you, Mr. Chairman. 4 E.J. has answered my initial question, in 5 this last discussion. 6 I just want to apologize, I have to leave. 7 I'm already going to be late for a prior 8 appointment. 9 So I apologize to the following speakers who 10 are coming. 11 No disrespect intended. 12 And I look forward to hearing your testimony 13 at our hearings on the tax-reform policy. 14 E.J. McMAHON: Thank you. 15 SENATOR MARCELLINO: Take care. 16 SENATOR BOYLE: Thank you, Mr. Chairman. 17 I'm in the same boat. 18 I will take the opportunity to read 19 everyone's testimony. 20 I appreciate it very much. 21 E.J., a quick question: What do you think 22 the argument is, and you know it's going to be made, 23 whether in court, of the retirees who say: Look, I 24 took this job, I was offered these potential 25 benefits down the road. And, I made a decision, as 1 a young person, when, before I went into municipal 2 government, as opposed to the private sector, this 3 is what your pay was going to be, this is what your 4 pension was going to be, this is what your health 5 was going to be, and now you're changing the game 6 after the fact? 7 How do you answer that, and how do you think 8 it ends up -- it does in court? 9 E.J. McMAHON: I would answer that, and my 10 pragmatic argument in answer to that, was, "Well, 11 your union didn't care enough to ensure that these 12 were financed adequately, so that's your problem," 13 quite frankly. 14 I've been pointing out the issue, and I'm not 15 alone, with these costs for years, they've been 16 steadily mounting. 17 They are, literally, to use that overused 18 word, "unsustainable." They will not be paid in all 19 cases. 20 Repeat, "they will not be paid." 21 So anybody who goes into court in a few years 22 from now, and says, I'm shocked, what happened? 23 Unions are refusing to deal on this. They're 24 treating it as somebody else's problem. 25 And I think, ultimately, they're undermining 1 the interests of their own members in doing so. 2 But the lesson is: If it's not prefinanced, 3 it's not necessarily going to be there. 4 SENATOR BOYLE: Thank you. 5 Thank you, Mr. Chairman. 6 SENATOR MARTINS: Mr. McMahon, as always, 7 thank you. 8 E.J. McMAHON: Thanks, Senator. 9 SENATOR MARTINS: I appreciate your 10 testimony, and I'm sure we will be speaking in the 11 future. 12 E.J. McMAHON: Thank you. 13 SENATOR MARTINS: Next up we have, 14 Jerry Laricchiuta, who's the president of CSEA 15 Local 830. 16 Good afternoon, how are you? 17 JERRY LARICCHIUTA: Good afternoon. 18 Thank you, Senator Martins. 19 SENATOR MARTINS: Thank you for joining us. 20 JERRY LARICCHIUTA: Thank you, Senators, for 21 allowing me to speak today and address the panel, 22 and this Committee, on some very important issues. 23 As I've been listening to some of the 24 testimony, we've been doing some of work in the 25 union office, and listening to some of the 1 testimony. 2 I can see that I'm, obviously, in the 3 minority here, as far as opinion is going to be 4 going. 5 But I do want to address a few issues, 6 because I think that it's important to note that we 7 have to start thinking progressively throughout the 8 state, and we have to start looking at other areas 9 other than labor. 10 And I think that's been the main problem 11 here. 12 And you can look at Nassau County right here. 13 We are under a wage freeze now, going into 14 our third year. We haven't had a raise, we haven't 15 had a step increase. 16 Our workers -- our workforce has been reduced 17 and depleted down to record lows. 18 And I know I heard Mr. Ward speak and say 19 that services have not been affected. 20 And I would disagree with that strongly. 21 I would say that we have, in social services 22 alone, over 2,000 clients a day, and growing, go 23 through our social-services department. 24 And that is a tremendous amount of people to 25 try and help each and every day. 1 And we do that, caseloads are double and 2 triple recommended amounts. 3 We're actually losing money in some areas, 4 where we don't have enough child-support 5 investigators, and we're trying to rebuild those 6 areas up. 7 But really what it comes down to, it's 8 everything, I believe, starts from the top, down. 9 So let me just address Governor Cuomo, and 10 some of the actions that he has taken, and I think 11 how the trickle effect has hurt local governments. 12 Between, what, 2010 and '11, I think 13 New York State has seen a decrease of 50,000 public 14 employees in this state. That's a tremendous amount 15 of people to be on the unemployment rolls. 16 And that has affected local governments, as 17 well as state workers. 18 And as a result, services have absolutely 19 been affected. 20 And, we've added to the social-services rolls 21 because people are hitting the poverty level, 22 they're losing their homes. 23 In fact, what we need to do, is go in a 24 different direction, and we need growth. 25 I think even -- I've heard Ed Mangano, and 1 I've heard other candidates that are running, talk 2 about smart growth. 3 And I think that is an area that we all 4 should be focusing on, is getting the economy to 5 bounce back through growth and job creation in the 6 private sector, while maintaining acceptable levels 7 of service to the public. 8 And that's not happening, and that's where 9 the trick is. 10 I heard -- I was listening intently as former 11 County Executive Steve Levy was addressing, the 12 unions, the unions. 13 Every speaker that's been up here so far: 14 It's the unions that are dragging everyone down. 15 Well, I mean, let's take Nassau County, for 16 example: 17 No raise in three years; 18 We've had two pension reforms in the last 19 five years; 20 We've decreased the workforce by 1,000 in my 21 union alone. 22 Is the problem solved? 23 I don't see any problems solved. 24 We talk about amending the Taylor Law. 25 The Taylor Law is there to protect, not just 1 management and the residents, but it was made to 2 make sure there's fair collective bargaining 3 throughout the state for both sides. 4 What happened with the Taylor Law, is because 5 management and government proved to be unable to 6 collectively bargain in good faith back in the day 7 when it was just the Taylor Law. 8 The Taylor Law forbids public workers from 9 striking and taking any job actions. 10 And nobody is going to disagree with that. 11 However, it proved, in the beginning, to be 12 such a one-sided battle, that the 13 Triborough Amendment was brought in to protect the 14 public workers, and get some reaction from 15 management to involve in fair collective bargaining. 16 You cannot take away one right and say, It's 17 illegal for public workers to strike, but then amend 18 the Triborough Agreement. 19 Could you -- I heard former County 20 Executive Levy say, Imagine putting a union member 21 on a tax panel, or some remark to that effect. 22 Well, I would say to you, imagine me, or any 23 other union leader, having to negotiate a contract 24 with a county executive, or a mayor, or a governor, 25 that would say to me: You have 48 hours to come and 1 bend to our demands or you will lose your health 2 insurance, or you will lose your step raises, or you 3 will lose your right to vacations and sick days. 4 That's what the Triborough Agreement does. 5 It allows time for both sides to sit down and 6 negotiate and bargain collectively in a fair manner. 7 If you're going to impose rule one, where 8 public workers cannot have a job action or strike, 9 then you absolutely have to keep the Triborough 10 Agreement in place; otherwise, the attack on labor 11 will continue. 12 And, you know, there's so much misinformation 13 out there. 14 And I think the fact that the Governor has 15 put a restructuring board in place, okay, let's see 16 where that goes, if good things come out that, like 17 these hearings, for instance. 18 Okay, we're all ears, and we want to hear 19 what can be done, other than attacking labor. 20 And that's what I'm afraid of. I only see 21 one direction. 22 We've had former control-board members, we've 23 had governors, we've had mayors, county executives, 24 and everyone seems to think that, if you continue to 25 attack the public-sector worker, all our problems 1 will go away. 2 And that's just simply not true. 3 We are in a stagnant economy. 4 Here in Nassau County, there is no growth. 5 We do need to promote, somehow. 6 Get more private-sector jobs in here so our 7 children and grandchildren will have a future. 8 Because, as of right now, there is no future 9 here. The exodus has already begun. 10 People are fleeing Long Island and 11 Nassau County. The minute they get out of college, 12 and the minute they retire, they are leaving. 13 They can no longer afford to live here, and 14 services that they would need are no longer being 15 provided. 