A New York State Supreme Court judge on Friday dismissed a lawsuit by taxpayer activist Robert L. Schulz to prevent Nassau County, N.Y., from eliminating its fiscal 1992 budget gap by issuing debt.

Justice Harold C. Hughes of the state Supreme Court of Albany County said he dismissed the case against Nassau because the county has not formally decided if it will issue debt to pay for operating expenses and cover a budget gap.

"Until the passage of a bond resolution, there is no controversy ripe for a judicial decision," Justice Hughes wrote in his court memorandum.

Mr. Schulz, president of the All-County Taxpayers Association, filed the lawsuit earlier this month to block the deficit bailout plans of Nassau County, Suffolk County, and the town of Huntington. All three plans involved the issuance of tax-exempt securities to cover deficits. Mr. Schulz also sued the New York State for the Legislature's approval of the deficit financing plans, which he called unconstitutional.

Despite receiving state legislative approval, the Nassau County Board of Supervisors is deadlocked on the deficit bailout plan. To help the county eliminate its fiscal 1992 budget gap, the state Legislature gave it the authority to sell up to $65 million of deficit bonds and to implement a new 1% mortgage tax. The plan still needs county legislative approval.

But facing political pressure, Nassau County Executive Thomas S. Gulotta agreed to issue short-term budget notes. Last week, the county decided to float $675,000 of bond anticipation notes to cover short-term expenses.

In a telephone interview Friday, Mr. Schulz conceded that Justice Hughes' decision was a setback. Mr. Schulz, who has sued the state over other finance-related issues, said he filed a motion on Friday "to reargue" the decision.

Mr. Schulz said the decision is based on a misinterpretation of "the facts and the law."

He said Justice Hughes' decision to drop the case against Nassau County is legally flawed because the state constitution prohibits local governments from borrowing money for a period of time longer than the "useful life of the object that is being borrowed for." As a result, any debt sale to cover a budget gap would be unconstitutional, because the bond would be repaid after the gap is filled.

As part of the same ruling, Justice Hughes also rejected Mr. Schulz's motion for an injunction that would have prevented Suffolk County, N.Y., and the town of Huntington from carrying out their deficit financing plans. The courts now must rule on the case itself.

Justice Harris also granted a motion from Huntington and Suffolk County to move the case from Albany County, where Mr. Schulz filed his suit, to the state Supreme Court in Suffolk County.

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