Judge Grants Temporary Stop of NIFA Takeover

A Supreme Court Judge has put a temporary halt to a takeover of Nassau County’s finances by the Nassau County Interim Finance Authority.

“I’m staying NIFA from doing anything,” Supreme Court Judge Arthur Diamond said last Friday morning after a hearing on the lawsuit filed by Nassau Executive Ed Mangano over the constitutionality of the takeover. “I want to maintain the status quo until I can make a decision.”

The court is facing a March 31 deadline because scheduled contractual increases for county workers would take effect on April 1. NIFA could potentially stop those increases – something Mangano has called upon the state board to do – but which representatives only began fully talking about in earnest in court.

Diamond said that he would issue a decision “far in advance” of the March 31 date.

“This is going to be decided in weeks and days,” Nassau County Attorney John Ciampoli said.

William Savino of Rivkin Radler, Mangano’s former law firm, took the lead in court Friday, saying that he is “not arguing” that the NIFA statute is unconstitutional, but the “declaration and legislative intent” of the statute extended only between 2001 and 2008 and is without “state concerns.”

“The state’s concern ended with the interim finance period,” in 2008 Savino said, when New York lifted the finance period. Further, Savino said that NIFA’s takeover affects “home rule” of the county and can only be bypassed if there is a specifically stated state concern and can not be the preference of an “advocate.”

The brunt of the county’s case is the question of if the NIFA law suspends, repeals or impairs powers given to it by the villages and local governments, then the state constitution says it must be reenacted in the next state legislative session, which it was not.

The county is asking the court to fully block any takeover attempt by NIFA in order to allow the 2011 budget to play itself out. Diamond’s stop order includes delaying a refiling of a revised budget plan for the county until Tuesday, which the county says is unnecessary because the budget is already balanced.

“The control period must be based on results – hard numbers – and there must be an imminence of a deficit,” Ciampoli said.

“Don’t call this game,” Savino said, arguing that NIFA’s purpose was to “let this county function independently,” and the county could always take corrective measures to ensure a balanced budget. “Is NIFA’s crystal ball and clearer than mine? I don’t think so, especially after 26 days.”

NIFA enacted a control period on Jan. 26, barely one month into the new fiscal year. By accounting standards, a final accounting typically takes place in the 14th month of a fiscal year.

“NIFA acted arbitrarily and capriciously,” Savino said. “They didn’t let the game play out for nine innings.”

If NIFA were to wait until 2012 to rule on the 2011 budget, “the problem has snowballed in the interim,” NIFA outside counsel Christopher Gunther of Skadden Arps said, adding that NIFA “wanted to fix the problems now” because “you lose a year’s effort to try to fix the problem” if there was a delay.

Judge Diamond questioned if the state does has an interest in the bonds issued to bail out the county or if Nassau is going bankrupt.

“NIFA can exercise its authority,” Savino said, but it is “circumscribed” as there is “no precedent” since Nassau was the entity making the bailout request, therefore the protections of home rule apply as opposed to Erie County, where there was “unlimited” authority given.

Savino conceded that while NIFA can impose a control period, it can do so only if one of five conditions apply, “or that there is a substantial likelihood of immanence.”

With approximately $1.6 billion in remaining bonds, “the state interest is just beginning,” Gunther argued, calling the county’s strategy of placing one constitutional clause inside another a “Rube Goldberg aspect.”

Diamond questioned if the finance period expired because NIFA did not issue new bonds.

Savino argued that NIFA had lost the ability to issue a control period on “projection” when the finance period ended, while Gunther cited bond disclosure letters from last December with Ciampoli’s signature that NIFA does have authority to issue a control period.

“They just don’t like the fiscal policy of the year 2011” Savino said, charging that NIFA is seeking “a change in policy” since the agency signed off on previous borrowing, accounting for them as revenue to pay property tax settlements, and did not issue a control period from 2001-08.

“This year, for the first time, they changed the rules,” Ciampoli said. “That is the definition of arbitrary and capricious and that decision cannot stand.”