SMITHTOWN, N.Y. – Executive Steve Bellone on Tuesday declared a fiscal emergency for Suffolk County, N.Y., after a task force issued a staggering report that warned of a $530 million deficit over three years.
Bellone and county lawmakers worried about the possibility of a state oversight panel, similar to the one in embattled neighboring Nassau County, and some were skittish about the effect of the new findings on the Long Island county’s worsening bond ratings and continued access to the capital markets.
Nassau is under an oversight panel, which imposed fiscal control in January 2011. That county and its oversight board have been at odds since.
Asked about such a scenario in Suffolk, Bellone took a deep breath. “Looking what has happened in other counties, no one wants a control panel put in here,” he told reporters after the county Legislature’s budget and finance committee heard the task force report.
Richard Halverson, the chairman of the seven-member fiscal analysis task force that Bellone formed in early January, said the group pegged Suffolk’s deficit at $33 million in fiscal 2011, then escalating to $148 million and $349 the following two years. Additional revenue shortfalls and expense increases over the next two years triggered a higher estimate from the originally anticipated $406 million over three years, the report said.
“It’s beyond the scope of the task force to identify solutions or to identify heroes and villains. The biggest villain, of course, is the national economy,” said Halverson, a former New York City deputy comptroller and former assistant deputy director of the New York City Financial Control Board, which oversaw the city’s budget in the mid-1970s, as it recovered from its fiscal crisis.
The report cited several sources of strain, including escalating pension costs, excessive dependence of sales tax revenues, a stagnant economy on Long Island, and overreliance of “one-shots,” or stop-gap measures. “The low-hanging fruit is gone,” said task force vice-chairman Michael Solomon, a managing director for public finance at Ramirez & Co.
Solomon said the town’s awareness of its predicament is a step in the right direction. “I think it went really well. We identified where the problem was,” he said.
Bellone agreed. “Frankly, there has been so much disagreement about the facts and the extent of the problem that it’s overshadowed efforts to find a solution,” he said.
According to Bellone, declaring fiscal emergency allows him to immediately embargo 10% of available funds. The existing budget already projects about 460 layoffs. Bellone said county Comptroller Joseph Sawicki Jr. briefed the three major rating agencies about the report two days earlier.
Bellone is also fast-tracking a sale of $90 million in revenue anticipation notes. Describing his county Wednesday as "headed to bankruptcy," Bellone said Suffolk could run out of money next month.
Fitch Ratings in late November assigned a negative outlook to Suffolk’s general obligation public improvement bonds and tax anticipation notes, while affirming its AA-minus rating for the county. Fitch had lowered its GO rating from AA in December 2010.
Fitch said Wednesday it would not act immediately on Bellone's declaration of fiscal emergency, but would monitor developments.
Moody’s Investors Service downgraded to MIG-2 from MIG-1 the county’s $120 million of Series I 2011 tax anticipation notes. Moody’s also placed Suffolk’s Aa2 long-term GO rating under review for possible downgrade, affecting $1.3 billion of long-term debt. Standard & Poor's rates the county's GO bonds AA.
Some legislators worry about further deterioration of credit.
“Absolutely. I don’t ever remember these kinds of numbers. What does this do for our bond ratings? Obviously it’s going to drop them,” said Edward Romaine, R-Riverhead.
“This [report] will be looked at very seriously by the bond rating agencies,” Halverson said, answering a Romaine query before finance committee chairman Lou D’Amaro, D-Huntington Station, cut off the questioning.
According to the report, sales tax revenues began to plummet from a high of $112 million in fiscal 2007 when the financial crisis hit. While sales tax collections have rebounded the last two years, they are still far from 2007 levels and growth trajectory is nowhere near historical trends, the report said.
County employee costs account for about 50% of the general fund and police district budget, encompassing salaries, benefits, and pension costs. Due to the declining performance of the New York State Retirement System, Suffolk’s total pension payment is expected to spike to $192 million in fiscal 2013 from $102 million in fiscal 2011.
The panel included Stuart Klein, former first deputy director of the city’s Office of Management and Budget; Nathan Leventhal, a director of Dreyfus Mutual Funds and a former New York deputy mayor; Edward Moneypenny, former chief financial officer of 7-Eleven Inc.; Charles Stein, Suffolk’s former deputy county executive for finance; and Steven Newman, former first deputy New York comptroller.