Fixing Fiscal Problems and Planning for the Future: A CPA’s Role in Government

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JULY 2007 - New York’s Nassau County Comptroller Howard S. Weitzman was first elected in 2001 and reelected to a second term in 2005. In his first term, Weitzman worked with County Executive Tom Suozzi to bring Nassau County back from the brink of bankruptcy. Together, they achieved a historic financial turnaround, turning deficits into surpluses and providing balanced budgets without a tax increase for three consecutive years. Weitzman is a CPA and a former mayor of Great Neck Estates, N.Y., where he lives. He was recently appointed chair of the taxation and finance committee of the New York State Association of Counties and is a former national healthcare partner of KPMG.

Weitzman met with CPA Journal Editor-in-Chief Mary-Jo Kranacher to discuss the inner workings of the County Comptroller’s office, how the county addressed recent pension fund issues, and the Roslyn school district’s accounting scandal. They also discussed short- and long-term plans for the county’s financial future, and the role of CPAs in government service.

Financial Responsibility

CPAJ: For those who may not be familiar with the responsibilities of the Nassau County Comptroller, tell us briefly about your position and which government agencies fall within your jurisdiction.
Weitzman: The Comptroller is considered the financial watchdog for Nassau County, and the position reports directly to the taxpayers. As an elected official, I don’t report to the Nassau County Executive or to the Nassau Legislature. I provide financial oversight for the county’s $2.5 billion budget. The responsibility for preparing and implementing the budget fall within the jurisdiction of the County Executive and the legislature. The Office of the Nassau County Comptroller is responsible for the audit of any government agency that receives Nassau County funding. In addition, we review all Nassau County government payrolls before they are issued. We have an online interactive payroll system, as most governments have, but all adjustments are reviewed before the payrolls are actually processed. My office has 15 auditors who check the adjustments that are made to the payroll for vacation or sick time or other paid time off.

In addition, my office reviews all contracts that are entered into by the county. Any invoices that are paid against those contracts must receive final approval before they go to the County Treasurer for payment. One issue on which I ran my election campaign was that the Comptroller should do more than simply sign off on contracts as a perfunctory measure. The technical language in the County Charter says that I’m approving payment with funds that have been encumbered and are available for encumbrance. In fact, the signature block on the contact says that “I hereby certify that the funds are encumbered.” We took the position—and we had state law to back us up on this—that the Comptroller could withhold his signature on any contract he deemed not in the best interest of the county. That position greatly expanded our oversight role with respect to contracts. We’ve looked closely at the county’s major contracts and requested changes to them as we deemed appropriate.

We are also responsible for the healthcare benefits of Nassau County’s 10,000 active and 11,000 retired employees. We don’t set policy, but we are responsible for the delivery of those services.

We have an online, real-time financial system and we prepare the closing entries at the end of the year for the outside auditors to review. We also prepare the county’s financial statements.

CPAJ: When you were first elected in 2001, what was the most pressing item on your agenda? Have you achieved what you set out to do in this regard?
Weitzman: In 2001, the most pressing issue was the financial near-collapse of Nassau County, which is one of the wealthiest counties in America. The county found itself on the verge of insolvency because of horrendous mismanagement in the 1990s, a period of tremendous prosperity for governments throughout the country. We were rated as the worst-run county in America.

The agenda I set, and the issue that I ran on, was a very simple one: working to restore Nassau County’s fiscal integrity. And I think we’ve succeeded. It’s not just me saying that, it’s a fact that outside rating agencies have given Nassau County 11 bond upgrades over the past four years. That serves as independent validation of the work that the County Executive, the legislature, and I did to restore the county’s financial health.

CPAJ: A news release on your website said the proposed 2007 budget for Nassau County attempted to “balance” the budget by using prior years’ reserves, which were expected to be depleted shortly, to pay for recurring expenses. What measures would you recommend to close this gap for the short term and the long term?
Weitzman: We said that the 2007 budget was less conservative than those of the past. Since 2002, the county had extremely conservative budgets, which gave rise to rather large surpluses. As a result, we have been able to return those surpluses to taxpayers by not having to raise taxes in the subsequent years.

The reserves were established from those surpluses to meet specific expense requirements. For example, we set aside $80 million under state law to transition into a period of higher pension payments. Former New York State Comptroller [Alan] Hevesi specifically authored a law that deferred an $80 million payment and gave Nassau County the ability to set that money aside. So we were spending that money for its intended use. And although spending down the reserves is not necessarily a bad thing, unfortunately it left us with a $100 million structural gap.

