The Larchmont-Mamaroneck Summit: What’s Behind the Westchester County Budget Numbers?

By Janet O'Connell

On Tuesday, March 28, 2017, Journal News “Tax Watch” columnist, David McKay Wilson, was invited to speak to the community by the Larchmont-Mamaroneck Local Summit. Westchester County Executive Rob Astorino was guest speaker in December 2016 and spoke about the County’s budget. The Summit Board invited Mr. Wilson to offer a different perspective.

Mr. Wilson began his presentation noting that the County’s $1.8 billion budget for 2017 is a 1,644 page document. For the seventh straight year, the County Executive pledged no tax increases since, according to Mr. Wilson, Mr. Astorino ascribes to the Grover Norquist philosophy of always opposing any increase in taxes.

The County tax is only about 15-18% of a resident’s property tax bill. Yet, according to Mr. Wilson, Mr. Astorino has been able to dictate the conversation on property taxes, making himself popular enough to run for a third term as County Executive and perhaps make another run for the Governor’s office. Although Democrats on the Westchester County Board of Legislators outnumber Republicans and Conservatives nine-to-eight, two Democratic County Legislators, Michael Kaplowitz and Virginia Perez, vote with the Republicans, thus making some things easier for the County Executive to accomplish.

According to Mr. Wilson, the County Executive is “starving the beast”, to use a Reagan era phrase. Since Mr. Astorino became County Executive seven years ago, overall County employment is down 14%. The Transportation Department alone has seen a 54% decline in personnel. Community mental health clinics have had to shut their doors because of a 47% decrease in personnel with private clinics trying to pick up the slack, and the Planning Department is 30% smaller. (“Westchester County always had a highly-regarded planning department,” added Mr. Wilson.) The Parks Department has decreased by 30% in the past seven years. In writing his columns, Mr. Wilson asked Democrat Board of Legislators member Michael Kaplowitz to describe this year’s budget and Kaplowitz responded, “We’re on the road to Perdition,” even though he had voted in favor of the budget.

Independent outside groups that analyzed the budget last fall concluded that Mr. Astorino’s seventh no-tax budget was “wildly out of whack and structurally unsound”. The budget was dependent upon an as yet unapproved $15 million one-shot deal to privatize Westchester County Airport. Additionally, the budget overestimated sales tax revenues, projecting a 3% increase after two years of flat results. Furthermore, it precluded any raises for the County’s 4,000 unionized workers who are now working on expired contracts. “Mr. Astorino has built his no-tax brand on the backs of County employees,” opined the reporter. Significantly, last year the County borrowed $4 million to pay for pension costs. Since Mr. Astorino took office, tax payers have paid a total of $21 million in interest costs alone to pay for pension expenses.

With respect to the County labor contracts, Mr. Astorino’s latest offer to the unions was an eight-year contract with overall raises of 8.5% over those eight years and included a provision for the employees to pay a portion of their health care costs. While the offer appears reasonable, “when you add it all up, they were going to be losing money, so they rejected the contract with a vote of 172 in favor and 2,028 against,” explained Mr. Wilson.

Returning to the issue of the $15 million airport privatization deal transferring control to the private equity firm, Oaktree Capital Management (Oaktree), which would have made Mr. Astorino’s proposed no tax increase budget possible, Mr. Wilson said the deal raises many questions. In Mr. Wilson’s view, the privatization deal “came out of nowhere from a back room secret process between the County Executive and Oaktree.” The County Executive threatened to cut a lot of the money for social service organizations unless the County Board of Legislators agreed to the deal. The Democrats, however, stopped the deal in December, but it is still very much alive.

The transfer of operational control of the airport is permissible because of a bill passed in 1996 by Congress that enables small airports to be privatized. This bill has proven to be very unpopular. For instance, Stewart Airport in Newburgh was privatized in 1999, but the private equity investors sold it to the MTA in 2007 for a hefty profit. At the moment, there is no airport in the continental United States that is in this federal privatization program. The only airport which has been owned by Oaktree, the firm to which Mr. Astorino hopes to transfer control of the County airport, is the San Juan Airport in Puerto Rico. However, Oaktree recently sold its 50% interest in the San Juan Airport to a Canadian pension fund. Mr. Wilson remarked, “Who knows who might end up owning Westchester Airport after these private equity guys decide to redeploy their capital elsewhere?”

