MEMORANDUM

TO: FROM: DATE:

Interested Parties Steve Levy, Former Suffolk County Executive March 5, 2012

RE: The 2012 Suffolk County Budget ________________________________________________________________________

The following is some background on the county budget that may be of interest as the Suffolk County Legislature evaluates reports regarding Suffolks finances via the Suffolk County Executives panel.

THE REAL STORY BEHIND THE 2012 SUFFOLK COUNTY BUDGET

Much has been written recently concerning the condition of the Suffolk County budget, whether it was brought about through the last campaign or the first months of a new administration. To understand the state of Suffolks finances, one must first put a few things in perspective.

EVERY GOVERNMENT HIT HARD All governments are facing enormous fiscal challenges. In December, I traveled to meet up with County Executives throughout the state in Albany. In my 25 years of government, I had never seen elected officials so frightened about the state of their county finances. The Albany County Executive introduced a budget calling for a 19% increase in county taxes. The Chautauqua County Executive called for an increase of 12%. In 2011, Rockland County floated a budget note to make it through the year, placing a $160 surcharge on every property tax bill. Even after the budget note, the County Executive introduced a budget that called for 550 layoffs. The Orange County Executive was in a panic because his nursing home was projected to have a $30 million deficit for 2012. Nassau County is showing a $300 million budget hole and is seeking to borrow $450 million to pay for operating costs.

Every local government has been hit extremely hard for a number of reasons: 1. The nation is still feeling the effects of the worst recession since the Great Depression. People do not spend as much, so far less money comes into the County in the form of sales tax. 2. State mandates continue to cripple local governments. The double-digit annual increases that were seen in Medicaid in the early part of the decade have now been supplanted by ever-increasing pension costs, which are in some cases doubling every few years. 3. While sales tax collections dwindle and more individuals go on the unemployment line, the food stamp and Medicaid programs have been swelling to unprecedented levels, with our local taxpayers having to shoulder a much larger percentage than in other states. 4. While the mandates continue to increase, state aid to counties and localities was slashed dramatically.

SUFFOLK NOT IMMUNE TO RECESSION Suffolk County has not been immune to these challenges. The collapse of the real estate market in the Fall of 2008 set off a series of negative economic outlooks for New York. 1. Foreclosures were at all time highs and people simply stopped paying their property tax bills. When people fail to pay their bills, Suffolk County government makes up the arrears to the schools and towns. Suffolk is a rare county that eats these costs. As a result, tens of millions of dollars have been lost to the County over the last several years. 2. Simultaneously, welfare payments increased by an unexpected eight million extra dollars last year alone. It was expected that things would get worse, but few, if any counties, anticipated that it would become so extreme. 3. Here in Suffolk, pension costs increased by $90 million over a two-year period. To put that in perspective, the entire general fund warrant is approximately $49 million, and yet the pension increase alone almost equaled that in each of the last two years. 4. 2012 was also the first year that the state-mandated jail would be operational. The County had to find an astounding twenty million additional dollars this year to make the state-mandated facility run. The State required the County to hire approximately 150 new correction officers, establish an in-house hospital and, of course, pay the huge debt service cost on the $200 million jail. 5. In the meantime, $20 million in aid from the State was being slashed. 6. Mandated police arbitration salary awards continued to increase at alarming rates. 7. Worse yet was the fact that the legislature irresponsibly created a twenty-plus million dollar hole in the 2011 budget by taking money that would have come from the closure of the nursing home and using it to pay for their discretionary district projects, while thereafter taking affirmative actions to actually prevent

the nursing homes closure. This was perhaps the most under-reported story of the year. Leadership in the County Legislature knowingly took phantom revenues from the closure of a facility they had no intention of ever closing. Not only was the County thereby stymied in its quest to save $8 million a year in operational costs, but the County also lost millions and millions of dollars that would have come from the sale of the assets and the license of the facility. YET, SUFFOLK BETTER THAN MOST Notwithstanding the sluggish economy, the increasing state mandates and the decreasing state aid, Suffolk still found itself in a better position than many other counties for a number of reasons: 1. Suffolk had been very proactive over the last several years in restructuring its government and bringing about recurring savings. Despite protests from the legislature, the Levy administration exercised extreme discipline in helping to shrink the size of government. Numerous governments around the state enacted early retirement programs over the last decade, but Suffolk went a step further in requiring that 80% of all positions that were vacated due to retirement be abolished. This prohibited the practice of later rehiring individuals for those same positions, thereby costing the County even more. The reduction in the workforce through attrition lowered the salary levels in the county budget and these savings became recurring. 2. The Levy administration implemented a major rebidding of the county health plan that injected competition into the system, thereby saving over $200 million over a seven year period. 3. I required employees to use generic, rather than name brand, drugs saving the county $12 million a year. 4. I pushed for the privatization of the County's HMO, saving over $3.5 million a year. 5. $10 million annually was saved through the County Executives civilianization plan, where civilians earning $45,000 replaced police officers earning three times that amount. 6. Another $8 to $10 million a year was saved by replacing Suffolk police with sheriffs on state highways. 7. Millions of dollars of additional savings were experienced by the Countys Alternatives for Youth Program, which limited the number of youth institutionalized in expensive locations throughout the state. 8. Still more money was saved by taking away approximately 250 cars from county employees who did not need them. EXECUTIVE BUDGET WAS BALANCED BY IMPLEMENTING RECURRING SAVINGS AND AVOIDING ONE-SHOTS Notwithstanding these major cost saving measures implemented by the administration, 2012 still offered daunting challenges. The easy thing for the Executive in his last term