You can look at this in many different ways, but closing the structural gap is really very simple—you either raise more revenue or reduce expenses. Nassau County is one of the few governments in the country that is required to have a four-year plan, because we are under the oversight of the Nassau County Interim Finance Authority [NIFA]. Our four-year plan calls for substantial amounts of new revenue in 2008 to close that gap. Potential new revenue may come from a tax on tobacco, inflationary increases in property taxes, or a tax on home heating oil. We need to reduce our expenses to eliminate the need for some or all of those additional revenues. We will need some increase, in revenue anyway, because our expenses generally increase every year. The challenge is to minimize those tax increases, because Nassau County currently has the second-highest tax rate in the state.

CPAJ: As CPAs, we know that the alternative to increasing revenues is decreasing expenses. What is being done to reduce expenses to close the budget gap?
Weitzman: My office plays a significant role there. Our audits have focused on the areas of the highest spending because they have the greatest potential for saving money. There are areas where “civilian-ization” of uniformed positions—whether in corrections, probation, or police services—can save tens of millions of dollars for the county, and the county is aggressively moving to accomplish that through union negotiations. Because of my background in healthcare, I tend to focus on healthcare issues and will continually look at the county’s healthcare package for ways to save money without reducing benefits. Going forward, the county needs to look at additional ways to restrain the growth of its costs for healthcare benefits. For governments and private industry, healthcare is a major factor in cost increases.

Healthcare and Pensions

CPAJ: Given your background in healthcare, how does the financial condition of the Nassau University Medical Center affect the county’s budget?
Weitzman: Nassau County subsidizes the medical center to the tune of approximately $25 million to $30 million a year, and the county is prepared to continue to do that because it provides a much-needed safety net for people who, unfortunately, don’t have satisfactory health insurance. Nassau County has also guaranteed approximately $300 million in outstanding county hospital bonds. If the hospital fails, county taxpayers would have to continue the payments for the bonds.

The prior plans for the hospital were unrealistic and doomed to fail, and didn’t really establish the proper role for that hospital and its community. I have spent a lot of time working to bring about a financial turnaround for the hospital. As a result, major changes have taken place with respect to the hospital’s administration and mission. We’ve also been successful in bringing additional state revenue to the institution, and as a result I’m much more optimistic about its future. Under the direction of the County Executive’s minority healthcare council, the hospital will fulfill its role to serve the community surrounding the hospital.

CPAJ: In 2004, a one-time modification to the New York State pension system moved the 2004 pension contribution into 2005. Can you explain how that change affected subsequent years’ pension contributions? And how did that affect the 2005 and 2006 financials?
Weitzman: That was pretty controversial, and many accountants were split on what the proper treatment was, since on a purely accrual basis, you would think that moving the payment date wouldn’t necessarily impact when the expense should be recorded. There’s an exception with respect to pensions because pension contributions are set by state legislation. The state may legislate any level of contribution or no contribution at all. Governments generally recognize the expense when the state legislates the level and timing of the contribution.

This had an extraordinary impact on Nassau County in 2004 because we were able to defer an $80 million payment and put that money aside. Some local governments spent the money, denying their taxpayers the benefit of legislation that was supposed to help them transition to higher pension costs. Nassau County was able to shield its taxpayers from the immediate shock of higher pension costs by setting aside a reserve and using it as needed to supplement the additional costs.

CPAJ: So was the pension contribution for 2005 also due and payable in 2005?
Weitzman: The pension contribution that was due and payable in 2005 was the deferred 2004 contribution. The taxpayer expense for this contribution was reduced by $30 million because of reserves that we applied in 2005, 2006, and 2007. The reserves will be exhausted by the end of 2007. This was a permanent deferral of a taxpayer obligation, and we used it to the advantage of county taxpayers.

CPAJ: What’s the current status of the funding obligation of Nassau County’s pension system? Is the county caught up to where it should be?
Weitzman: The good news is: Similar to other governments in New York State, the county doesn’t have its own pension system. Because Nassau County is part of the state pension system, we never had an opportunity to mismanage pension money. The New York State pension system is one of the most fully funded systems in the country. The county has always been current on its pension obligations to the state. That’s good news for taxpayers.

CPAJ: GASB recently announced plans to address pension disclosure requirements for governments, and to bring them in line with those recently required for other post-employment benefits [OPEB]. Do you anticipate that these changes will uncover any unexpected surprises for Nassau County employees or taxpayers?
Weitzman: We estimate that our GASB 45 liability for 2007 will be approximately $4 billion. It’s not a surprise to those in government, who know that government employees have always received very generous postretirement healthcare benefits. The level of benefits that government employees receive will probably come as a shock to taxpayers who are accustomed to private-sector retirement benefits.

The new disclosure requirements won’t have a financial impact on county taxpayers because governmental entities provide for their own postretirement healthcare benefits and account for them on a cash basis for budgetary purposes. However, public disclosure of this issue may generate interest from taxpayer groups in putting pressure on the level of public employee benefits.

