Not Yet Bankrupt - Just Insolvent?

Dear Mr. Duer:

Ralph Washington Sockman was the senior pastor of Christ Church in New York City and Time magazine said that he was "generally acknowledged as the best Protestant preacher in the U.S.”  He is reported as saying:

“Let us not bankrupt our today by paying interest on the regrets of yesterday and by borrowing in advance the troubles of tomorrow.” 

This encapsulates what I see are the fiscal problems of both the County of Rockland and the Town of Clarkstown which I have described in several previous articles foremost among which are Nanuet's Nightmares, Looking Through My Bills, The Joke Is On You and Cut to the Bone or Cut the Gordian Knot. 

In Looking Through My Bills I noted that Clarkstown has been running at a loss since 2008 (the first date audited financial statements are available on the Town's website) and this is continuing in the present proposed budget for 2013 where an amount of $2 million is to be withdrawn from the Town's Reserve Fund. 

What is troubling is that Clarkstown is adopting deficit budgets every year. Clarkstown's budget is not in balance! It is using the reserve fund to meet expenses.  In 2009, Clarkstown negotiated the sale of its Solid Waste Transfer Station and established a ‘Tax Stabilization Fund’ with the proceeds which it added to its existing reserve fund of $7 Million.  That fund is being depleted at an alarming rate.

The unfunded OPEB (Other than Pension post Employment Benefits) retirement and health insurance benefits of Clarkstown as of 2011 stand at $157 Million and are rising. That number was $133 Million in 2009 - up by $24 Million in three years. The unfunded vacation and sick time buyback is over $4 Million. 

Clarkstown's bonded debt is about $95 Million and there was another $23 Million authorized but not sold through 12/31/11.  Add these two figures together and one is looking at a figure of over $118 Million in bond debt. Clarkstown continues to tout its AAA bond rating - its license to go into more debt. As a taxpayer I will be asked to pay a share of these bills. The County's credit card is maxed out and no more charges can be put on it - the Town's credit card is in the process of being maxed out. 

The Palisades Center filed a challenge to its Town of Clarkstown and Clarkstown School District property tax assessments for the years 2009, 2010 and 2011 in Rockland County Supreme Court. The mall pays $23,477,500 in property taxes annually, of which $15,165,000 goes to Clarkstown schools, $1,332,500 to the county, $5,635,000 to the town and $1,345,000 for special fire, ambulance and sewer districts. If this case is lost disaster may follow. 

Mr. Duer, at the Town Board public meeting scheduled to 'discuss' the budget on Thursday, November 8th at 7:00 p.m. may I suggest that you exchange seats with Town Attorney, Amy Mele, so you are available to whisper some fiscal sense into Supervisor Gromack's ear? 

Watching the Board function on matters involving taxpayers dollars gives me the uncomfortable feeling that I am seeing a Shakespearean tragedy unfolding before my eyes. Hamlet sits in the center obfuscating with prolonged soliliquies on 'matters oblique', while you, wiley old adviser Polonius who knows the financial numbers, sit silently at the edge of the stage. Rosencrantz and Guildenstern are your allies - they know the numbers too. Act quickly as Hamlet doesn't trust them and by Act III they may be gone.

I believe your silence must end soon because Clarkstown is heading towards insolvency; the County is already there.  Maybe you agree with me that if things continue the way they have in the past, the only option left for you will be to whisper into Gromack's ear to take Clarkstown into bankruptcy?

As I understand it there is a difference between insolvent and bankrupt. These two terms are used so interchangeably that I think people get confused and don't realize that they actually refer to two different things. Insolvent is a word used to describe entities whose liabilities exceed their assets. Bankrupt/Bankruptcy, on the other hand, is a legal term that refers to entities that use the legal system in an attempt to get out of their state of insolvency or liquidate. 

But I don't need to tell you that, Ed, do I?

I believe that Clarkstown is an entity imminently coming to the point of insolvency and I would offer the following analysis in support of this assertion for your consideration.

According to Rockland County's Auditors (page 4 of the 2011 Independent Auditors for Rockland County Fiscal Year 2011 by O'Connor & Davies) the Statement of Net Assets presents the County's total assets & liabilities with the difference reported as net assets. Over time, increases or decreases in the net assets serve as an indicator as to whether a financial situation is improving or deteriorating. 

Here is the data ......

