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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.
“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.
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