CPAJ: What’s being done to end wasteful spending on excess health insurance for duplicate health benefits for Nassau County employees?
Weitzman: Ninety percent of Nassau County employees are unionized, and to change this policy with respect to the unionized workforce would require new contract negotiations. Our largest union accepted a modification of this in their last contract, and we just passed legislation in Nassau County that stopped this practice for our nonunion workforce. We’re very hopeful that in the next round of negotiations with our uniform service workers, they’ll adopt the same position.

With respect to the school districts, we brought this issue to their attention and we’re meeting with school district board members on an ongoing basis to talk about how they could possibly implement this countywide. It took us 100 years to get to this point, so we don’t expect to fix it overnight, but we are addressing the issue.
Raising Tax Revenues

CPAJ: For taxpayers who experienced a large increase in their property taxes recently, there is a concern that homeowner taxes may continue to rise, to offset the growing structural deficit. Is this a legitimate concern?
Weitzman: Absolutely, it’s a valid concern. Nassau is a mature county in one of the first mature suburbs in America, and we are writing the book on what happens when a county that relies on property taxes stops growing. It’s clear that Nassau County has limited options to grow because of a lack of space. We’re basically “built out,” which means we don’t have any new people spending money, so our sales tax revenue increases only by the rate of inflation. Our building fees normally are based on redevelopment of existing properties, as opposed to new property development. Therefore, revenue stays generally static, other than raising property taxes, which contributes to the problem. On the other hand, our expenses continue to rise.

CPAJ: What is the likelihood that Nassau County officials will look for other sources of revenue in the future, rather than relying so heavily on property taxes to balance the budget?
Weitzman: There has been some discussion about looking at an income tax, which is fairer because it has a closer relationship to a taxpayer’s ability to pay. Because of the rise in property values in Nassau County, house values no longer reflect a taxpayer’s ability to pay. But many questions need to be answered about an income tax. Based on our analysis, the only municipalities that levy income taxes in this country are those that have consolidated school districts, because the bulk of the income tax money goes to pay for schools. Nassau County doesn’t have consolidated school districts, and there would be a large resistance to any attempt to consolidate. So the question is: How would the taxes be allocated? To put the tax money back into the districts from which it was generated would simply add to the imbalance we already have in some of our school districts.

In addition, Nassau competes with surrounding counties, and if we implement an income tax and they don’t, then entrepreneurs who are looking for a location to start up or move their business will choose a lower-tax area, preferring not to pay income taxes. One plan that I reviewed for a local property tax in Nassau County indicated that 250 families would bear virtually half of the total tax burden. But what happens if those families move? So, while I believe that income taxes are fairer, we still need a lot of answers on the local level as to how an income tax would actually work on a countywide basis.

CPAJ: There are local income taxes in New York City.
Weitzman: But New York City has a consolidated school district system, and 55% of New York City’s taxes go to its schools.
Learning from Roslyn

CPAJ: In the wake of the recently revealed accounting problems at the Roslyn school district, what new controls have been implemented to prevent such scandals from happening again?
Weitzman: The biggest control is an increase in oversight. As we learned from the Roslyn case, the New York State Comptroller’s Office hadn’t audited the school districts for 20 years. As a result, the legislation that was adopted by the New York State Legislature gave additional funding to the New York State Comptroller so that every school district in the state will now be audited at least once every three years.

In addition, rules were put into place for the formation of audit committees to provide local levels of oversight and for training of school board members and financial managers. Unfortunately, many school board members, who are extremely interested in the education of the children in the community, don’t necessarily have the financial skills to manage $100 million or $150 million budgets. There’s also legislation to increase the minimum qualifications for school business-office administrators, to ensure that they have adequate financial training to manage these budgets.

CPAJ: What types of controls are being put into place for county agencies other than the school districts?
Weitzman: Nassau County probably has more oversight than any county government in the country because of our previous history of mismanagement. We have oversight by an office of legislative budget review, an office of management and budget, this office, and the Nassau County Interim Finance Authority. That’s all in addition to the normal oversight by the New York State Comptroller’s office, which reviews the financial practices of the county.

In addition, after taking office I established an independent citizens’ audit committee made up of professional businesspeople in Nassau County with financial training, to provide high-level oversight of the county’s financial practices. I’ve given them access to reports generated about Nassau County and the ability to speak to people about why certain practices exist and what corrective steps are being taken, when necessary. This committee’s annual report is a public document and it gives them the ability to have a say in county polices involving financial practices.

Those reports and other news releases from my office are online [see www.nassaucountyny.gov/agencies/Comptroller/index.html]. I believe very strongly in transparency, so the county budget is online and county audit reports are also online. Anyone who wants to be put on an
e-mail distribution list can give us their e-mail address through the website and receive periodic updates about what’s happening in Nassau County.

