Possibly Fatal Budget Sickness in Nassau County

See if you don’t lose your lunch by this story by David Halbfinger in the New York Times about the extreme budget problems in Nassau County, New York.

In case you’re not familiar with it, Nassau County is the first county you enter when you leave Queens and drive east to Long Island. I can tell you from personal experience and observation that it’s a county with a population that is exceptionally wealthily. When I grew up in Brooklyn, you always wanted to date a girl from one of the five towns because of the presumption that her parents had money. I don’t know what the comparable experience is now, but back then hanging out at Nathan’s in Oceanside was a favorite destination.

Nassau County was largely Republican when I grew up. That changed at the start of this decade when what at the time was considered extreme budget problems led to a Democratic takeover. As Halbfinger’s article notes, the Democrats dealt with the problems by cutting the numbers of county employees and raising property taxes. In 2007, another budget initiative put in place by the Democratic county leader — a 2.5 percent tax on home heating bills — led to the GOP re-taking control by someone the Times said was one of the first tea party candidates.

This is where I start to feel ill:

1. The new Republican county executive cut taxes as he proposed in the campaign but refused or was unable to cut spending to match the drop in revenues caused by the tax cut and the declining economy.
2. No surprise: The deficit that the GOP county executive promised to reduce/eliminate got much bigger.
3. The state, which already had the mechanism in place because of Nassau County’s previous budget problems, then began to do what it is allowed to do under current law — take over the county government.
4. The county executive then responds by putting together a budget he says is balanced but includes not just highly questionable but absolutely laughable deficit reductions including concessions from the unions they cannot be forced to make, additional revenue from New York State it says it won’t provide, raising the county’s sales tax by .25 percent, and by borrowing $100 million to pay sales tax refunds.

Let me repeat again that, by all standards, Nassau is a wealthy county. In no particular order its residents could cut spending and increase revenues if they wanted to do so. But…they clearly don’t want to do so, and their elected officials would rather lie about a balanced budget than come to grips with what has to be done.

The budget lessons abound:

1. A promise to cut taxes by a candidate for office is not the same as a promise to do what’s necessary to balance the budget.
2. Even in the face of conclusive evidence that tax cuts don’t automatically pay for themselves and will lead to more government borrowing, GOP office holders will continue to insist both that the tax cuts are the right policy and that they are in favor of lower deficits.
3. As has been proven time after time, “Starve the Beast” doesn’t work if the assumption is that higher deficits will lead to spending cuts. This is true even when, as in this case, a Republican is in the position of power and could propose the spending cuts.
4. The GOP claim that it is the political party of fiscal responsibility is simply not true.
5. The existence of tea party types does not change #4.
6. Voters don’t like spending cuts as much as they don’t like tax increases.

What else have I missed?

Wait. There’s More: According to a follow-up story in the Times by Halbfinger and Noah Rosenberg, the state oversight board for Nassau County has called a special meeting on Thursday, Dec. 30, two days before the county’s fiscal year begins, at which it plans to impose that it take control. Rather than to take any action that would stop that from happening (like actually cutting spending or increasing revenues), the county executive has threatened to file a law suit challenging the oversight board’s action.

One possibility is that, rather than propose the changes himself and have the GOP take the political heat for his doing it, the county executive might actually prefer that the oversight board take control and do something he has been unwilling or unable to do: modify existing agreements with the unions and raise taxes. That would allow Republicans to oppose the spending cuts and tax increase while they are being imposed by the state and then run for election having opposed those actions but in a much better fiscal situation.

• Become A Funded Futures Trader