Suffolk County facing $51.8 million sales tax shortfall, report says

Suffolk County faces a gaping $51.8 million, two-year deficit in sales-tax revenue, according to a new report by legislative budget analysts, putting a huge hole in the $2.9 billion budget County Executive Steve Bellone unveiled last month.

The new estimates from the Office of Budget Review -- the first since dismal sales-tax figures came to light a week ago -- forecast a $48.6 million deficit in the general fund and a $3.2 million shortfall in the county's water protection fund.

The dire forecast comes after third-quarter sales-tax receipts dropped 1.28 percent from the same period last year. It also brought down sales-tax totals for the entire year so far to a negative 0.09 percent, compared with the same period last year.

Those figures are far below the 4.87 percent growth in sales tax the county had budgeted for 2015, and below the revised 2.35 percent growth projection Bellone made for this year in his 2016 budget. The county executive had also forecast a 2.75 percent sales tax increase in 2016.

"Arguably the recommended budget was balanced at the time it was released," said Robert Lipp, budget review director, in a letter to lawmakers. "With this new information in hand, it now becomes the responsibility of the legislature to take corrective action."

The report urges lawmakers to further use the county's sewer tax stabilization reserve fund, which will have an $81.6 million balance at the end of 2016 to "right size" the 2016 budget and "make it less challenging to manage the budget for the next few years." The money would have to be paid back to the sewer fund over 12 years.

"While it is not an attractive option, it is the only available offset for such large revenue losses," the report concluded.

Deputy County Executive Jon Schneider said Bellone is reviewing the impact of the sales-tax shortfall and whether the sewer fund needs to be tapped, but is already taking steps to put aside another $15 million to $20 million on top of the $30 million he sequestered earlier this year under his emergency fiscal powers.

Schneider said they will hold off on all but essential hiring, purchases, repairs and curtail overtime to make sure the budget is balanced.

Bellone's proposed budget, according to legislative budget analysts, had already included using $32.8 million from the sewer fund in 2015 and another $28.2 million in 2016.

Budget analysts also warned use of the sewer fund "only works if the focus moving forward is on increasing recurring revenues and/or cutting costs to eliminate the county's structural deficit. . . . If . . . these additional funds are used to increase spending, we would be making a bad situation worse."

Should the sewer fund be needed, it would be the "minimal extent necessary to get us over the hump" and timed to take advantage of other expenses that are being paid off, such as the bonds for the correction officers' contract, Schneider said. He added that Bellone will work with legislators to revise the 2016 budget to deal with reduced sales-tax revenue.

Budget analysts also recommended the county legislature further lower sales-tax growth estimates to 0.23 percent for 2015 and 3.06 percent for 2016.

When the sales-tax shortfall occurred a week ago, Schneider initially said it could pose a $20 million shortfall for 2015, but said the county would go back to its sales-tax consultant, Moody's Analytics, for an updated forecast, based on third-quarter sales-tax results.

James O'Connor, GOP candidate for county executive, described the sales-tax woes as "more bad news from Bellone the borrower."

He also criticized the county executive for raiding the sewer fund to fix the fiscal deficit, while claiming to be so concerned about clean water.

Instead, O'Connor said, "We have to freeze salaries" to get the county out of its fiscal woes. "And the only way to do that is with a control board," he said.

Legis. Kevin McCaffrey, the Republican caucus leader, said the county can no longer rely so heavily on sales-tax growth. "There's a new reality, and we can't keep spending more," he said. "I hope this is the final wake-up call and we'll change the way we do business."