Oops! N.Y.'s Suffolk County accidentally defaults on debt

NEW YORK Tue Apr 23, 2013 3:21pm EDT

A Suffolk County sign is seen along the road entering Cold Spring Harbor, New York March 7, 2012. REUTERS/Shannon Stapleton

A Suffolk County sign is seen along the road entering Cold Spring Harbor, New York March 7, 2012.

Credit: Reuters/Shannon Stapleton

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NEW YORK (Reuters) - As if Suffolk County, home of the Hamptons and playground of the rich and famous on New York's Long Island, didn't have enough financial problems already.

A regulatory filing on behalf of the county dated April 16 shows it accidentally missed an interest payment on some of its debt, including $76.1 million of public improvement bonds, putting the county technically in default. Oops.

The county is wealthy with income per capita well above the national average but it has run into difficulty recently, declaring a fiscal emergency last year after an independent task force predicted a three-year deficit of $530 million.

The county could have a budget shortfall of as much as $250 million by the end of next year, local officials said last month.

The error is more of an embarrassing glitch than anything else. The missed payment - just $722.65 - would be small change for many of the county's residents.

That will buy you fewer than 20 butter-poached lobster rolls (not the most expensive thing on the menu) at Dave's Grill in Montauk, a quaint fishing village on the island's northern tip, or just 10 bottles of Merry Edwards Sauvignon Blanc Russian River 2009 at La Plage in Wading River. A mere picnic.

The mistake was pointed out by the Depository Trust Company, a clearing firm, the day after it was missed and the filing says the error was the fault of the county's escrow agent, M&T Bank.

"The county informed M&T of its error and the escrow agent immediately wired the $722.65 payment to DTC," the regulatory filing said.

So what went wrong? The county was making the first payment in a complicated arrangement that uses $17 million in state HEAL grants for medical costs, primarily related to the Foley Nursing home, said Richard Tortora, president of Capital Markets Advisors, the county's financial adviser.

The $722.65, part of a debt payment of over $1 million, was the portion of the payment from the HEAL grants. The $17 million is being held in an escrow account at M&T.

"M&T for reasons we can't fathom just blew it: 'Oops it wasn't in our system, we missed it'", said Tortora, president of Capital Markets Advisors. Tortora said missing the payment and having to make a regulatory filing with the Municipal Securities Rulemaking Board was frustrating after months spent putting the arrangement together for the county.

M&T Bank was not immediately available for comment.

Fitch Ratings, the credit ratings agency, downgraded Suffolk County's general obligation bond rating to A from A-plus last month, affecting about $1.4 billion of debt. General obligation bonds have the full faith and credit of the issuer and are the best gauge of how risky investors think the county is.

Fitch said it had concerns about the county's ability to become financially stable, let alone reduce its big deficit.

(This story was corrected to fix name of Suffolk County's financial advisers)

(Reporting by Edward Krudy, additional reporting by Pam Niimi; Editing by Kenneth Barry)

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Comments (3)
BlueOkie wrote:
Why is there debt at all. It is a rich tax base! Many liberals live there!

Apr 24, 2013 8:46am EDT  --  Report as abuse
pbug wrote:
Anyone who believes that Suffolk County is wealthy must be sniffing something. There are pockets of the very rich, and lots of areas of working class, middle class and outright poor. There is still high unemployment post recession, with many who had worked on Wall Street never finding new jobs after their old ones went away. Despite the spreading poverty and pain on Long Island, Suffolk PD officers are among the very highest paid in the country, and county and local governments are loaded with political hacks and leaches sucking the taxpayer dry. And as to BlueOkie’s silly comment, people of all political beliefs live here, and it is not, overall, a rich tax base.

Apr 24, 2013 5:11pm EDT  --  Report as abuse
EllieK wrote:
@pbug Overall, the tax base of Suffolk County may not be wealthy. I haven’t checked, but will assume you are correct. It seems plausible to me, as immigrants e.g. my now-deceased family members, started out in tenements in the Queens, then saved up for a tiny home in working class, not-Hamptons areas of Suffolk County, and years later, after much work, finally moved further north to your other Long Island county.

Anyway, despite that, it remains ironic that Suffolk County would default on this GO payment. Even though it was accidental, Suffolk County is apparently in bad financial condition. The affluent Hampton-ites should be paying for public infrastructure which they enjoy and partake of. I agree: Not all Hamptons residents, nor wealthy Suffolk County residents, are “liberals”. I don’t know what they call themselves, Democrat or Republican, but they don’t seem to care about anyone except themselves. That’s very short-sighted.

Also, as you mentioned, many people who worked on Wall Street pre-2007 were NOT wealthy, especially those that lost their jobs. I don’t know anything about Suffolk County PD officer compensation rates. There is certainly a lot of corruption among officials and people in positions of public trust in New York State. The WSJ writes about it a lot. Reuters does too.

Apr 26, 2013 8:44am EDT  --  Report as abuse
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