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July 6 (Reuters) - A judge has started a 60-day clock ticking by signing court orders that will force Nassau County in New York state to pay $41 million in property tax refunds or risk having twice that amount seized from county bank accounts, a step that could halt government services.
Next week, the county, a commuting suburb of New York City that makes up the western half of Long Island, also will get unaudited 2011 financial statements for fiscal 2011 and the responses from any investors interested in leasing the sewer and waste water authority for $850 million.
Nassau County's fiscal nightmare began in 2000 when the state had to create a control board to prevent a bankruptcy.
The county is one of the wealthiest counties in the nation with a median income of $93,613, but a flawed property tax system has left it on the hook for hundreds of millions of dollars of refunds, which it repeatedly has borrowed to repay.
Those tax refunds helped create a $50.4 million deficit in the 2011 budget, and they now threaten this year's budget, which has a $22 million hole.
Nassau County Attorney John Ciampoli hopes to persuade a court to block the order requiring the tax refunds to be paid within 60 days.
The Democratic minority party in the legislature has refused to approve borrowing to pay the refunds, hoping to use its leverage to win changes in a redistricting plan.
A public workers union has blocked another option: cutting the $2.6 billion budget by $40 million.
Early next week, Republican County Comptroller George Maragos said he will issue Nassau's unaudited financial statements for 2011.
The audited statements were due on June 30 but were delayed until the end of July because auditors Deloitte questioned a new consultant's reduction of the liability for so-called other post-employment benefits - mostly retiree health care - to $3.5 billion from just under $3.9 billion a year-ago, he said.
The county has now hired a third consultant to assess whether the smaller estimate is correct.
An attempt Republican County Executive Edward Mangano to raise money by privatizing the sewer and waste water authority was dashed in May by the state control board. But Mangano has persevered and given firms until next week to express their interest in a 50-year lease. A Mangano spokeswoman had no immediate comment on the privatization or Nassau's finances.
Mangano is expected to close last year's deficit by siphoning off more than half of the county's $92 million of reserves, according to a source familiar with the matter.
But that maneuver might prompt credit agencies to further cut the county's credit rating - though they might hold off until the audited statements are issued, he said.
Moody's Investors Service rates Nassau A1 and Fitch Ratings ranks the county at A-plus. Both assigned a negative outlook.
The county attorney said he intends to fight the court's tax refund order by arguing that the judge should follow a precedent set by the top state court, which refused to retroactively invalidate the property tax roll for the Town of Islip, located on Long Island, ruling that this would cause "fiscal chaos."
Attorney Laureen Harris, who represents property owners who are owed millions of dollars of refunds, said she is considering suing Governor Andrew Cuomo and New York state if Nassau does not pay her clients what they are owed. "This is an intentional refusal to comply with absolute court orders," she said.
"So my office is probably going to be to suing the governor and state," she said, as Nassau's legislature, in refusing to borrow for the tax refunds, is acting unconstitutionally.