Year          Net Assets                Increase/Decrease
2005        $454,248,488          
2006        $414,028,045                ($40,220,443)
2007        $318,527,930                ($95,500,115)
2008        $255,192,837                ($63,335,093)
2009        $203,234,184                ($51,958,653)
2010        $117,269,099                ($85,965,085)
2011        $ 11,291,945                 ($105,977,154)

Do you agree these numbers mean that during the year 2012 Rockland County became insolvent?

The County Politicians are not alone, a similar look at Clarktown's numbers show that under Mr Gromacks leadership Clarkstown is racing towards insolvency. 

Here is the data .....

Year          Net Assets              Increase/Decrease
2008        $41,956,016
2009        $36,518,223                 ($5,437,793)
2010        $31,154,546                 ($5,363,677)
2011        $20,541,415                 ($10,613,131)

As the trend shows it appears that Clarksown will bcome insolvent sometime in 2013 - sooner if the Town loses the Palisades Mall tax challenge.

Why is this happening? 

I believe it is because of poor fiscal management under the leadership of Supervisor Gromack and the Town Board that has occurred with your agreement.   It appears that all of you lack the knowledge or the desire to properly fund Reserves. You are not putting the necessary money away to pay for all the expenses that you are occurring.

For example, some of the reserve funds that appear to be not properly funded are:

1) Tax Certoriari - Each year tax bills are challenged and some taxpayers win refunds, Commercial taxpayers can win refunds for up to 7 years. Depending on the size of the tax bills and the number of challenges a percentage of the tax levy should be put away annually to be able to pay the taxpayers when they win. Obviously, as the 2011 audit report shows, you are issuing BANS (Bond Anticipation Notes) to pay for the losses. So you have failed to reserve the necessary funds. 

2) Pension Obligations - Based upon which employee group and their particular contract the annual payment should be between 10-14% of payroll. Every year the State Controller sends out bills for the Pension Plans based on the different plans. The amount is the payment based on the last 5 year performance of the Pension Plan Investments. As you are aware, Mr Duer this is for the minimum payment. For many years the investments did very well but instead of putting money aside for times when the stock market was not so generous you used funds for raises and other expenses. So now when the contribution is 25% of payroll there is no money being put aside and you have resorted to taking out loans from the State to make part of the payments required.

3) OPEB (Health Care Costs for Retirees) -  No money has ever been put away as employees earned this benefit. No Specific Reserve fund was ever set up or ever requested to be set up. The Town could have placed the required funds in the General Reserve Fund but you and Mr Gromack opted to 'pay as you go'. In 2011 'Pay as You Go' cost taxpayers $3,612,738 up 28% from 2010 for benefits to workers who earned them in years before most of us owned our homes. OPEB 'Pay as You Go' made up 4.2% of the 2011 tax levy. 

If costs rise at 2011 rates the levy will have to increase 1.2% per year just for this one item alone. The current amount that should have been put away over the last 30 years is about $150 Million.   

How much has the Town put away? 

Nothing!

These are only a few items that you and the Town's elected officials are not including properly in the annual budget. 

What you are doing is not illegal but in my opinion it is immoral. 

Here is why ....

In a recent Patch article the Town is described as "proposing" a 6.2% Town Tax increase. What Patch did not mention is that the Town has already collected a 1% surcharge on the School Taxes which, when calculated on the Town Tax, is equivalent to a 1.2% rise.  So the Town Tax increase "proposed" for this year is really 7.4% despite Mr Gromack's claim that the surcharge on the school's taxes provided town "tax relief".

Further, he says he was "forced to use $2 million of its surplus (tax stabilization fund) while in the past few years the Town has "used only" $1.2 to $1.4 million." 

Mr. Duer, what does he mean by "forced"?  Are you the one who is forcing him?

The only thing that 'forces' politicians to avoid doing the 'right' thing is their fear of losing the next election. The right thing to do is to limit tax increases to about the rate of inflation, keep the Town's reserve fund intact and solvent so it is available for Town emergency expenditures, and limit expenditures to what can reasonably be afforded.   Every taxpayer has to do the same why not the Town of Clarkstown?

Let's be honest about the facts .....  

Mr Gromack is taking $2 million out of the Town's 'rainy day' fund in his proposed budget so he can avoid raising taxes by another 1.6%. Because he is up for election next year he will not tell taxpayers that his effective tax rate is 9.0% - 6.2% that the Town Board insisted upon, 1.2% that he 'saved' with a school surcharge, and 1.6% that he 'saved' out of the Town's reserve fund. That's the true tax number for 2013, 9.0%, is it not, Mr. Duer? We may not pay it all this year but Supervisor Gromack will leave us holding the bag in future years when he leaves office. 

