State Comptroller Tom DiNapoli’s office said that city officials “continue to take actions that are detrimental to the city’s financial position” in a recent review of the proposed budget for 2019-20.
Though the state said that significant revenue and expenditure projections in the proposed $98 million spending plan for the upcoming fiscal year are reasonable, the review, issued on May 10, noted that the city’s continued practice of borrowing to fund termination salaries is not fiscally prudent.
“It is imperative that officials address the city’s declining financial condition during this current budget cycle,” Executive Deputy Comptroller Andrew A. SanFilippo wrote.
The proposed budget includes an 8 percent tax increase, in addition to separate sewer and water rate increases. If approved, the spending plan would raise taxes on the average home by $304.63 per year.
The City Council held a second budget hearing on Tuesday, but tabled a vote to adopt the spending plan. City Council President Anthony Eramo has emphasized that the council could amend the budget before it votes on the spending plan before the end of the month, and could choose to lower — or increase — the tax levy. Eramo said last month that he would like to see the proposed tax hike significantly reduced.
However, if the council fails to pass the spending plan by majority vote by May 31, the 7.9 percent tax hike would take effect.
Residents have criticized officials for their handling of the city’s finances and what they have called excessive borrowing, particularly under former City Manager Jack Schnirman. The city’s long-term debt is more than $100 million.
Acting City Manager Rob Agostisi, who was appointed in January, said that the tax increase is necessary in order to plug a $2.8 million deficit, turn the city’s finances around in the wake of a fiscal crisis, restore credibility with Moody’s Investors Service — which downgraded the city’s credit rating to just two notches above junk bond status in March — and lay the foundation for a long-term financial recovery plan. Agostisi has said that he is taking a number of steps to address the city's financial condition, including the hiring of a consulting firm last month to help improve the city’s finances and operations.
The state’s review is separate from a comprehensive audit of the city’s finances that DiNapoli’s office said would be released in two separate parts beginning this summer.
Last year, the council rejected a controversial $2.1 million borrowing measure to cover separation payouts in the 2017-18 fiscal year — including a number of non-union employees who remained on the payroll — and a $108,000 payout to Schnirman. The rejection of that bond and subsequent outcry by residents triggered the state audit, part of which focuses on what many have called questionable calculations of separation payouts and drawdowns of accrued time to current and former employees. Nassau County District Attorney Madeline Singas’s office is also investigating the payments.
In its budget review, the state comptroller’s office said that the city remained in “significant” fiscal stress for a second year in a row, and that officials had only partially implemented recommendations that the comptroller’s office made in its May 2018 budget review.
“It is important to keep in mind the current financial condition of the city and the impact the budget will have on city operations and financial health,” SanFilippo wrote. “Because of prior year appropriations of fund balance and over-expenditures, the city has incurred operating deficits. These deficits have caused fund balance to decline as well as available cash balances.”
The proposed budget includes about $1.9 million for termination salaries — expenditures that have averaged $2.2 million over the last three completed fiscal years — to be paid for through borrowing.
“The city’s continued practice of borrowing to fund these operating costs is not fiscally prudent,” SanFilippo wrote.
“The two things that stood out to me was that the city continues to do things that are detrimental to its financial position — and continues to borrow for separation payments,” Councilman John Bendo told the Herald before Tuesday’s meeting. “But the other thing I took note of is [the comptroller’s office] said that revenues and expenses are reasonable. They said the same thing last year and we now know that some of the numbers from last year are completely unreasonable.”
The city said that it is not yet in a financial position to budget current revenues to cover termination costs.
“It is the city’s hope that this proposed budget, if adopted, will provide the foundation needed to slowly incorporate this operating expense into the existing budget,” the city said in a statement. “In the meantime, borrowing for these costs allows the city to pay them back over multiple years, and smooths out the effect to the budget.”