16 And, quite frankly, to keep pointing fingers 17 at the union is short-minded, and it's not working, 18 folks. 19 I mean, you guys are the leaders of our 20 state. 21 Governor Cuomo has forced more unfunded 22 mandates down the throats of local governments. 23 He's cut, I think it was 2 percent across the 24 board in AIM funding to all localities. 25 So some of his nice-sounding programs, like 1 Tax-Free New York, sounds great. Not so sure it's 2 the answer. 3 I think the idea of promoting job growth is 4 good; however, offering millionaires tax-free 5 incentives while other businesses struggle to pay 6 their taxes, I'm not so sure that's a good idea, 7 quite frankly. 8 But, stay on the road of promoting growth. 9 Get off the road of attacking the same -- how 10 many times can you go back to the same well? 11 How many times can we say, it's the unions? 12 And I'm going to give you an example right 13 now of a perfect example of what we're talking 14 about. 15 In Nassau County, which is one of the 16 highest-taxed counties probably in the country, the 17 county portion of our bill is 17 percent, roughly. 18 So I'll use a $10,000 tax bill. 19 On $10,000 property-tax bill, roughly, $1700 20 of that $10,000 comes to Nassau County. 21 Of that $1700, $300 goes to pay for my entire 22 5,000-plus workers. 23 And if you were to include, everyone else 24 would be police and corrections, it's $700. 25 Where did I get that information? 1 I got that information from our Nassau County 2 Comptroller George Maragos. 3 We gave him an actual $10,000 tax bill. We 4 asked him to analyze it. 5 We said, Out of that 10,000, what is the 6 public paying for? 7 For all the services we provide; hundreds and 8 hundreds of services that we provide each and every 9 day, $300. 10 So if you fired every CSEA worker, and no 11 longer had our 911 ambulances, our crossing guards, 12 our deputy sheriffs, our probation officers, our 13 social services, our health departments, and I could 14 sit here for another hour and rattle off over 15 800 titles, that $10,000 tax bill would be $9,700. 16 We'd still be one of the highest-taxed net 17 counties in the nation, with two services left: We 18 could arrest them, and we can lock them up. 19 We can't feed them, we can't give them 20 medical services. 21 That's what my members do. 22 So, we start -- we need to start looking at 23 other avenues. 24 And I think that -- Comptroller DiNapoli's 25 monitoring of distressed villages and localities, I 1 think it's is a good idea, but, somehow, I looked up 2 Nassau County, and they're not registered, or 3 they're qualified. 4 We're under a control board. 5 Do you really need Tom DiNapoli to tell us 6 that we are a distressed locality? 7 What is going on with that? I don't 8 understand. 9 Did we not put our paperwork in fast enough? 10 Of course we're a distressed locality, we 11 know that. 12 My members will be the first one to tell you 13 that. 14 I have members stuck at $23,000 a year now, 15 going on their third year. 16 They cannot afford to live here. They are 17 losing their homes. 18 And we did nothing wrong to promote this 19 problem. 20 We just come to work. 21 And if you're a nurse, you take care of 22 patients; and if you are a crossing guard, you cross 23 children. 24 This is a national crisis, we get it. 25 But, everyone talks about Detroit. 1 Detroit's been a 40-year-long problem. 2 You know, they put all their eggs in one 3 basket there; 4 It's been terrible government run for many 5 years; 6 And as the tax base continued to shrink, and 7 shrink and shrink, and they were only left with one 8 major manufacturing business, the auto industry, 9 which we had to bail out, and we did; 10 That's why they're in the situation they are 11 in today. 12 Can that happen in Nassau County? 13 No, I don't believe that the Detroit 14 scenario, as it's played out in Detroit, could, but, 15 the exodus has begun, which will mean that, someday, 16 the market will change; 17 Which means that when I'm retired, the 18 Baby-Boomers -- us -- 19 Well, you're a little young, Senator Martins. 20 -- but, for me, I'm a Baby-Boomer. You know, 21 I'm getting older. 22 There's a lot of us. 23 We own homes. 24 Who's going to buy our homes in 10 years when 25 we retire, or 5 years when we retire? 1 'Cause the generation behind us is unable to 2 get the work they need in this area. 3 So as the supply-and-demand economics work 4 and the market values, when we have 20 homes for 5 sale for every buyer, that's what happened in 6 Detroit. 7 The tax base shrunk, the people fled. They 8 had enough. They couldn't afford the taxes. 9 And back to the taxes, if we are only -- the 10 total workforce is only 7 percent of that tax bill, 11 don't you think we should start looking about 12 solving the problem of the rest of the tax bill? 13 Because, you know, there are two kinds of 14 financial components that people deal with: 15 One is budgets that governments deal with; 16 and that's county executives, mayors, folks like 17 yourself, deal with state budgets, county budgets. 18 The average homeowner in Nassau County could 19 care less about budgets. They don't know anything 20 about budgets, they don't want to. 21 What they care about is, item number two, is 22 taxes. 23 I always hear, workers' compensation, 24 salaries, and pensions account for 48 percent of our 25 county budget. 1 That's low. 2 In many counties it's, 60, 65 percent. 3 It's low here because we owe so much money 4 out. 5 It's low here because we have reduced the 6 workforce to -- I always hear to 1950 levels. 7 That's a good thing? 8 Our population has quadrupled since 1950. 9 How can we maintain the services with the 10 same work force as 1950 when our population has 11 grown by four times? 12 So the folks at home, the man or the mom, the 13 guy that mows his lawn once a week, he doesn't care 14 or get into our budget process, but he cares about 15 that tax bill that comes in. 16 Why are we not addressing the fact that, only 17 7 percent of that tax bill goes to pay for public 18 workers, where is the rest going, and how can we fix 19 that? 20 As far as, you know, Governor Cuomo and some 21 of his incentives, you know, the jury is still out 22 on that, and a lot's going to come to your table, 23 and you're going to have to get involved with some 24 big arguments. 25 And I hope that we do not talk about amending 1 the Taylor Law and Triborough Agreement, because I 2 just spelled out for you the importance of that 3 agreement. 4 I hope we talk about ways of 5 incentisizing [sic] other businesses to come to 6 New York, to build businesses up, to create jobs in 7 the private sector. 8 Our construction here in Nassau County, our 9 building and trades folks, they've been suffering a 10 long time, 30, 40 percent unemployment. 11 We need to create new jobs in all areas. 12 Why not get a niche? 13 Nassau County is 20 miles from the financial 14 capital of the world. 15 Why not have a niche? 16 Why not be Wall Street, Junior? 17 Why not offer some kind of incentive to bring 18 these companies out? 19 Because, the rents in New York City are far 20 worse than the rents in Nassau County. 21 Create jobs, create growth, give them reasons 22 why they want to come here, but don't give them 23 minimum wage. 24 That's the problem with the bill that is 25 going forth, the Tax-Free New York. 1 It seems that the idea was to build jobs, and 2 that's a great idea, except, looks to me like very 3 big companies are gonna reap in more profit. And 4 because the employees are not going to pay income 5 tax for the first five years, that's going to be 6 used as a tool to lower their salaries. 7 Minimum wage is not going to trickle down. 8 People working for minimum wage is not going to help 9 our economy. 10 It's not gonna trickle down. 11 That's like trickle-up the economics. 12 Maybe the idea was a good one to start off 13 with, but I think it needs to be tweaked. 14 And as far as control boards go, well, I'm 15 not going to say too much about control boards, 16 because we're in litigation on this one. 17 But I do think that control boards have to be 18 apolitical. They cannot have an agenda, and they 19 cannot have a -- be politically-driven. 20 And, you know, in defense of any county 21 executive that tries to balance a budget, while all 22 county executives in this state are allowed to use 23 modified accruals, we are held to the GAAP standard, 24 strict GAAP standards, under a control board. 25 That might be prudent, and it might sound 1 good on paper. I don't think there's a county in 2 America that has a balanced budget under GAAP's 3 standards. Pure 100 percent GAAP standards. 4 So there has to be some give-and-take on both 5 sides, so that these budgets can move on, we can 6 begin to pay people. 