Bloomberg News

Suffolk County Plans Tobacco Bond Sale to Close Budget Gap

March 26, 2012

New York’s Suffolk County (8320MF), home of the Hamptons beach communities, plans to sell $37.6 million of bonds on March 29 to trim an estimated $530 million in deficits through 2013.

Citigroup Inc. (C) will manage the borrowing, which will be done through a county development corporation called the Suffolk Tobacco Asset Securitization Corp. The bonds are backed by the county’s share of payments from a 1998 settlement between tobacco companies and 46 states.

Suffolk, which declared a fiscal emergency this month, plans to use $20 million to help close a $148 million gap in its $2.6 billion budget for 2012, and $14 million to reduce a $349 million estimated gap in 2013, said Vanessa Baird-Streeter, a spokeswoman for county Executive Steve Bellone.

Standard & Poor’s expects to assign an A rating to bonds maturing from 2012 through 2022, and A- rating to bonds maturing 2023 through 2032 and BBB+ rating to bonds maturing on 2037, according to a preliminary official statement.

The county is borrowing a lump sum to be repaid by the settlement’s continuing revenue stream even though a fiscal task force appointed by Bellone criticized the use of “one-shot” money to offset structural budget gaps under a previous administration.

‘Do Nothing’

“These kinds of budgetary relief measures do nothing to alter the underlying structure of the county’s operations,” a report by the group said.

Suffolk began planning the tobacco-bond sale last year under a previous administration, Streeter said in an e-mail. The county estimates it will pay interest rates ranging from 3.04 percent to 4.73 percent on $15 million of tax-exempt bonds maturing from 2017 through 2026; 5.3 percent on $10 million in bonds maturing 2027 through 2032 and 5.75 percent on an $8.4 million term bond maturing in 2037, Streeter said.

About $4 million of taxable bonds maturing 2013 through 2017 are estimated to yield 2.33 percent to 3.62 percent, Streeter said.

Suffolk County’s sales- and property-tax revenue has failed to keep pace with the rising cost of employee benefits and social services. The recession caused sales-tax revenue to decline by $112 million from a high of about $1.2 billion in fiscal 2007. To sustain programs, the county used reserves and borrowed instead of raising taxes or cutting spending, the task force said.

To contact the reporters on this story: Martin Z. Braun in New York at;

To contact the editor responsible for this story: Mark Tannenbaum at

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