Erie County, N.Y., Control Board Tiff Blocks $37M Deal

A squabble between Erie County, N.Y., government and its financial control board has blocked the sale of $36.9 million of bonds and threatens needed capital projects.

A compromise worked out earlier this year collapsed and the Erie County Fiscal Stability Authority last week rejected the county's four-year financial plan.

Erie County Executive Chris Collins has said that the county will never allow the control board to issue bonds for it, according to the Buffalo News. Collins' office did not return repeated calls for comment. The paper quoted Collins as saying, "The word 'never' can be used in capital letters."

Amid the acrimony, county budget director Beth Kornbrekke announced last week that she was resigning after less than six months on the job.

The failed compromise would have allowed the authority to sell bonds and the county to place "mirror bonds" with the agency that would have been used to take out the bonds if the county was upgraded to single-A by two rating agencies. By selling the bonds, the authority would extend its life, but by taking out the bonds years down the road, the county could eventually get rid of the board. The rejection of the financial plan means the control board is still in a "hard control" period and its approval is required for any bonding by the county.

Authority executive director Kenneth Vetter said that his board was willing to allow the county to sell its own bonds, and passed a resolution allowing it to do so, but only if the county could sell them more cheaply than the higher-rated authority. Moody's Investors Service assigns the county a Baa3 and the authority a Aa2. Other rating agencies do not rate the control board.

County Comptroller Mark Poloncarz said that some have questioned whether the authority has any legal standing to sell bonds at all since it has never approved a financial plan for the county.

When it comes to the agency selling debt, language of the law that created it states, "Any such financing shall be consistent with the adopted budget and financial plan of the county."

Vetter disagrees.

"From our standpoint, that is a non-issue," Vetter said. "When the mirror bonds were put forward, which was the authority going to the market and borrowing, there were bond counsel, there was the county comptroller, there were the county executive's people, there were financial advisers. We had a series of conference calls related to specific issues relating to mirror bonds and no one brought up that issue."

Poloncarz said that the statute should be amended to allow the county to sell its own bonds and said that some state legislators are working on a bill to do that but declined to name them.

"The control board should not be able to hold [the county] back so long as we have market access," he said.

While Poloncarz admits the authority can sell bonds more cheaply than the county, he says those savings are canceled out by its annual budget of $600,000 a year.

Vetter counters that the agency has an important oversight role.

"The authority does other things than borrowing and the authority has saved money for the county in the contract review process and the hiring process," he said. "Borrowing is not the sole reason for the authority."

But Poloncarz said that the fiscal crisis the county faced in 2005 and before, which the board was created to address, passed and that unlike other municipalities with control boards, Erie never reached its tax limit or debt limit.

"The fiscal crisis was created as a result of mismanagement of past elected officials," he said. "We now have new officials who are heading this county in the right direction and are making the right decisions."

Talks are continuing between the various parties but regardless of the outcome, the county will need $87 million to pay for general infrastructure projects, including roads, bridges, and work on the zoo and the stadium for the National Football League's Buffalo Bills.

"We're going to need to borrow money by the end of the year," Poloncarz said. "We have not borrowed for 2007 and the proposals for 2008 have not been approved by the [county] Legislature yet, but they will fairly soon."

 

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