7 We can borrow money that we need to borrow 8 without going too crazy, because, then, the 9 long-term debt is one of the reasons why we are in 10 the situation we're in. 11 We're paying for the debt that was incurred, 12 10, 15, 20 years ago. 13 It's not the labor. We've given. 14 We've given everything. We've been frozen. 15 We gave up $150 million in concessions 16 voluntarily, and had another $150 million taken from 17 us involuntarily. 18 Our pension reform; we've had two pension 19 reform bills passed in the last, four, five years, 20 and yet we're in worse shape than ever. 21 So if everybody continues to concentrate, 22 because that's the popular thing to do, it's 23 poll-driven, the public is angry at the public 24 workers, because that's the message going around the 25 country, the Scott Walkers of the world, well, then, 1 we're going to get nowhere, because, eventually, the 2 taxpayers will find out, the residents will realize, 3 Hey, these guys were not the main reason why we are 4 in this situation. 5 It was bad government. 6 It's not -- if you're going to put all your 7 eggs in the labor basket, you're not going to solve 8 this problem. 9 All you're going to do is reduce the 10 workforce and reduce the services to county, 11 villages, and, of course, the state. 12 We've lost 50,000 jobs in this state since 13 2011. 14 That can't be a good thing. 15 I thank you for your time. 16 I just wanted to give the other side of this 17 story. I've been listening to everyone else. 18 And, so, thank you very much for allowing me 19 to come. 20 SENATOR MARTINS: Jerry, it's great to see 21 you. 22 Thanks for being here. 23 JERRY LARICCHIUTA: Likewise, Senator. 24 SENATOR MARTINS: You know, a couple of 25 things. 1 One, government's a service organization. 2 If it weren't for people who are actually 3 doing the work, it wouldn't exist, and there would 4 be no use to having it. 5 So, it isn't the other side of the story; it 6 is an integral part of the story. 7 And, so, I'm glad you're here. 8 I'm glad you came, and you provided the 9 perspective, because it is important, and, 10 certainly, that has to be part of our discussion. 11 A couple of minor points. 12 One, AIM funding went up in New York State. 13 CHIPS funding went up in New York State. 14 So New York State has been -- 15 JERRY LARICCHIUTA: In this last year? 16 SENATOR MARTINS: Yeah, in this last year. 17 The issue we have oftentimes, and we hear 18 about, you know, the need for the State to give more 19 monies to localities, whether it's covering more 20 costs for the county when it comes to Medicaid, or, 21 for our villages and towns when it comes to AIM 22 funding or CHIPS funding, is, you know, from a 23 taxpayer perspective, whether they're paying it out 24 of their right pocket or whether they're paying it 25 out of their left pocket, it's still coming out of 1 their are pocket. 2 And, so, the idea of coming up with different 3 ways of paying for these things, I think is 4 important. 5 Your point about redevelopment is a point we 6 made earlier. 7 Obviously, we need to create our economy, 8 build our economy, and create those jobs, that then 9 feed, you know, those services that we all rely on. 10 So it is important that we have that 11 perspective here. 12 I think we're dealing with a couple of 13 issues, though, more so when we address our cities 14 in Upstate New York, where they're reaching a point 15 where they don't have -- I mean, I had an example 16 of, one of the mayors in Upstate New York asked me: 17 If I need 100 police officers in order to 18 keep my city safe, and I have $10 million budgeted, 19 and $100,000 -- and just simply, $100,000 per police 20 officer, I need those 100 police officers. 21 I don't have that $10 million, and I'm left 22 with the option of, either, trying to renegotiate to 23 keep 100 people here, or, cutting the police force 24 to a level that's going to create some danger for 25 the residents. 1 What do we address? How do we address that? 2 And I'm not pointing at labor. 3 I'm asking for a discussion. 4 JERRY LARICCHIUTA: Well, I think the first 5 part of your argument and your -- not argument, but 6 your question is: Why does he only have 7 $10 million, or whatever number he has? 8 SENATOR MARTINS: I'll give you the example. 9 Let's say that it was, you know, Carrier 10 having left Syracuse, or, Otis having left Yonkers, 11 or, Kodak having left -- 12 JERRY LARICCHIUTA: Rochester. 13 SENATOR MARTINS: -- Rochester, and you have 14 a significant employer in the community, 15 historically, I mean, they've been there for a 16 hundred years, and they left, or they file for 17 bankruptcy, and you have now an entirely different 18 dynamic in that city, but you still have those same 19 expenses and you still have the same need. 20 So, circumstances changed. 21 They're going to have to rebuild their 22 economy, to create those jobs and that tax structure 23 that'll support it, but it's going to take some 24 time. 25 JERRY LARICCHIUTA: Yes. 1 SENATOR MARTINS: So that's -- I mean, that's 2 the reality today. 3 And, again, I'm not pointing fingers at 4 anyone. This isn't why we're here, but, we do have 5 to have that discussion. 6 So, I can't tell you enough how much 7 I appreciate you being here. 8 We had reached out to, you know, various 9 labor representatives, to ask them to participate in 10 our hearings in Upstate New York. 11 And, it's great to come home to Nassau County 12 and to have you participate here. 13 So, I appreciate it. 14 Thank you. 15 JERRY LARICCHIUTA: It was my pleasure, and 16 I hope that I at least gave you some insight from 17 our side of the table that you can use in the 18 future. 19 I know this is a complex and dire situation, 20 and I'm not saying that change is not needed, and 21 the landscape of the future is going to change for a 22 lot of people. 23 I think everybody gets that. 24 It's just that it seems that we are just 25 narrow. 1 And I heard Steve Levy's entire presentation, 2 and all he could talk about was the labor 3 agreements. 4 Do you mean to tell me, on a $2 billion 5 budget, it's, the only area that you can improve on 6 is labor? 7 There's other ways of approaching it. 8 And in Nassau County, we are addressing it, 9 obviously, whether we like it or not. 10 And, has it worked? No. 11 And, that, I think is what my point is, that 12 you really need to think outside the box. 13 One question I had was, just to think out of 14 the box a little, and I did some research on this, 15 and I said: Hmm, how can a, you know, county 16 generate revenue in New York State? 17 I know someone, a legislator from 18 Westchester, and I think this is a great idea, 19 because from what -- a legislator from Westchester 20 has proposed their own lottery. A county lottery. 21 Now, we're waiting for, to see if that goes 22 against the State Constitution, or not. 23 But I think that is a step. 24 People are spending money on the lottery. 25 Now, of course, the State gets a tremendous 1 amount of revenue and disburses it amongst counties. 2 I don't even know if Nassau gets any of that, 3 to tell you the truth. I tried finding out, and 4 I couldn't get an answer. 5 If we do, it's nominal compared to other 6 upstate areas. 7 Okay, upstate is in dire need. 8 But why wouldn't a municipality be allowed to 9 maybe run their own program, that they would use 10 just for the county? 11 Also, solar energy, I think this is the wave 12 of the future. I really believe this. 13 I think that we should be investing right 14 now. 15 We should be hiring companies that 16 manufacture solar panels right here in the county, 17 or at least on Long Island. 18 We should be giving incentives to those 19 companies to hire people that live here in 20 Nassau County. 21 We should be working with the federal and 22 state and local governments to give incentives to 23 the homeowners to put the panels on their roof. 24 It's a win-win for everybody. 25 It's a national-security issue, because it 1 makes us less dependent on foreign oil; 2 It builds the economy locally; 3 It strengthens where -- what we need to do is 4 on build jobs; 5 And we can become the solar-panel 6 manufacturers of the state. 7 And, you know, technology has come a long 8 way. They make these panels pretty quick now. It's 9 not like it was, 10, 20 years ago, but it still 10 costs $30,000 to have it put on your house, so most 11 people can't afford that. 12 These are just the kinds of -- I just gave 13 you an example of two ideas, thinking out of the box 14 a little bit, trying to get off the -- you know, get 15 the target off of labor's back for a little bit, and 16 a come up with other ways that we can promote 17 growth. 18 And, thanks for listening to me. 19 SENATOR BOYLE: If I could, I agree with you 20 completely, especially regarding the solar energy. 21 You know, I've been dealing with the solar 22 professionals, companies, out here. 23 What they have told me over the last couple 24 of years is that, New Jersey is a national leader on 25 the solar industry. 