According to the deal, Oaktree would give Westchester County $15 million upfront, and then Oaktree would operate the airport and take the revenue stream for the next forty years. Right now, according to federal law, all the money earned at the airport has to stay at the airport to be used for airport improvements. Under the proposed transfer, the money can go to the County for its own general operating purposes, thus filling the deficit hole.

Oaktree manages over $100 billion for endowments and pension funds. It typically purchases distressed debt, so it can move in, buy something on the cheap, make some improvements and then sell at a profit. But Westchester County Airport is not distressed. In Mr. Wilson’s view, “the only distress was last fall on the part of Astorino when he needed the $15 million to balance his budget and not increase taxes.”

So why would Mr. Astorino want to transfer the airport to Oaktree? Mr. Wilson explained that the deal is front loaded. Oaktree would pay $15 million upfront the first year, coinciding with Mr. Astorino’s need to cover the $15 million budget gap. Then the firm would pay $5 million for the next four years which would conveniently coincide with the end of Mr. Astorino’s third term as County Executive, assuming he is re-elected. The County Board of Legislators rejected the deal, and it is on hold. However, the $15 million is still needed to plug the budget and the Board of Legislators was finally able to balance the budget only by including $15 million from the County’s dwindling reserve fund.

Turning again to the County Executive’s refusal to raise taxes, Mr. Wilson pointed out that a 3% increase in the County tax levy would cover this $15 million shortfall. For every $10,000 in property taxes that a Westchester resident now pays, the 3% increase would be about $60 per year.

A significant problem at the airport has been the Astorino administration’s inability to carry out capital improvement plans at the airport even though the plans have been in the works. This is due to the County’s shrinking workforce. The County simply doesn’t have the people in the transportation and public works departments to move these projects forward and, according to Mr. Willson, this is directly attributable to the County Executive’s budget priorities.

In fact, Mr. Wilson reported, things had gotten so bad that the FAA suspended Westchester County’s right to collect the passenger facility charge ($4.50 per passenger) for 25 months between 2014 and 2016 because Westchester could not complete the projects that it had promised that it would spend the money on. This came to about $7 million. In Mr. Wilson’s words, “that’s seven million dollars that the County left on the table because they weren’t nimble enough to work on new projects that were already in the pipeline.”

Mr. Wilson then turned his attention to the parking garage at the County Airport. He explained that the garage was built 24 years ago when County Executive Andrew O’Rouke was running for his fourth term. In 1990, a county-wide referendum to raise funds to build the new terminal had barely passed, and it wasn’t clear whether the voters would agree to vote in favor of a parking garage even though it was an important part of the expansion plan.

In order to get the garage built, County Executive O’Rouke struck a 30-year revenue sharing deal with the developer Louis Cappelli and lawyer Al Pirro, the ex-husband of former Westchester County District Attorney Jeanine Pirro. (Mr. Pirro was later convicted of conspiracy and tax evasion.) Cappelli and Pirro spent $18 million to build a garage for 1,100 spaces. Parking fees started at $11 a day, but they have continued to rise ever since then. Now it costs $7.20 an hour and $30 a day, roughly equivalent to what it costs to park at JFK Airport. It is the biggest complaint about the airport.

More significantly, the garage takes in about $10 million a year. Operating and interest costs are about $4 million. The County gets $3 million a year from garage revenue. Cappelli and Pirro also earn $3 million a year. They will continue to collect $3 million a year for the next 8 years at which time their 30-year deal ends and the garage comes back into the possession of Westchester County. At that time, the County could decide to roll back the parking fees to better serve its customers.

However, if the deal goes through with Oaktree, the future revenues of the parking garage would go to Oaktree and not to the County. These revenues are estimated to be valued at $350 million over the 40-year course of that deal. Thus, if the airport is privatized, the deal will keep the parking rate decision out of the public’s hands, and Mr. Wilson mused he wouldn’t be surprised if the parking fees would continue to go up because the private equity investors need to make 9% to 11% returns before flipping the investment.

In an interesting footnote, Mr. Wilson explained that the garage deal at the airport was a “two-fer”. At the same time, Cappellli and Pirro also secured a contract to build a garage at Westchester Medical Center. As at the airport, the parking rates continued to climb at the hospital. The rates there got so high, that the Medical Center decided to buy back the garage so that it could lower the price of parking for its doctors, staff and patients.

In 2017, the airport will be center stage for Westchester public policy and the County Executive election. “Fasten your seatbelts!” advised Mr. Wilson.