Suffolk County Executive Patrick G. Halpin and the county Legislature last week finally reached a compromise on implementing a $35.7 million tax increase to secure most of the $51.2 million of deficit notes slated for sale tomorrow.
The proceeds from the general obligation notes, being offered through negotiated sale by Prudential Securities Inc., as senior manager and bookrunner, will be used to close a gap in the county's budget for fiscal 1991, which ends Dec. 31.
Wedged between a rock and a hard place, 12 of the 17 county lawmakers voted to pass the tax increase last Tuesday night, just 10 minutes before midnight, said Warren Green, a spokesman for the county Legislature. The county executive signed the measure last week.
The tax increase, which will cost residential property owners an average of $62 a year, will secure about $35 million of the notes. The rest of the notes will be secured with state and federal aid payments.
A week before the compromise was reached, Mr. Halpin, a Democrat who was unseated by his Republican opponent on Nov. 5, had vetoed a $51 million property tax increase passed by the Republican majority in the county Legislature. Mr. Halpen offered instead to secure the notes with $20 million in state and federal aid payments and the rest with budget cuts.
Mr. Halpin did not include a tax increase in the $1.5 billion allfunds fiscal 1992 budget he submitted in September. The 17-member county Legislature adopted the budget, but then passed the large tax increase to avoid making spending cuts and dipping into state and federal aid payments in next year's budget.
After the veto, however, the county's precarious fiscal situation required both Mr. Halpin and lawmakers to act quickly.
"There was a real possibility that had the legislators not approved it, this county would have been closed this week," Mr. Green said. "There was no question that the county would have shut down."
Brad O'Hearn, a spokesman for the county executive, said, "In discussion with the Republican majority of the Legislature, they made it crystal clear that they would not consider any cuts in spending next year and they were prepared to see the county go into bankruptcy."
Mr. O'Hearn said Mr. Halpin saw that and decided to negotiate a compromise. "So, the property tax hike went down and that was a substantial savings," Mr. O'Hearn said. "It went from $75 per household, to $62.
"And while Mr. Halpin is still not happy with it, the alternative -- bankruptcy and not paying the county's bills -- was an alternative he thought would be too harmful for the county," he added. "We would have been essentially out of money by Dec. 3, unable to pay our employees and our vendors."
The deficit note offering will be divided into series A, $35.7 million due July 30, 1992, and $15.4 million series B and due Dec. 9, 1992.
The deal was structured that way because Mitsubishi Bank, which is providing a letter of credit on the county's $225 million tax anticipation note sale later this month, had expressed concern about the timing of the deficit note repayment, said Joseph Poerio, the Suffolk County's chief deputy comptroller.
In discussions with the bank, they said it was in "our best interest to do it that way," he said.
While county property taxes secure most of the notes, the balance will be said by state and federal aid coming in and the bank was concerned that the money might not come in on time, Mr. Poerio added.