1 We need to become like New Jersey. 2 I have solar-energy professionals in the 3 district get up at 5:00 in the morning, get in their 4 car, get their crew together. 5 They drive all the way to New Jersey to put 6 solar panels on people's roofs, and then they drive 7 back, right past our office. 8 You know? 9 I mean, we need keep them here in Nassau and 10 Suffolk County, creating jobs, creating income, tax 11 revenue, and the whatnot. 12 Also regarding your idea of the lottery: 13 I'm not sure about the county lottery, but I 14 can tell you that I had the bill in this past 15 session to bring VLTs to the OTBs in Nassau and 16 Suffolk County. 17 JERRY LARICCHIUTA: Right. 18 SENATOR BOYLE: Conservatively, I think it's 19 going to be $25 million per county, based on 20 estimates that they have from New York City. 21 I mean, it's gonna -- yeah, that's -- 22 JERRY LARICCHIUTA: It's a good shot in the 23 arm. Thank you. 24 SENATOR BOYLE: It's a great shot in the arm, 25 yeah, exactly. 1 And so, you're absolutely right, we need to 2 find revenues. 3 Whether it's a new industry, gaming 4 interests, or whatever the case may be, we're 5 finding them, and we appreciate the very fact that 6 it's not always -- 7 JERRY LARICCHIUTA: Keep plugging on them 8 solar panels, because, you know, I think that's a 9 niche that we could really excel at, and really 10 generate a lot of revenue, and you keep it in-house. 11 They have to be residents of Nassau County. 12 The companies have to hire from Nassau County. The 13 panels should be made here. 14 And, that, every county can do the same, but 15 I would like to see that become our thing here in 16 Nassau. 17 Thank you very much. 18 SENATOR BOYLE: Thank you. 19 SENATOR MARTINS: Next up, we have 20 Eric Alexander, executive director of 21 Vision Long Island. 22 Good afternoon, how are you? 23 ERIC ALEXANDER: How are you? 24 SENATOR MARTINS: Good to see you. 25 ERIC ALEXANDER: Good to see you, too, 1 Senator Martins. 2 And thank you for bringing this important 3 issue forward. 4 Vision spends -- we spend a lot of time in 5 local communities, and working with our local 6 municipalities on advancing development and 7 redevelopment in downtown areas, and trying to bring 8 infrastructure to local communities. 9 And sometimes we don't highlight some of the 10 issues that redevelopment can bring to the economic 11 bottom line of local municipalities, so we wanted to 12 highlight some of those thoughts today, given this 13 thoughtful hearing. 14 And certainly learned a lot on other aspects 15 of municipal finance, just by listening today; so, 16 thank you. 17 So we understand -- number one, we understand 18 the stress and burden that local municipalities have 19 faced. 20 And what I want to talk about briefly, is 21 what we would view as underperforming assets. 22 So, the tax benefit of mixed-use development, 23 we find, is, in many cases, just giving the example 24 of the village of Huntington, mixed-use development 25 is at least two or three times as much revenue as 1 single-story buildings; so, we go from $74,000 an 2 acre, to $351,000 per acre in mixed-use buildings 3 and three-story buildings in downtown Huntington. 4 We've got some examples of that. 5 So we know that there are international 6 models, there are local analysis, that show us that 7 mixed-use development is a benefit to local 8 communities' finance and bottom line. 9 Secondly, there's a reduction of 10 infrastructure costs that go into -- per capita, 11 that go into servicing downtown areas versus 12 servicing [unintelligible] oriented development 13 outside the downtown. 14 There's also an efficiency in municipal 15 services. 16 There have been studies that show there's a 17 10 percent savings reduction with downtown 18 redevelopment, versus, again, providing services 19 outside town centers. 20 So what does this mean as far as local 21 examples? 22 On Long Island right now, there's over 23 50 projects approved, smart-growth projects, in 24 different downtowns, from Patchogue, to Westbury, to 25 Great Neck Plaza. 1 The former mayor of Mineola, you certainly 2 know, Jack -- Senator Martins, you know the three 3 $80 million projects that you've advanced, and some 4 of the other measures that you've taken, that have 5 transported Mineola towards a very healthy economic 6 bottom line during these difficult times. 7 We know that there are planned redevelopments 8 in Glen Cove and Long Beach and Hempstead, and many 9 others; again, 7,000 units of housing approved, more 10 on the way. 11 And what we see, is that these types of 12 projects can, again, benefit the local communities. 13 Now, there's some intangibles. 14 There are opportunities for the municipality 15 to negotiate community and public benefits through 16 redevelopment forms, which can also bring additional 17 dollars to the downtown. 18 We have seen these redevelopment and 19 mixed-use projects provide a multiplier effect on 20 jobs, become a multiplier effect of support for 21 small businesses that need the shot in the arm. 22 We also know that there is a New York State 23 Public Infrastructure Act that prioritizes dollars 24 towards downtown areas and redevelopment. 25 So, again, communities and municipalities 1 that target their municipal commercial-business 2 districts for redevelopment and growth, again, will 3 have an aid with the state. 4 And then there's the missed opportunities, 5 right; the one on the cover of "News Day" today. 6 You actually do have to -- sometimes, you 7 have to -- sometimes you have to send a memo to 8 local municipalities to -- you actually have to 9 apply for funds. 10 In the case of Nassau County, they are 11 finally applying for funding for garages, and other 12 support for the Nassau hub area. 13 There was eight years, where, there were 14 six rounds of various funding for public benefits 15 for the Nassau hub, that there were no applications, 16 that we're aware of, that were submitted. 17 So, state and federal dollars are in place at 18 times, but they have to go. 19 You got to be in it to win it. 20 And the local municipalities have to act, and 21 supply, put in grant proposals, and, actually, to 22 secure these funds. 23 And, unfortunately, Nassau County did not do 24 that in past times. 25 So, I'll just remind you of that. 1 But the point we'd like to make, just to 2 close, is we see a growing pie. 3 We know there's a market demand for 4 redevelopment. 5 We are seeing that growth area in suburban 6 areas throughout the tri-state area, and suburban 7 areas throughout the country. 8 And, Long Island is ripe with a whole variety 9 of trends that are moving forward on the 10 transportation and the East Side access. 11 We're seeing a double-track come online. 12 We're seeing transportation infrastructure in 13 place. 14 We're seeing the market shifts, where 15 actually aging Baby-Boomers are looking to be in 16 downtown areas. 17 So, there's an opportunity to provide this 18 growth, and support this growth, so local 19 municipalities should take the lead in looking at 20 their property differently. 21 So, again -- but, lastly, I'd just urge a 22 little bit of caution. 23 Long Island is a community of communities. 24 Decision-making should stay local. 25 And they should -- you know, folks, local 1 mayors, and certainly town supervisors and 2 councilmen, should shape the type of growth they 3 want to see in local communities, and tailor those 4 growth patterns. 5 But, again, I just wanted to highlight the 6 fact that there are some underperforming assets out 7 there. 8 And, it's good to see you also, 9 Senator Zeldin. 10 And I know, you know, you care deeply about 11 this issue in the Mastic [unintelligible] 12 communities, and others, that are looking to shape 13 their growth patterns. 14 But, I just don't -- sometimes we don't think 15 enough. We get fought -- we get lost in the fight 16 between the unions and folks who are fighting 17 unions, and, back and forth, and it's easy to get 18 lost in the fight, and sometimes we don't think 19 strategically enough about growth strategies that 20 will raise all boats. 21 SENATOR ZELDIN: It's good to see you, Eric. 22 ERIC ALEXANDER: Yeah, good to see you. 23 SENATOR ZELDIN: You know, you're touching on 24 economic development and investing in 25 infrastructure. 1 What I've seen in my district out in 2 Suffolk County is, you're very familiar with, is the 3 need to invest in updating sewer infrastructure, 4 because you have businesses that are -- they're 5 un- -- they are unwilling or unable to come into a 6 particular community in need. 7 And in order to get in an area like 8 Mastic Beach, for example, or a neighborhood road to 9 Mastic Beach, which I know you're familiar with, in 10 order to bring in businesses, and help businesses 11 grow and expand for the ones that are there, we need 12 to invest in the infrastructure. 