A scary thing happened as Erie County’s state-appointed control board tried for the first time to borrow money for county government: The credit market fell apart.
The control board learned late Thursday that despite its assurances, it would be unable to secure the crucial $75 million loan that would keep county government operating beyond Tuesday.
Just before 5 p. m., control board Executive Director Kenneth J. Vetter turned to County Comptroller Mark C. Poloncarz and asked him to activate a backup deal he had in place.
Poloncarz believes he can borrow the $75 million in a private transaction with Bank of America. He says he can close it by Tuesday, in time to meet Friday’s $12 million payroll.
Erie County’s Fiscal Stability Authority — appointed by Albany’s powers — has a superior credit rating and controls many aspects of Erie County finances.
But Wall Street turmoil sent the board scrambling to borrow money the old-fashioned way, through the county comptroller.
The control board has been angling to borrow on the government’s behalf because it can save taxpayers money on repayment costs, given its top credit rating and the fact that it need not buy insurance against default.
After months of debate, the county’s elected officials were willing to let the board close short-term transactions. They don’t want the control board closing long-term deals and existing for decades just because it has debt to repay.
This year’s $75 million bridge loan would be repaid in less than a year, after reimbursements for federal and state programs arrive in Erie County’s coffers and next year’s property tax payments roll in.
The control board believed that it could sell revenue-anticipation notes on Wall Street through its underwriter, Roosevelt & Cross, despite the credit market. Roosevelt & Cross would buy and hold any notes it could not sell to investors.
But to do that, Roosevelt & Cross would need its own loan, according to the control board’s secretary, Stanley J. Keysa. “They had to borrow money, and their bankers turned them down. That’s my understanding,” he said.
The Fiscal Stability Authority later issued this statement, fine-tuned by its attorney:
“Today, the authority was notified by its underwriter that it would not honor its undertaking to provide the authority with $75 million in bond financing due to the recent financial crisis on Wall Street, even though the nationally known underwriter’s board confirmed its agreement and pricing less than 24 hours earlier.
“Given this unfortunate event at the 11th hour, and the lack of flexibility in the authority gaining a replacement underwriter by the end of September, the authority is making the logical choice to authorize the county to make its private placement.” Then the board said that it would say no more “due to potential litigation.”
County Executive Chris Collins sized up the development:
“I have always represented the taxpayer in saving money whenever we can. When the control board said it could save the taxpayer money on short-term borrowing, I fully supported the control board doing that borrowing.
“While I am disappointed that it now turns out that the control board cannot save the county taxpayer money, I am pleased that the county will do the borrowing and have the money in the bank account by Sept. 30 to avoid any problems with cash flow.”
Also up in the air is the long-awaited $90 million that Erie County needs for major improvement projects. Because of the stalemate between the control board and the elected leaders, Erie County has gone two years without borrowing money for road and bridge repairs and other expensive projects.
The Legislature and Collins recently gave the control board their consent to also secure that loan, which was to be refinanced in a year. Poloncarz said it appears that this deal is in doubt now, too.
But the comptroller was most concerned about the bridge loan. Without it, he cannot pay October’s bills or its two payrolls of $12 million each. Nor would he be able to distribute $42 million in sales tax proceeds to Erie County’s municipalities and schools.
Poloncarz has turned to Bank of America for other annual bridge loans, so the deal has become common and does not involve Wall Street.
Copyright 2008 - The Buffalo News
