MINEOLA, N.Y. — Facing a huge budget deficit when he took office in January, Nassau County Executive Edward P. Mangano did not impose a hiring freeze. He did not stop borrowing to subsidize some of the richest school districts in the country. He did not eliminate the Police Department’s beloved mounted unit.
Instead, Mr. Mangano, a Republican who won one of the first upsets of the Tea Party era, did what he had promised: He cut taxes, adding $40 million to the county’s deficit, which has since reached nearly $350 million.
Now, with its bonds suddenly downgraded and a state oversight agency preparing to seize its checkbook and credit cards, Nassau is on the verge of a full-fledged fiscal crisis.
That things could get so dire in this wealthy county, where property taxes are the second highest in the nation, offers a lesson in what happens when anti-tax fervor meets the realities of disappearing revenues and a punch-drunk economy. At heart, though, the situation — like state budget crises in New York, New Jersey and Illinois — illuminates the troubles long-prosperous governments, with established interest groups and residents accustomed to high levels of services, face in adapting to protracted lean times.
“It’s the crisis of affluence,” said E. J. McMahon, director of the Manhattan Institute’s Empire Center for New York Policy. “It’s not just a problematic old inner city that can’t get out of its old way of doing things,” he said. “What makes Nassau a microcosm of New York State is its high spending, high taxes, intransigent unions, a pronounced taste for debt, and a sense that too many people in both parties have a stake in keeping it all that way.”
Like Nassau, other localities across New York and elsewhere have suffered credit downgrades, as prolonged economic weakness has revealed deep structural problems, including unsustainable fiscal practices and looming pension obligations.
Here, though, many thought the bad habits had been corrected. Nassau’s last fiscal meltdown came in 1999, after years of unchecked spending growth paid for with mounting debt and one-time revenues like sales of county land.
It led to a $200 million deficit and a credit rating just above junk. It triggered a Democratic takeover of what had long been a Republican bastion. And it ended with a $100 million state bailout in 2000 and the creation of a watchdog agency, the Nassau Interim Finance Authority, to oversee the county’s fiscal practices.
Under pressure from that authority, Mr. Mangano’s Democratic predecessor, Thomas R. Suozzi, raised property taxes, shrank the county work force and reduced the county’s reliance on borrowing to pay for operating costs.
But as the economy faltered in 2007, Mr. Suozzi, eyeing statewide office, began relying heavily on one-shot revenue generators.
He won short-term concessions from unions, like deferred salary increases, by extending a no-layoff guarantee through 2011. He resorted to borrowing to pay one of the county’s always onerous bills: the refunds given to residents who appeal their property tax assessments. And last year, up for re-election, he sidestepped a property tax increase by imposing a 2.5 percent tax on home heating bills.
That handed Mr. Mangano a campaign issue, which he rode into office. If he had any mandate, it was to scrap the heating bill tax and, as he put it, restore confidence in county government.
As things turned out, though, “Those two promises turned out to be at odds,” said Lawrence Levy, an expert on suburban politics at Hofstra University.
Mr. Mangano got rid of the energy tax. But he never came up with offsetting spending cuts. That sets him apart from Republicans elected in New Jersey and in Westchester County last year, who have warred with unions and made painful cuts in services.
Indeed, while Mr. Mangano was a beneficiary of an anti-incumbent taxpayer revolt, he was something of an insider, with 14 years in the county legislature and friendly relations with union leaders.
When he offered an early retirement incentive plan that took more than 100 police officers and 400 others off the payroll, he drew criticism for allowing highly paid employees to take advantage of the buyouts; some walked away with as much as $600,000.
Mr. Mangano defended his approach, saying that he cut the work force to levels not seen since the 1950s, and bargained aggressively for more-flexible work rules.
“Everybody wants to gloss over the fact that real savings have occurred in this administration,” he said in an interview. “Undisputable ones.”
And, he boasted, he accomplished them without cutting services — though the county is now threatening to cut off social-service agencies.
He also complained that his deep cuts in political appointments went unnoticed. But patronage, a fact of life since Nassau was carved out of Queens in 1899, has not been eradicated: after Mr. Mangano shrank the county attorney’s office, it awarded a $250,000 contract to the law firm that employs Joseph N. Mondello, the Nassau Republican leader. And he appointed former Senator Alfonse M. D’Amato’s daughter as his commissioner of aging.
Mr. Mangano did win praise from fiscal experts for tackling costly age-old inequities in how Nassau subsidizes local services like schools and sewers. One change will make school districts and towns pay their share of the refunds of property taxes for the first time since 1948.
School boards howled. So, too, did nonprofit groups and colleges like Hofstra, when Mr. Mangano insisted they begin paying for sewer service — something taxpayers had previously provided them free.
Nassau is not alone in seeking to pass on costs for services to localities; states have imposed similar measures. Yet these changes will take years to deliver true savings.
For the fiscal year that begins Jan. 1, Mr. Mangano’s budget appears to include as many prayers as plans. He penciled in $60 million in givebacks from labor — surprising unions, who have contracts that run through 2015. Pressed on that point, Mr. Mangano said he would “order” union concessions, ignoring the idea’s dubious constitutionality and drawing biting mockery.
The budget also called for borrowing an additional $100 million to pay tax refunds, and counted on more than $20 million in new help from the state.
Officials at the Nassau Interim Finance Authority questioned the seriousness of the plan.
“Mineola, we have a problem,” Ronald A. Stack, the authority’s chairman, said at a public board meeting in late September, as Mr. Mangano sat in the front row, listening.
Mr. Stack has brought in former Chief Judge Judith S. Kaye to advise the authority on whether to seize control of the county’s finances, and if so, how. The law creating the authority says it “shall” take over if Nassau’s shortfall exceeds 1 percent of its budget — or about $26 million.
Mr. Mangano is pleading for more time, publicly saying he was personally negotiating with the unions for significant savings. Privately, he has been lobbying state lawmakers to let him raise the county’s sales tax by a quarter of a percent, which would generate about $60 million. Getting the sales tax increase, union leaders said in interviews, was a precondition for them to make concessions.
Moody’s, the bond-rating agency, is not waiting. On Nov. 4, it downgraded the county’s debt, citing $158 million in risks and weakening liquidity, and warning that even Mr. Mangano’s contingency plans required contingency plans.
This week, the situation grew more dire. Before heading to Disney World on Wednesday for a three-day golf outing and a fund-raiser, Mr. Mangano went to Albany, where he discovered what others said had been obvious: There would be no state assistance for Nassau now.
Mr. Mangano made the best of the setback, saying he would resume his quest for a sales tax and labor concession rescue package in the new year.
“January’s only a couple weeks away,” he said.
That is true. But the Nassau Interim Finance Authority is moving on its own, and has called its next meeting for Dec. 21.
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