would have been to unload every possible one-shot item and just get by in 2012 by leaving it to the next guy. I refused to do this. I rejected many of the quick-fix, irresponsible measures that were advocated by the legislature. 1. I refused to use monies in the tax stabilization fund to pay for recurring savings in the budget. 2. I refused to tap remaining tobacco monies as an additional one-shot. 3. I refused to engage in irresponsible tactics suggested by legislators, such as selling the jail or the Dennison Building to private entities to get quick upfront cash but drown the County in long-term leases and debt payments. Instead, the executive branch called for solid, recurring savings. I once again closed the nursing home in his budget. This was the prudent thing to do. Numerous counties around the state are restructuring in this fashion. In fact, the state of New York has been encouraging counties to get out of the nursing home business and leave this function to the private sector. Several years ago the state had $20 million available in grants to close the home, which was being pursued by the County Executive. In a remarkable example of legislative irresponsibility, the presiding officer brought together 12 legislators to sign a document that was forwarded to Albany asking the state NOT to provide these funds to the county. Twenty million dollars were just flushed away. The tens of millions of dollars wasted through the continued operation of this inefficient nursing home over the years has been a tragedy for the Suffolk County taxpayer. It is one of the reasons why the County had to struggle with the 2012 budget. Had the nursing home been allowed to close as the Executive proposed in his 2012 budget, $8 million of the operational losses would have been eliminated. Another $12 to $17 million could have been effectuated through the sale of the license and the assets. The executive budget also called for tens of millions of dollars of real, recurring savings by requiring county employees to contribute to their health care benefits, as is common in the private sector and other public sector entities. Other counties in the past had budgeted millions in savings from union give-backs, even though they had yet to achieve the savings through negotiations. The Levy administration did not. Instead, we obtained real savings by reducing a like amount of positions in the budget, which could be done without union approval. If the union thereafter agreed to the reasonable health care contribution, no layover would be necessary. LEGISLATURE TOOK BALANCED EXECUTIVE BUDGET AND MADE IT UNBALANCED BY REOPENING THE NURSING HOME AND RESTORING HUNDREDS OF EMPLOYEES Some legislative leaders falsely claimed the executive budget was unbalanced. So how did they supposedly make it balanced? By reopening the nursing home, costing millions, and restoring seven hundred positions, costing tens of millions more? This makes absolutely no sense.

AFTER CALLING EXECUTIVE BUDGET UNBALANCED, LEGISLATURE ADOPTED ALMOST ALL OF THE EXECUTIVE'S ESTIMATES Some legislative leaders claimed that executive revenue estimates were inaccurate. They claimed sales tax revenues were over-estimated. Many in the media immediately assumed this claim was accurate, despite the fact that the figure used by the Executive's office was in the middle of the range provided by the County's outside economist and was in range of what neighboring counties estimated. There is also a misconception that the estimates supplied by the legislature's Budget Review Office (BRO) are infallible. The fact is, over the years the Executive's estimates have been as good or better than those of BRO. For instance, BRO claimed that the Executives estimate of 5% growth for 2010 was inaccurate and insisted the legislature reduce it to 4%. In actuality, the growth exceeded 6%. In 2011, BRO said the Executive underestimated the revenue and persuaded the legislature to increase our estimate. In actuality, the ultimate collections were closer to the Executives estimate. BROs inaccuracies were evident again this year when, at the budget session, BRO told the legislature they could expect $10 million by raising the gas tax. Just days later, BRO and the legislature were forced to concede that they over-estimated the revenue by 300%. BRO is not apolitical. Its director must be nominated for re-appointment by the presiding officer. After all was said and done, and after all the press conferences spreading false claims that the Executive's numbers were wildly off, the legislature conceded that $90 million plus of the supposed $100 million inaccurate revenues, were indeed accurate and were adopted in the legislature's own budget.

BOND RATERS UPHELD LEVY BUDGET, BUT DOWNGRADED LEGISLATURE'S BUDGET The executive budget was vindicated when in October, one month after it was submitted, all three bond rating agencies affirmed the historically high bond rating that my administration had earned. They were especially approving of the fact that the Executive had incorporated recurring savings in the budget through closing the nursing home and requiring employee contribution to health care benefits. It was only AFTER the legislature radically changed the executive budget in November that the agencies downgraded the rating in December. They were especially critical of the legislature having raided the tax stabilization fund as a one-shot revenue, and having restored the nursing home and hundreds of employees without properly paying for the them. IT WAS THE FIRST TIME IN HISTORY THAT THE SUFFOLK LEGISLATURE ADOPTED A SIX-MONTH, RATHER THAN A FULL YEAR, BUDGET.

LEVY'S BUDGET HELPED THE INCOMING EXECUTIVE, WHILE THE LEGISLATURE'S BUDGET LEFT HOLES Ironically while, during the campaign, the candidates for County Executive were attacking the executive budget, it was that budget that made for a more stable county fiscal condition. The savings were real. I made the tough decisions, such as closing the nursing home and requiring employee give-backs, so the new Executive would not have to. I avoided the use of one-shots that would place the new Executive in a difficult position for 2013. Ironically, it was the legislature that undid my budget, created a sixmonth budget and dropped all the tough decisions on the new Executive's lap in 2012. This was a remarkably irresponsible move prompted solely by the legislature's fear of making any tough decision around the 2011 election.