13 You know, there are 213 legislators up in 14 Albany. 15 And, you know, your efforts talking -- and 16 your -- with your network, of just talking to each 17 and every one of us, because we can all benefit from 18 that higher investment, but it costs money. 19 ERIC ALEXANDER: Yeah. 20 SENATOR ZELDIN: And with the amount of debt 21 that currently faces the state, and dealing with 22 trying to balance budgets and fiscal stress, and the 23 limited help from the federal government, as opposed 24 to the traditional funding formulas when projects 25 were done the in past, we need to be -- we need to 1 really give us a shot in the arm -- 2 ERIC ALEXANDER: Right. 3 SENATOR ZELDIN: -- and catch our second wind 4 in investing in sewer infrastructure. 5 Something I'm a big supportive of. 6 And I just wanted to just mention, I really 7 appreciate your efforts in Albany, advocating on 8 that behalf. 9 It really helps my constituents, and helps my 10 local governments. 11 ERIC ALEXANDER: And just to thank you, 12 Senator Zeldin, you've done tremendous work in 13 unifying, and also creating the tri-study hamlet -- 14 Tri-Hamlet Study, rejuvenating that, and unifying 15 your community around sewer investments. 16 And I think there will be an opportunity, 17 with an environmental bond, if it moves forward, or 18 at least a robust discussion on new funding streams 19 on the State, or taking advantage of federal streams 20 and the WRDA funds that may come online. 21 So I think, regardless, the communities need 22 to be unified. 23 You know, again, this is why I mentioned the 24 hub, and the botched effort that occurred in that 25 past administration. 1 You need to be unified, and take advantage of 2 these political windows opened and closed -- funding 3 windows opened and closed, and when you have -- when 4 you seize that opportunity. 5 I mean, Senator Martins, when you were mayor 6 of Mineola, you saw that opportunity with the 7 intermodal, and you knew there was some pushback 8 about putting a garage in your downtown. 9 There was going to be some people who might 10 grumble, and might be upset, but, you worked with 11 everybody, you created a very robust plan. 12 And, you have a parking facility that fuels 13 growth in the rest of your downtown area. 14 You get that, you understand that, and you 15 acted. 16 And that's the job of local municipalities. 17 And, again, I think you guys get the point of 18 growing the pie, but we just want to -- you know, we 19 want to underscore that, and sometimes we don't 20 always talk about that the way we should. 21 SENATOR MARTINS: Yeah, it's important that 22 we highlight this. 23 I'm glad you're here. 24 Mayor Hall from the village of Hempstead, 25 unfortunately, was called away, but he was going to 1 testify today, and we were going to take the 2 opportunity to have this discussion with him as 3 well. 4 ERIC ALEXANDER: Great. 5 SENATOR MARTINS: You know, part of this 6 discussion is not just about labor relations and 7 legacy costs and pensions and the cost of health 8 care. 9 That is part of it, and that is something 10 that we do have to address. 11 But, it also involves, and requires, a 12 discussion on economic redevelopment, evaluations, 13 and master plans in our downtowns; municipalities 14 making long-term commitments to their own growth, 15 and charting their own course. 16 And just as we need multiple-year budgeting, 17 so that we can adequately track trends and make sure 18 that recurring revenues meet recurring expenses, and 19 vice versa, but we also need to have an incentive 20 for our local governments to create redevelopment 21 plans. 22 ERIC ALEXANDER: Yep. 23 SENATOR MARTINS: Different issue and 24 different dynamic in our cities and industrial 25 cities and former industrial cities in 1 Upstate New York. 2 It was catastrophic when large manufacturing 3 companies that were the base of those cities, left. 4 ERIC ALEXANDER: Right. 5 SENATOR MARTINS: So we can chart that. 6 We have a slightly different dynamic here on 7 Long Island, because we do have the ability to sort 8 of charter our own way, and that redevelopment has 9 to be part of this discussion as well. 10 What tools can the State provide local 11 governments that allow them to chart their own 12 course, encourage development, encourage increasing 13 their tax base, encourage creating those jobs which, 14 in turn, will sustain that community going forward? 15 And whether you look at, you know, Patchogue, 16 whether you look at efforts out in River Head, or in 17 Glen Cove, or in my own village in Mineola, they 18 have resulted in, I believe, putting those 19 communities on a better footing, in a better place, 20 in dealing with global financial distresses, because 21 they're insulated to a certain degree. 22 And we should take those examples and look 23 for ways of replicating them in other places. 24 So, I do appreciate you being here. 25 I appreciate the perspective that you bring 1 to our discussion, because it does make a 2 difference. 3 ERIC ALEXANDER: Okay. Thank you. 4 SENATOR MARTINS: We're going to take a 5 five-minute break. 6 [A recess was taken.] 7 [The hearing resumed, as follows:] 8 SENATOR MARTINS: [No audio.] 9 JACK SCHNIRMAN: [No audio continuing.] 10 -- Long City Beach Council placed its 11 confidence in myself and this new administration, 12 and we all took office in 2012. 13 We knew we inherited a big challenge. The 14 city of Long Beach was on the verge of becoming 15 Detroit. 16 Year one was eventful, and truly 17 action-packed, full of reforms, initiatives, and 18 bookended by two unprecedented crises: the inherited 19 fiscal crisis, and then "Superstorm Sandy." 20 Like a variety of municipalities around the 21 state, Long Beach was a place where, as a local 22 government, there was a lack of accountability, and 23 a lack of policies. Things had just gone on for a 24 period of time. 25 There was no consistent policy to manage 1 overtime, with eight departments exceeding their 2 annual overtime budget by more than $544,000, or, 3 almost 41 percent. 4 In fact, there's was an 80 percent increase 5 in overtime from the years 2010 to '11, and overtime 6 had increased by almost 900,000, or, 60 percent, 7 since '06. 8 There was also a series of unbudgeted 9 promotions and personnel movements, costing nearly 10 $400,000. 11 Simply put, there was a little bit too much 12 spending going on in the city over a period of time. 13 So early on, as a new administration, we 14 uncovered just how severe our fiscal crisis we 15 inherited, when, in 2000 -- looking back at 2011, 16 the city council had to hold an emergency meeting 17 late in the year, borrowing money just to make 18 payroll. 19 Moody's, as the credit agency responsible for 20 rating the city of Long Beach, had just downgraded 21 the City's bond rating an unprecedented five levels. 22 Unfortunately, I have done the research on 23 this, and Moody's doesn't even track above four 24 levels. 25 And so, you know, in local government, you 1 want that credit rating to be good, so that, you 2 know, your borrowing costs are low, and it doesn't 3 place a burden on your taxpayers. 4 So, a five-level unprecedented drop to just 5 above junk-bond status was truly devastating for a 6 city like Long Beach. 7 And, one of the reasons that the downgrade 8 happened, was that there was a sense coming from 9 Moody's and -- in their documents, that said that 10 they had been -- that the City's finances had been 11 misrepresented; that there had been a deterioration 12 in the financial position of the city over a period 13 of years, and then, ultimately, good data was not 14 available. 15 And so, in short, the city was truly on the 16 verge of bankruptcy. 17 There was no early warnings, there were no 18 fiscal-stress monitoring. There was no reporting of 19 data that was tracked regarding financial 20 indicators, as has been proposed in some of the 21 legislation that you have looked at. 22 And that is something I'd like to speak about 23 later. 24 We in Long Beach believe that those are 25 things that can help, not only a city like us, that 1 could have helped us avoid some of the problems we 2 face, but can help other municipalities around the 3 state. 4 So what did we do? 5 We got to work right away. 6 We declared a fiscal crisis, immediately 7 increasing scrutiny and accountability on all 8 spending, and as a result, cut back spending. 9 We made a series of reforms to streamline 10 government, including reorganizations and 11 consolidations, management salaries were slashed, 12 departmental budgets were cut dramatically, cutting 13 millions of dollars from the budget. 