Both New York City and Nassau County are using opaque financing to justify spending plans. By setting budgets based on assumptions of savings and revenue that may be ephemeral, they are showing a lack of transparency and accountability

Put today’s obligations off until tomorrow. Claim new revenue and savings that may or may not materialise. And say your budget is balanced, just like the law dictates in most cities and states. Regrettably, New York City and its eastern neighbour, Nassau County, lately have come to share these dubious attributes as the foundations for spending plans.

In New York, unspecified health care savings are the key. Nassau is betting on fines paid by motorists trapped by new red-light cameras set up near schools. Neither is a sure thing, and investors should be expressing their disapproval not of the wage hikes themselves, but of the opaque ways they’re being financed.

Democratic Mayor Bill de Blasio’s $73.9bn New York City budget for the fiscal year starting July 1 includes an arrangement reached with the United Federation of Teachers providing 4% retroactive raises, to be paid out through 2021.

Writing in the New York Post, Nicole Gelinas of the Manhattan Institute noted that even with health care cost reductions agreed to by the teachers, next year’s budget gap will double to $2.2bn, while ‘the shortfall two years from now has quadrupled, from $530m to $2bn. And the one three years out has gone up eightfold, from $370m to $3.2bn’.

The city on May 12 did agree to move about $725m in costs from the teacher settlement into the current budget for the fiscal year ending June 30. The move came after criticism that pushing the impact of expected teacher retirements into the future may have violated Generally Accepted Accounting Principles.

But the bulk of the expenses remain locked into distant spending plans. Worse yet, while ‘the city has negotiated the right to enforce the health savings through arbitration’, according to Moody’s Investors Service Senior Credit Officer Nick Samuels, ‘there could still be roadblocks to reaching its targets in the years and amounts it expects. If all unions negotiating do not agree to the pattern settlement, the budget gaps and the city’s challenges to close them would intensify’.

In other words, let’s hope for the best, and it’ll be years before the bill comes due if the savings don’t materialise. It was thinking like this that brought America’s biggest city to the brink of bankruptcy in the 1970s. At least New York isn’t selling bonds to pay its bills, like it did back then.

Now, you can’t blame New York teachers for seeking more money after going without a contract for years. The same goes for employees in Nassau County, where civil servants and police officers worked under a three-year wage freeze even as the state economy bounced back from its 2009 low. It’s the lack of clarity in paying for the agreements that deserves scrutiny.

For earlier budgetary sins, the suburb got placed under a state control board. To end the wage freeze, the panel, known as the Nassau County Interim Finance Authority, approved a deal that, like the New York City one, gives workers their first increases in the future – retroactive to April 1, 2014. Then comes 13% more by the end of 2017. Nassau was already facing a budget deficit for fiscal 2013.

The new agreement doesn’t inspire much confidence for coming years, in the context of the county’s new revenue assumptions. Moody’s analyst Valentina Gomez reckons that its new speed-trap cameras could yield as much as $72m. Maybe. ‘This revenue is likely to be volatile as drivers become familiar with the location of the cameras and the number of violations declines,’ she said in a report. And this may bring new risk to a municipality already coping with a 12.4% year-to-year drop in sales-tax revenue in the first quarter.

In its final report last year, the State Budget Crisis Task Force, headed by Volcker Alliance Chairman Paul Volcker and Board Member Richard Ravitch, criticised state and local governments, saying a ‘lack of transparency and accountability constitutes bad financial, government and political practice’. Cash-based budgeting that’s typical in the local government world, the Task Force concluded, ‘facilitates gimmicks and short-term measures that obscure actual financial conditions’.

By setting spending plans based on assumptions of savings and revenue that may be ephemeral, New York City and its suburban neighbour should be taking the Task Force’s words to heart.

William Glasgall is state and local program and editorial director at the Volcker Alliance in New York. He can be reached at [email protected] or via Twitter @WGlasgall