Shaping Nassau’s Future

CPAJ: What is the greatest threat to the quality of life in Nassau County?
Weitzman: Higher taxes and the higher cost of living are a concern. For retirees who are looking for areas with a lower cost of living, we compete with other regions of the country. We can never compete with lower-cost areas in the South and rural areas, but our primary concern is being able to compete with other areas surrounding major cities. Nassau County is next to New York City, which is a tremendous advantage for us, but that proximity is also the cause of many of our high cost centers. Our cost structure is really no different than in northern New Jersey, lower Connecticut, or Westchester County—which in fact has higher taxes than Nassau County. So we have to make sure that the cost of living in Nassau County is at least competitive with those areas.

In addition, we have people who moved out here 40 or 50 years ago when housing costs were much lower and who are finding it very difficult to pay their tax burden even though their houses have increased tremendously in value. We need creative solutions to these issues so that people are not displaced from their homes and communities because they can’t afford to stay.

CPAJ: Even young people who grew up in Nassau County and consider it their home are unable to afford to live here.
Weitzman: We in Nassau County are beginning to look more closely at housing options. One of the most striking statistics is that we have the lowest percentage of rental units of any inner suburb in the country. The average percentage of rental units for suburbs adjacent to a major city is about 40%. Nassau County’s housing market consists of 20% rental units, which translates into a lack of starter opportunities for young families and individuals. Seniors, who don’t need to live in large single-family homes, also have limited opportunities to move into smaller units within their communities. We need to think creatively about how we can fill that gap.

CPAJ: Has your office come up with any possible alternatives in that area?
Weitzman: We’re working with the Long Island Regional Planning Board, on which we sit as nonvoting members. We take a very active role with the board, which is addressing these issues head-on, because this not only impacts taxpayers, it also impacts employers, who are finding it increasingly difficult to hire employees in Nassau County because of the high cost of living here.

Public Service and Politics

CPAJ: What percentage of your job is politics, and what percentage is financial management?
Weitzman: That’s a great question. When I was first elected I thought that 90% of my job would be strictly managerial/financial, and 10% would be politics. That was based on the assumption of a 50-hour work week. In reality my work week is 60 to 70 hours, with probably 50% of my time spent on financial/managerial issues and 50% political. Of course, you can make the argument that because anything having to do with public policy involves politics, my managerial time is political in one way or another. The ability to work with the Nassau County Legislature and the County Executive is extremely important in order to function effectively.

CPAJ: During campaign season, you said that you were out campaigning 22/7, if not 24/7. During that time, who was minding the store?
Weitzman: During the 2001 campaign I wasn’t in office. The second time I ran, in 2005, I was very fortunate in having the staff I had been able to assemble. I have a highly professional, nonpolitical staff that is fully capable of managing an office of our size. During the campaign season, I came into the office for at least some part of the day, every day, to make sure that the office was continuing to function smoothly. But campaigning did require an enormous amount of time.

CPAJ: Did you enjoy campaigning?
Weitzman: I was exhausted, but no one should go into politics if they don’t like talking to people and helping people. On the other hand, to run a successful campaign you have to raise large sums of money. I am in favor of public financing of elections, which we don’t currently have. Candidates are forced to call their friends and associates and ask them for money, which is not the most pleasant part of the job. But if you want to be elected or reelected, it’s necessary.

CPAJ: As a CPA, do you worry about potential conflicts of interest and those who might try to exert pressure through campaign donations?
Weitzman: My position has always been that if you’re contributing to my campaign because you think I’m doing a good job, I’m more than happy to accept your contribution. If you’re contributing because you think you’re going to influence a decision that I’m going to make, you should save your money, because I won’t be influenced.

CPAJ: Obviously, financial compensation isn’t what drives people to enter the political arena. What are the benefits of your job?
Weitzman: There’s the personal satisfaction of doing an important job and doing it well. I’m clearly not in this for the money; I don’t think anybody enters the government sector for the money. That’s why I tell other accounting professionals that government service is a perfect way to end your career because, hopefully, by that point you have sufficient financial resources to supplement your government service income.

CPAJ: Thank you for your time today. Is there anything else you’d like to address?
Weitzman: I would like to emphasize again the point that it is beneficial to society to bring CPAs into elected office. I understand the sacrifice involved, and it is a sacrifice. That’s why I don’t recommend it for young CPAs, although I think it can be very helpful for young CPAs to go into government work—not elected office, but appointed government work. But I think we can use more gray-haired CPAs in elected office. I think they bring an understanding to the issues that you just don’t typically get among elected officials, and as a result, taxpayers benefit.

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