14 Management employees also started paying into 15 their health care. 16 Believe it or not, this was a first for all 17 city workers, as the city council voted to take a 18 reduction in salaries as well. 19 We worked with our partners in labor to 20 rightsize the workforce through accommodation of 21 early retirement incentives, personnel reductions, 22 attrition, and negotiated agreement, reducing the 23 headcount by 12 percent, to the lowest levels for 24 our workforce in over a decade. 25 We still had to do a round of layoffs, I 1 should mention. 2 In doing so, we reduced labor and personnel 3 costs, from 83 percent of the City's budget, when we 4 first came in, now down to 63 percent, placing the 5 structure of city government on a more affordable 6 and sustainable trajectory going forward. 7 We also put a stop to the outrageous overtime 8 costs, and put in a preapproval policy for all 9 overtime, and, negotiated with our union partners to 10 shift towards compensatory time. 11 The city council gave our administration some 12 clear direction: to completely change the culture of 13 government. 14 Where the previous administration blindly 15 approved and never denied purchase requests, and 16 that had been a practice going on for many years in 17 the city, we now could only allow for absolute 18 essentials. 19 In fact, prior to "Superstorm Sandy," 20 overtime was down more than $1 million, year over 21 year. 22 And to give you a flavor, we have about an 23 $85 million budget, so, $1 million is quite 24 significant for us. 25 So simply put, we did what we said we'd do: 1 we stopped the bleeding. 2 The city council passed Long Beach's first 3 two consecutive balanced budgets in years. 4 As a result, we're rebuilding the city's 5 credibility with ratings agencies, and Moody's 6 removed the immediate threat of another downgrade. 7 And so while the city continues along the 8 road to recovery, both, fiscally, and now 9 physically, this administration will continue 10 rebuilding Long Beach stronger, smarter, and safer. 11 But now we're moving out of the crisis phase. 12 We've done a lot of the heavy lifting to get 13 our finances back on track, and now we're in a 14 long-term recovery plan. 15 So we're -- just as we're in long-term 16 recovery now from the storm, we're also in long-term 17 recovery on a financial basis. 18 Some long-term changes that we'll be making 19 to the city, include, creating structurally sound 20 balanced budgets, going forward; continuing the 21 reduction in expenses; enhancing and 22 institutionalizing internal controls and 23 accountability; looking to diversify and increase 24 revenues that are non-property-tax-related, 25 incidentally, through a new department of economic 1 development; and, ultimately, now replenishing 2 reserve funds, so that we again will have a 3 rainy-day fund; all while keeping and maintaining a 4 rightsized workforce without cutting back on 5 services. 6 And so we're managing for performance, and 7 now stabilizing our taxes, going forward. 8 So what we've done is, really, in the short 9 term now, focus on economic development. 10 We are diving into the world of economic 11 development as a first for the city of Long Beach. 12 Cities like, you know, Mineola, obviously, 13 here, have done a terrific job in, you know, 14 revitalizing themselves through economic-development 15 initiatives, and we're now following suit. 16 So this summer, we launched what was both 17 unprecedented and absolutely crucial for a city 18 coming on the heels of a storm, we launched a big 19 marketing campaign, with support from corporate 20 sponsors, from, like, Bethpage Federal Credit Union, 21 Citibank, and Capital One, as well as support from 22 the Empire State Development Corporation in 23 New York State, and for that we're very thankful. 24 We had billboard and Web ads, and popular 25 radio and TV commercials, featuring our favorite son 1 in Long Beach, Billy Crystal. 2 And, so, as we established now a new 3 economic-development department, that's working in 4 partnership with Sustainable Long Island, a number 5 of initiatives to help promote and support local 6 businesses, we've put forth a new tourism map and 7 brochure; we're facilitating the creation of a 8 business support center at our west-end library 9 location; and, all with the intention of providing 10 technical assistance and information to new and 11 existing businesses, as we look to help boost our 12 short- and long-term growth in the wake of "Sandy." 13 Additionally, we've received a grant from 14 NYSERDA, from the "Cleaner, Greener Communities" 15 program, that will help with phase one of our 16 participation in the Complete Streets program, 17 another thing that New York State has sponsored. 18 New York State's done a very good job, and we 19 thank you for that, at creating some incentives for 20 communities, like Long Beach, to do the right thing 21 on things like the environment and economic 22 development; and, in turn, qualify us for grant 23 funding. 24 Some measures that -- we'll be looking at a 25 variety of measures, going forward, from an 1 economic-development perspective, including 2 investing in rehabilitating our downtown after the 3 storm, both as a resiliency vehicle and an 4 economic-development vehicle. 5 And, so, as we look at some of the things 6 going on around the state regarding local 7 governments, I guess the first thing we'd say is, 8 "Thank you" to you, Senator, for the work on your 9 Committee. 10 We support several of the programs and 11 reforms that are being championed throughout 12 New York State; some of the things that the Governor 13 has done; Comptroller DiNapoli, of course; our own 14 State Senator Dean Skelos; and, of course, the 15 leadership of you and your Committee, 16 Senator Martins; including the financial indicators 17 that would help prevent municipalities from facing 18 the types of problems that our administration 19 inherited. 20 And I'd like to take a moment to talk about 21 some of the reforms that we see going on around the 22 state, and some of the things that we think are 23 particularly going to be -- can be of help to us, 24 and to other municipalities that may face problems 25 and challenges similar to what we have. 1 So the first I'd like to speak about is the 2 financial restructuring board, which I know you 3 sponsored, Senator Martins, and we thank you for 4 that. 5 As you stated in the legislation, currently, 6 municipalities faced with fiscal stress have limited 7 options of where to go, aside from extraordinary 8 remedies, bankruptcy, or the appointment of a 9 financial control board. 10 If I would freeze just there a moment, as a 11 new administration, a little over a year and a half 12 ago, those are some of the things we had to look at, 13 and we were proud to have avoided bringing in a 14 financial control board, or having to declare 15 bankruptcy, and, you know, we took on the hard work 16 and did the heavy lifting. 17 But I'd like to talk about how some of the 18 things that you proposed would have helped us. 19 The program that has been proposed, which we 20 believe has a lot of promise, would provide a 21 helpful tool. 22 Specifically, I have a copy here with me, or 23 at least I believe I did, of some of the financial 24 indicators that had been proposed. 25 And I'll try to do it from memory, as, of 1 course, it's not in the folder. 2 And, so, when you look at the indicators -- 3 like, where is -- where's your overall fund balance? 4 where is your cash position? are you running an 5 annual operating deficit? -- as somebody, you know, 6 who is now gotten quite deep in the weeds of our 7 finances in Long Beach, those are exactly the things 8 that would have set off the alarm bells and allowed 9 some of the healing to begin a lot earlier, as the 10 city's -- you know, for us, the city ran 11 operational. 12 And it's a story, that while perhaps more 13 dramatic in terms of the five-level downgrade that 14 we faced with Moody's, more dramatic than some other 15 municipalities have faced, the key ingredients are 16 all the same. 17 Right? 18 You see running annual operating deficits. 19 That's something that has gone on in 20 municipalities around the state, and using the 21 rainy-day fund to paper-over those annual operating 22 deficits. 23 Well, ultimately, the fund balance runs out, 24 the cash position deteriorates, and then you have to 25 look at, you know, short-term cash-flow borrowings 1 just to get through the year. 2 And those are indicators that we believe 3 could be extremely effective in promoting overall 4 fiscal health, as well as some transparency. 5 So, moving forward, it also makes some sense 6 to look strongly at reforming the 7 binding-arbitration system, as has been proposed in 8 that same legislation, and it could really assist in 9 slowing down the escalating contractural costs. 