N.Y.’s Suffolk County accidentally defaults on debt
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 more than $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.