Press Releases
Press Office
(518) 474-4015


March 9, 2006

Statement on the Proposed Nassau County
Tobacco Corporation Financing

In September 2003 the State Comptroller issued a budget review of the Nassau County Health Center (NCHC) that found its business plan was unsound and unlikely to close the structural deficits that plagued its finances and threatened to undermine the County. Two and a half years later NCHC still lacks a credible business plan. Now the County is scrambling to use an additional $97 million from a new tobacco borrowing to further subsidize NCHC operations.

This $97 million will be money borrowed against future tobacco revenues. Apparently the plan is for NCHC to use some of the $97 million to make debt service payments on money borrowed by NCHC at the insistence of the County in 1999. In essence this is a plan to borrow money so that the County can increase its ongoing subsidy to NCHC. It is akin to a household that chronically overspends and then uses a credit card to make a monthly payment on the home mortgage.

In 1999 the State Comptroller issued guidance to local governments regarding the use of proceeds from tobacco borrowings.

Securitization proceeds should not be used to perpetuate budget deficits that are the result of continuing structural imbalance since their use for this purpose does not resolve the fundamental causes of budget deficits -- spending needs that outpace revenues. For example, Nassau County’s current plan to securitize nearly all of its tobacco revenues to fill a budget gap is unacceptable.

In 1999 the Comptroller’s office strongly urged localities to use these one-shot tobacco proceeds to retire debt or to fund non-recurring expenses, such as pay-as-you-go capital projects. The Comptroller’s Office was concerned about the potential for local governments to use tobacco borrowings to create unsustainable spending levels. At the time Nassau County was on the verge of bankruptcy and a poster child for poor fiscal management. The County has made substantial progress in recent years, but the use of these one-shot bond proceeds to fund recurring subsidies by the County of NCHC operations is a step backwards. Rather, a realistic operating plan must finally be developed so NCHC and the County can then determine its ongoing responsibility for subsidizing operations. These subsidies should be paid for out of the County’s recurring revenue. The tobacco bond proceeds should be used for non-recurring expenses. I strongly recommend that, in the coming weeks as the Legislature, County Executive and Health Center discuss these matters further that the basic principles of fiscal prudence outlined in the Nassau Interim Finance Agency’s recent statement on this matter are heeded and this inappropriate use of borrowed money is rejected.

This conclusion is consistent with Comptroller Hevesi’s long standing opposition to the use of borrowed money to fund ongoing operating expenses. He opposed this practice when Comptroller of the City of New York. He has criticized local and state government on this issue, and he has proposed debt reform legislation that has as its cornerstone opposition to the use of debt for ongoing governmental operating expenses.



Albany Phone: (518) 474-4015  Fax:(518) 473-8940
NYC Phone: (212) 681-4825  Fax:(212) 681-4468