10 And we appreciate the emphasis on ability to 11 pay, particularly as described under the limitations 12 of the property-tax cap. 13 As having gone through the 14 binding-arbitration process now, as a new 15 administration, ability to pay is really a key 16 issue, and the idea that you can't just continue to 17 spend money that you don't have. 18 Further, the legislation emphasizes something 19 that we believe to be very helpful, which is timely 20 decisions by -- when you go into arbitration. 21 That's critical. 22 As a new administration, we faced a situation 23 where our police and fire contracts had been up, you 24 know, three, four, five years already; and so, 25 ultimately, there's no certainty in what your costs 1 are going to be. 2 And then you look at a situation, where once 3 the arbitration decision does come down, you're 4 looking at a tremendous retro payment, which, 5 obviously, you know, you're unlikely to be able to 6 pay out of your operational costs, on a year-to-year 7 basis, and so now you're looking at, you know, 8 putting that bonding out on the taxpayers as your 9 only option over a long period of time, which in 10 your sea of not-good options is probably your 11 least-bad option at that point. 12 And, so, timely arbitration decisions that 13 focus on the ability to pay could be extremely 14 helpful, going forward. 15 Further, we support the proposal to expand 16 the powers of the state comptroller. 17 Tom DiNapoli, the fiscal-stress monitoring 18 system that he has proposed, we also think makes 19 some sense. 20 I'm not quite sure yet how all of that would 21 work together, with the larger financial 22 restructuring board and the fiscal-stress monitoring 23 system, but from our perspective, it's all helpful, 24 and we welcome the oversight, and all of that. 25 As we -- you know, we, you know, put it out 1 to our community, so to speak, after we balanced the 2 budget and cut the spending, and did all those 3 things that require some pain, we had to still deal 4 with the fact of, how do you pay for a bill that was 5 racked up before you walked in the door? 6 Right? 7 The thing that I would say all the time at 8 city council meetings, to our residents and the city 9 council, is, "I can't cut a dollar that was spent 10 before I arrived." 11 So we looked at a vehicle that the State 12 offers, and that's the State Deficit Financing 13 Program. 14 And what's interesting about that program, is 15 that it gives local municipalities the authority to 16 finance their deficit over a longer period of time. 17 It doesn't actually do the financing, but 18 what it comes with, and a lot of folks forget, is 19 enhanced oversight from the State Comptroller's 20 Office, something that, you know, as somebody 21 running a distressed, or at least formerly 22 distressed, municipality, I can say we would 23 welcome. 24 Right? 25 The idea of someone looking over the 1 finances, ensuring that there's quarterly reporting 2 on the financial condition, and making public 3 recommendations every year on your financials, 4 particularly if you've been in the basement of the 5 league, so to speak, is helpful for you to move 6 up -- move up along the ranks. 7 And, so, that's something that we would look 8 at as a constructive thing, and we welcome the 9 oversight with a variety of these programs. 10 And what's nice about it is, is that you get 11 increased oversight without losing local control, 12 which, obviously, is something that's very 13 important, not only to Long Beach, but other 14 municipalities. 15 Next, another thing that has been helpful, 16 and we believe helpful going forward, is the 17 Governor -- Governor Cuomo's pension-amortization 18 program, which we have taken advantage of to help 19 curb some of these escalating fixed costs associated 20 with retirements. 21 And anything the State can continue to do, 22 going forward, to help curb those rising fixed costs 23 is very powerful. 24 You know, what we face is, I know you faced, 25 Senator, when you were a mayor, is, each year, when 1 you begin your budgeting process, you start, not 2 where you left off the year before, but with those 3 rising fixed costs. 4 Right? 5 What is -- what are pensions doing? 6 What is health care doing? 7 And so you find, okay, you've got to make 8 some significant cuts just to keep pace with where 9 you were. 10 And that's really a challenge for folks, 11 particularly during a time where the economy has 12 dipped, and you don't have things like sales tax or 13 mortgage-receipt tax to bail you out, as have 14 been -- you know, had been commonplace throughout 15 the mid-2000s while municipalities were -- you 16 know, sort of had a false sense of confidence, so to 17 speak. 18 Further, we would echo some agreement with 19 Peter Baynes from NYCOM, who mentioned that the 20 long-term pension reform and modifications, and the 21 modifications to the binding-arbitration process, 22 must be the beginning, but not the end, of the long 23 overdue mandate relief which will allow 24 municipalities, such as Long Beach, to avoid some of 25 these fiscal stresses, going forward. 1 And so in conclusion, you know, I think the 2 thing that we'd like to focus on, as I wrap up, is, 3 the transparency and oversight that come with these 4 reforms ought to be welcomed, and having a vehicle 5 that is stable and institutionalized on a statewide 6 basis, like this financial restructuring board, 7 would be extremely helpful. 8 And, it's crucial, then, for local 9 governments to be regularly reporting out their 10 financial data in a public and transparent fashion, 11 so that when there are municipalities that are 12 spending beyond their means and that are using up 13 their rainy-day funds, that can be noticed and 14 looked at, whatever their problems may be, and they 15 can be dealt with in a little bit more of a 16 preventive way, rather than, once the patient is 17 already, you know, coding on the table, so to speak. 18 And, you know, hopefully, folks can learn, 19 and that there can be -- learn from the experience 20 that we had, and there can be vehicles, as you 21 proposed, to be in place to assist future 22 municipalities facing situations like we faced, to 23 support -- to provide some support. 24 And we believe strongly that if those 25 vehicles would have been in place, perhaps 1 Long Beach would not have come so close to sharing 2 Detroit's fate, and perhaps things would not have 3 fallen so far, so fast, before the healing would 4 begin. 5 And with that, I think that's everything 6 I need to cover today. 7 And, you know, stand prepared to discuss in 8 some detail, anything you'd like. 9 SENATOR MARTINS: Thank you. 10 I appreciate the testimony today. 11 I just want to focus on a couple of points. 12 JACK SCHNIRMAN: Sure. 13 SENATOR MARTINS: Have you now adopted 14 multi-year budgeting so that you can track recurring 15 expenses against recurring revenues -- 16 JACK SCHNIRMAN: Yes. 17 That's part of our -- 18 SENATOR MARTINS: -- and sort of weed out the 19 one-shots -- 20 JACK SCHNIRMAN: Exactly. 21 SENATOR MARTINS: -- and be able to actually 22 paint a clear picture? 23 Because that seems to be a recurring theme in 24 our discussions with municipal leaders throughout 25 the state, is, I guess, a recognition that 1 multi-year budgeting deals with a lot of the issues 2 that we're talking about right now, avoids a lot of 3 the pitfalls, because you don't get to, I guess, 4 paint or gloss over some of the real structural 5 issues that communities have, because it brings 6 those issues right to the fore. 7 JACK SCHNIRMAN: Yep. 8 SENATOR MARTINS: And I'm sure that's what 9 you're doing in Long Beach? 10 JACK SCHNIRMAN: That's exactly right. 11 So what we're doing, is we're doing 12 multi-year financial tracking right now. 13 And so for -- both, for our budgeting 14 process, and for our, you know, financial-tracking 15 process, that goes on during the fiscal year, we're 16 tracking, not only against current budget, but 17 against previous fiscal years. 18 As part of our long-term recovery plan -- our 19 financial-recovery plan, that is, we're looking at 20 moving to an ultimate -- you know, ultimately, to a 21 multi-year budgeting formula, as well as a 22 multi-year financial plan. 23 And so that's -- we haven't quite gotten all 24 the way there yet. I wouldn't pretend that we have. 25 But we're looking constantly at, not only 1 where we are versus budget, but where we are in 2 terms of actuals versus several years prior. 3 SENATOR MARTINS: And so, I mean, would you 4 agree that a broader policy on a state level, that 5 would require local municipalities, and 6 school districts, to develop multi-year plans, to 7 make them public, so that there can be oversight, 8 and there can be actual analysis of the numbers that 9 are -- you know, underpin that balance between 10 revenues and expenditures begins to set the tone 11 that we're looking for? 12 JACK SCHNIRMAN: Absolutely. 