Knowing the fiscal state of the County and the Town, Supervisor Gromack and the Town Board saw fit to give the police a net 13% raise over the next 5 years at 2.5%/year for the life of the contract.   That is fiscal mis-management given that police costs are over 30% of the Town's budget. 

I wonder if you approved of this action?

If so then I propose as a taxpayer to accept the same deal - I will take a 2.5% tax increase for the next 5 years in my Town Tax to give the Town 13% more of my tax income.   That's about what people working or retired will receive in salary/pension increases in the same period.

Now Mr Duer you have a small problem..... 

You see with this 2.5% increase in tax revenue the Town will have a bigger deficit which it can fill by using more of the Town's reserve fund or it can cut costs. 

Which would you recommend?  

You know very well where the costs that need to be cut are to be found.  They are in bloated salaries and pensions.  Your solution is to advise the Town Board that they need to consider lay-offs of those that are costing the most or "those with the mostest" can offer give-backs.  

Further, why are you not objecting to the planting of flowers around the Town Hall and Main Street and paying for staff to water this horticultural profusion if the Town has an expense problem?  While you are at it, would you mind telling me why we are paying County Legislator, Frank Sparaco, $75,000 per year to be a part-time telephone assistant to Highway Superintendent Ballard? 

Does he by any chance water Ballard's plants?

Mr. Gromack has referred to the police salaries as 'obscene' and blamed them on his predecessor. Now he will leave his successor with an insolvency and perhaps a bankruptcy problem if he is removed from office in November 2013.  An appeal to the Clarkstown Republican Committee to cross-endorse him in 2013 may not succeed as the winds of change are in the air.

Recently, Mr. Duer, I had a meeting with Andy Stewart, Supervisor of Orangetown, to discuss the fact that he has a duty (as does Supervisor Gromack in Clarkstown) to present his constituents with all of the options to keep the tax rate in Orangetown to an acceptable level and allow the Orangetown taxpayers to discuss options that involve layoffs and reducing services. Mr Stewart had held numerous open meetings on his 2013 budget and had recently proposed a 9%+ tax increase.... Mr. Gromack has held no such meetings to date.  That is one difference between a supervisor who wishes to follow the spirit of the open meetings law and one who seemingly does not. 

I discussed an article entitled Orangetown Tentative Budget with Stewart at the open office hours that he held in the Pearl River Library last week.  The article and comments show that it is obvious there are numerous options in preparing a budget and that he should consider listening to what his constituents are telling him to get his proposed tax increase down to 4% or less.

Here is what Mr Stewart commented in the same article which shows the openness of Stewart to the budgeting process and to inputs from the public.

Andy Stewart, Orangetown Supervisor - Sunday, September 30, 2012

Budgeting in this time of economic austerity raises basic questions about the scope of local government services.

I think I will put on the table the options that I think the Town could take to actually get to a 4% tax increase and we will see how many people line up in support of these measures.

If we rule out a tactical bankruptcy that would enable to the Town to throw out its labor contracts and start over, but would most likely damage our credit rating in the extreme, the only way to reduce the budget is to lay off employees and to cut services dramatically. I wonder if the good people of Orangetown are ready to accept the real consequences for public safety, quality of life and property values of a dramatic reduction in taxation, all to reduce a part of their tax bill that is small in comparison to other taxing entities, such as school districts and the federal government.

Nonetheless, we must leave no stone unturned in our effort to identify savings.

Mr Duer, you should suggest to Supervisor Gromack that he takes a leaf out of Supervisor Stewart's book and offer the taxpayers several options to cut the proposed Town Tax increase in half. 

Or is it your intention not to do so and to depart in November 2013 with Supervisor Gromack? Because I assure you that with the fiscal situation you are presiding over, the next supervisor will remove you the day after the election if you don't move from your present position, physically and fiscally, in the Town Board's deliberations. 

You see the present budget proposal's immorality is summed up in the Journal News where you can read......

While the town was looking at its budget, so was Teresa Mastropolo, 81, a Valley Cottage woman who lives with her husband, Carmine, 88, a World War II veteran. “We’ll have to tighten our belt because we live on a fixed income,” said Teresa Mastropolo, who confided that she and her husband had to tap their savings to pay their school-tax bill.

Mr. Duer, did you or Supervisor Gromack have to tap your savings to pay your tax bills?

Sincerely,

Michael N Hull

Michael N. Hull is a member of the Clarkstown Taxpayers Group the goals of which are to reduce local taxes and local government expenses and make local government and local public officials more responsible and accountable to the citizenry.