Suffolk County Cites Emergency in Finances

Suffolk County Cites Emergency in Finances
By MARY WILLIAMS WALSH

Published: March 6, 2012
http://www.nytimes.com/2012/03/07/nyregion/suffolk-county-executive-declares-a-financial-emergency.html?src=tp


Suffolk may be one of the richest counties in America, but it risks running out of money next month, its top elected official said Tuesday.

“This is, without question, the worst fiscal crisis in the history of the county,” said Steven Bellone, the Suffolk County executive, who declared a financial emergency on Tuesday after receiving a report on the county’s finances by an outside panel of experts.

“It’s the first time in more than two decades that we’ll be ending the fiscal year in a deficit,” he said. The county last ended a year in deficit in 1991, when it also declared a financial emergency.

The emergency declaration gives the county the power to withhold 10 percent of the money allotted to each department of government. It does not involve establishing a fiscal control board, which would require state legislation.

“The numbers are in the area where control boards have been put in place” in other counties, Mr. Bellone said. “But we’re going to work very hard to avoid that.”

Suffolk County’s more affluent next-door neighbor, Nassau County, has had a control board since 2000, whose dealings with the county have been rocky. The board seized control of Nassau’s finances in January 2011, saying the county had failed to balance its $2.7 billion budget. The Nassau County executive, Edward P. Mangano, sued, accusing the board of overreaching and treating the county unfairly because he is a Republican. A court dismissed most of Mr. Mangano’s complaints.

Mr. Bellone said he had been shocked to learn that Suffolk County faced a deficit this year, because just two months ago it had reported a balanced budget. The new independent report said the deficit would grow sharply next year unless the county took action.

Mr. Bellone said he would leave it to others to determine whether anyone had falsified county records to hide the deficit now coming into view. The county’s audited financial statement for 2011 is expected in a few weeks.

In the meantime, he said, the county laid off 12 lawyers so it could hire financial officials who will look for ways of delivering county services more efficiently.

Mr. Bellone, who was elected last November, said he sought an outside financial review in January because he wanted to know how bad the county’s problems were. The seven-member task force found that Suffolk County’s expenses had been rising every year, in particular because residents required more public services during recessions.

At the same time, revenues have not kept up. Suffolk County gets 45 percent of its revenue from sales taxes, and those dived in 2008 and have not yet climbed all the way back. An additional 22 percent of the county’s revenue comes from real estate taxes, which were hurt after the housing bubble burst.

To close the gap, the county has been drawing down reserves for the last few years. Now its “rainy day” money is almost gone, and it cannot increase property taxes to solve its problems because New York State has capped property tax increases.

The county has resorted to issuing various types of short-term debt to finance day-to-day operations. That is a tool that New York City used in 1974 in its unsuccessful attempts to stave off the fiscal crisis of 1975.

“I don’t necessarily say that this is like New York City, but I think it’s clear that the county is facing financial challenges,” said Geordie Thompson, a vice president and senior credit analyst at Moody’s Investors Service.

Moody’s took the unusual step of downgrading Suffolk County’s short-term debt in December, and it has put the county’s general-obligation bonds on review for a possible downgrade.

“Everybody always thought Suffolk County was doing O.K.,” Mr. Bellone said. “It turns out that was not accurate at all. In fact, Suffolk County has got a real crisis on its hands.”