13 I think we would wholeheartedly, in 14 Long Beach, endorse that. 15 It's a level of oversight that we've already 16 prepared ourselves for, as we put ourselves through, 17 as I said, the deficit-financing formula, so to 18 speak, with the State Comptroller's Office. 19 And one of the things that that requires, in 20 addition to quarterly updates and annual budget 21 recommendations coming from the State Comptroller's 22 Office, is a multi-year financial plan. 23 And, so, that's absolutely something that we 24 believe in, and we think makes a lot of sense, and 25 you know, enables municipalities to think along 1 those terms; forces us, quite honestly, to think 2 along those terms; and also forces us to think 3 beyond administrations as well. 4 And that too often, in local governments, we 5 think only in two-year increments. 6 Right? 7 And so that pushes us to think in, you know, 8 three-year and four-year increments, which makes a 9 lot of sense. 10 And if we -- you know, especially for all of 11 us on Long Island, you know, our capital plans are 12 more important today than ever before, as the 13 investment in infrastructure is critical. 14 And, so, if we're looking at making long-term 15 investments in critical infrastructure over a 16 three-, four-, five-year period, we have two to 17 marry that up with our operating budgets, to make 18 sure that all makes sense over a period of time. 19 SENATOR MARTINS: No, you're absolutely 20 right, the tendency that we have, and we see it 21 oftentimes, not all the time, but oftentimes, where 22 decisions are predicated on election cycles -- 23 JACK SCHNIRMAN: Right. 24 SENATOR MARTINS: -- as opposed to on the 25 right decision, is troubling, and I think this goes 1 a long way towards resolving it. 2 Now, when you transition from your first few 3 days there, through that insolvency period and the 4 prospects of insolvency, back to health, were 5 there -- were there roadblocks to your progress as a 6 result of State policies, things that we should look 7 at, things that you sort of wished weren't there as 8 you were dealing with them, perhaps difficulties in 9 your transitioning, that you could bring to our 10 attention, so, things that, perhaps, we should be 11 looking at? 12 JACK SCHNIRMAN: A few come to mind, sure. 13 You know, the first, and they're not that -- 14 you know, they're relatively obvious. 15 Right? 16 The first is, that annual, the moment where 17 you wait to find out what's going to happen on the 18 pension formulas, and all those escalating costs 19 that come up every year, that you have to -- that 20 you wait on, and some of them are not going up at -- 21 you know, you're not looking at 2 or 3 percent a 22 year; you're talking about, you know, multiples. 23 SENATOR MARTINS: 20 to 30 percent a year. 24 JACK SCHNIRMAN: Exactly. 25 And that's really hard to handle. 1 And, so, the extent to which we can all work 2 together in order to corral those costs, and as 3 I mentioned, the Governor's amortization plan seems 4 like a really strong first step there, that would be 5 helpful. 6 SENATOR MARTINS: I probably wouldn't call it 7 an amortization plan, because -- I just, again, it's 8 a personal reflection on my part -- you're not 9 necessarily borrowing. 10 JACK SCHNIRMAN: Right. 11 SENATOR MARTINS: But what you're doing is, 12 you're creating a stable pension platform for years, 13 so that you can plug in that number when budgeting, 14 year to year -- 15 JACK SCHNIRMAN: Correct. 16 SENATOR MARTINS: -- with a -- 17 JACK SCHNIRMAN: Pension stabilization, 18 right. 19 SENATOR MARTINS: Yeah. 20 -- with a differential of about half a point. 21 So, yes, we know pension costs are going to 22 come back down, but we also realize that, if there's 23 anything that's important in our government, local 24 government specifically, when we're budgeting, 25 having gone through it, it's stability, it's 1 predictability. 2 JACK SCHNIRMAN: Yes, absolutely. 3 SENATOR MARTINS: It's the ability to insert 4 numbers year to year. 5 And when you get hit with a 30 percent 6 increase, you're not necessarily reflecting where 7 that number is going to be five or six years from 8 now. 9 JACK SCHNIRMAN: Right. 10 SENATOR MARTINS: It's the number for this 11 year. 12 JACK SCHNIRMAN: Exactly. 13 SENATOR MARTINS: Next year it can go down 14 30 percent. 15 And, so, there are -- I happen to agree with 16 you, I think that the opportunity that the Governor 17 presented in the budget was appropriate -- 18 JACK SCHNIRMAN: Yes. 19 SENATOR MARTINS: -- but I think we need to 20 find ways of stabilizing costs and providing 21 predictability. 22 JACK SCHNIRMAN: Right. And that 23 predictability is why the arbitration reform is so 24 helpful as well. 25 And, because, as we dealt with the operating 1 costs -- you know, the operating-budget challenge 2 that I laid out earlier, as a new administration, 3 there was still tremendous uncertainty, in that, we 4 had a police contract and a fire contract that were 5 unresolved, and so that creates a real challenge in 6 budgeting, because what you want to do is, if you 7 have a problem, you want to solve it. 8 Right? 9 You want to solve it up front and get past 10 it, and move forward. 11 You don't want to have lingering things out 12 there. 13 So, you know, the second thing that I would 14 mention, on the State side, is the classic 15 unfunded-mandates issue. 16 I know that you are more than well-versed in 17 it, and have been a -- you know, articulate critic 18 of some of the challenges, so I don't know that I 19 need to get too deep into it. 20 SENATOR MARTINS: Any of them, in particular, 21 jump out at you as being troublesome? 22 JACK SCHNIRMAN: Sure. 23 You know, we have -- right now, I think some 24 of ours are being dealt with through, you know, the 25 critical-infrastructure piece. 1 But we came in facing, not only the obvious 2 financial challenges, but looking at places where, 3 you know, we were going to be under DEC mandate to 4 do this or that, and these are things that were just 5 tremendous costs. 6 And, so, as a result of not having the means 7 to deal with them, the City sort of did the -- and I 8 think it's not uncommon, had the worst of both 9 possible worlds, is that, even while the City was 10 spending beyond its means, it wasn't taking care of 11 its infrastructure, which, ultimately, you know, at 12 some point you're going to have to do that. 13 And so that infrastructure, which needs that 14 investment, is now getting emergency repairs after 15 the storm. 16 And, you know, we're looking at all the 17 programs coming through the State as opportunities 18 to make our infrastructure more resilient, and, 19 hopefully, will then satisfy some of the State 20 mandates that we had. 21 And we're looking at other, you know, 22 innovative potential partnerships with 23 Nassau County, potentially, that could assist on 24 that as well. 25 SENATOR MARTINS: Thank you. 1 SENATOR ZELDIN: Thank you. 2 JACK SCHNIRMAN: Thank you. 3 SENATOR MARTINS: Thank you, and 4 congratulations. 5 A story of recovery, where the community did 6 it on its own, and that's an important thing to 7 understand as well. 8 We have to facilitate that. 9 Certainly, the challenges are different in 10 other cities. 11 Certainly, our upstate cities have different 12 challenges. 13 But I think it's important that we take the 14 opportunity, where it exists, to also highlight the 15 fact that there are opportunities for those types of 16 success stories right here in our backyard. 17 JACK SCHNIRMAN: Thank you. 18 Thank you again for the invitation, and for 19 your leadership. 20 SENATOR MARTINS: Thank you. 21 And that concludes our hearing for today on 22 fiscal stresses here in New York State, dealing 23 with, preparing for, and preventing municipal 24 bankruptcy here in New York. 25 We held hearings in Syracuse and in Buffalo, 1 and now here in Nassau County. 2 We will be reviewing the testimony, and, 3 certainly, will be preparing a report. 4 I want to take the opportunity to thank my 5 colleague Senator Zeldin for being here, and, my 6 colleagues Senator Marcellino and Senator Boyle for 7 having participated in the hearing today; 8 But, certainly, most importantly, the 9 perspective that we were able to get from the 10 witnesses that joined us today. 11 We'll be compiling that information and 12 preparing a report, and, hopefully, we'll be able to 13 reach consensus on some real solutions, 14 legislatively, when we return to Albany in January. 15 And with that, thanks again. 16 (Whereupon, at approximately 1:26 p.m., 17 the public hearing held before the New York State 18 Senate Standing Committee on Local Governments 19 concluded, and adjourned.) 20 21 ---oOo--- 22 23 24 25