(Reuters) - The top government official in New York's Suffolk County said on Tuesday he would declare a fiscal emergency, a move that could roil the $3.7 trillion municipal bond market.
County Executive Steve Bellone said he was taking the action after an independent task force found it would have a deficit of $530 million in a three-year period.
"After weeks of analyzing our County's finances, our fiscal assumptions and our costs we now have a picture of the real state of our finances. And the truth is worse than any of us could have imagined," Bellone said in a statement on the county's website.
Suffolk County's financial strains could worry a municipal bond market already unnerved by ongoing bankruptcy proceedings in Jefferson County, Alabama, and signs of financial problems in other municipalities around the nation.
Bellone said the emergency declaration empowers him to immediately embargo up to 10 percent of funds in each department of Suffolk County, which forms the eastern half of New York's Long Island and includes the exclusive Hamptons resort area, the location of some of the most expensive residential properties in the United States. "After being told the 2011 budget was balanced, I was stunned to learn it was actually out of balance by more than $33 million, the first time Suffolk County ended a year in deficit in 20 years," Bellone said.
The future looked even worse, with a projected $148 million deficit for 2012, rising to $349 million by 2013.
The finances of Nassau County, which makes up the remainder of Long Island, have already been put under a state monitor.
Bellone said he would meet countywide elected officials and the leaders of public-sector unions on Wednesday to begin addressing the.
Fitch ratings gave a negative outlook to a $400 million note sale by Suffolk County in December 2011. The ratings agency said if the county was unable to stabilize financial operations and prevent a further decline in reserves it could trigger ratings action.
Even so, Fitch said the county benefits from a diverse and stable economy with strong economic indicators, including unemployment rates well below the state and national averages and a growing population with high wealth levels.
Reporting By Ransdell Pierson and Joan Gralla; Editing by Michael Watson