Lawsuit Claims Suffolk Taxpayers Are Owed $250M

Steve Bellone
Suffolk County Executive Steve Bellone. (Photo credit: Suffolk County Executive’s office)

Calling it “the biggest ripoff” in Suffolk County history, a pair of veteran Long Island attorneys claim that the Southwest Sewer District has illegally overcharged local taxpayers by more than a quarter of a billion dollars since 2009.

If their recently amended lawsuit is successful, then some 340,000 residents in Babylon, Islip and part of Huntington stand to get refunds of $3,361.10 each.

The original lawsuit, filed in February in State Supreme Court in Riverhead by the law firms of Paul Sabatino II, a former Suffolk chief deputy county executive, and Reilly, Like, and Tenety asserted that the 57-square-mile sewer district had accumulated an illegal balance of $116.9 million. But the lawyers say they subsequently discovered that the county had added another $138 million to the cumulative surplus. So, they returned to court in October to amend their class action lawsuit to recover $254.9 million in over-taxation.

“The magnitude of Suffolk County’s deception in trying to hide these huge surpluses from its own citizens is shocking and the contempt that it shows by county officials for the will of the people is reprehensible,” said Sabatino, who was County Executive Steve Levy’s chief deputy from 2004 to 2007 and former counsel to the Suffolk County Legislature for almost 20 years before that. “This deception has evolved into the biggest rip-off of taxpayers in the history of Suffolk County.”

The lawsuit specifically cites four public referenda approved by Suffolk County voters in 1983, 1989, 1995 and 2006, which directed county officials “to return the surpluses, known as Fund Balances, to the taxpayers.” Instead, the attorneys claim, the county violated section 4-10 (F) of the Suffolk County Charter by placing the surplus in Fund 405, which they say “is an illegal fund used by the County as a subterfuge…” Irving Like, founding partner of his firm, was a member of the Suffolk County Charter Review Commission. Sabatino, as legislative counsel, helped draft the charter.

As Suffolk County Comptroller, John M. Kennedy Jr. called the lawsuit “troubling” but he declined to discuss its merits, which he might have done had he still been in the legislature, where the Republican represented the 12th District for a decade until being elected to his current office in 2014 as the county’s chief fiscal officer and auditing authority.

“There’s two parts here: there’s the calculus as to whether in fact an improper collection occurred and then there’s the remedy,” Kennedy told the Press. “Were we compelled to have to pay back the full amount being sought in one fell swoop, would that have dire consequences for the county? Yes, it would, in my opinion.”

The court is not expected to hold hearings on the lawsuit until next year.

In early October, James O’Connor, the Republican then running for Suffolk County executive, tried to make the Southwest Sewer District surplus a campaign issue. O’Connor held a press conference at the Bergen Point Sewage Treatment Plant in West Babylon and reportedly accused the Bellone administration of keeping the sewer taxes high to pay down the costs of capital construction projects.

In response, Suffolk Deputy County Executive Jon Schneider told Newsday that replacing the outflow pipe from Bergen Point might cost $207 million, and the county secured about $40 million in low or no-interest loans from the state. Bellone’s deputy added that O’Connor’s accusation was the action of a “desperate politician.”

A month later Bellone easily won re-election with 57 percent of the vote, while O’Connor polled 43 percent. The incumbent also substantially outraised the challenger; Bellone had $1.8 million in his campaign war chest, while O’Connor had raised about $172,000.

In the meantime, Sabatino and Like redid their math and raised the amount of the surplus they were targeting for refunds.

Asked to comment about the now $254.9 million lawsuit, a spokesperson for Suffolk County Executive Steve Bellone summarily dismissed it.

“The County has about $70-plus million in ‘pay go’ projects for [the] Southwest Sewer District and has a potential draw-down for the outfall pipe of about $200 million, so budgeting has been reasonable,” said Vanessa B. Streeter, Bellone’s communications director, in an emailed statement to the Press. “The later proposed amendments to the complaint have no merit.”

In the amended lawsuit the attorneys allege that the 2016 county budget “added $33.295 million to the illegal surplus in defiance of the [February] lawsuit seeking the return of illegal fund balances.” They also claim that the sewer district’s taxpayers were “illegally charged” to repay a pure subsidy from the ¼ percent sales tax that supports the drinking water protection program through the Environmental Trust Fund (known as Fund 404), “even though the public voted via public referenda…to give those sales tax proceeds to county sewer districts for the purpose of preventing double digit and triple digit sewer tax hikes.”

According to the attorneys’ recalculation, the average taxpayer in the sewer district is entitled to a refund of $3,361.10—originally it called for $1,542. The attorneys say the over-taxation stems from the repeated failure of county officials to pass on “the substantial savings” that arose from the amortization of Southwest Sewer District’s debt that had been issued in the 1970s, 1980s and 1990s. As the debt was paid off “in increasingly large amounts,” the lawsuit says, the county held on to the savings instead of returning it to the taxpayers as the county statute and state law required.

“As I warned at the beginning of this lawsuit, failure to stop this violation of the constitutional rights of the taxpayers would only encourage the county to continue its unlawful behavior in the future,” said Like in a statement. “Unfortunately, the responsible county officials have not heeded this warning. We are filing this Amended Lawsuit to protect the public interest against the county’s disregard of the laws its own voters have adopted. The strong policy of the law requires a full accounting of all public funds to prevent local governments from acquiring tax proceeds faster than they are needed and for costs and expenses not incurred.”

The lawsuit’s attorneys retained former Suffolk County Budget Director, Robert Bortzfield, CPA, a career civil servant who worked in county government from 1972 to 2007, to verify the validity of the claims being made in this lawsuit.

“A careful review of the finances and budgets of the SWSD confirms that the taxpayers and ratepayers in the SWSD have been overtaxed by at least $ 254.9 million,” Bortzfield said in a statement, “and the amount will continue to grow if this lawsuit is not successful.”

“This is going to drag on,” Sabatino tells the Press. “The county basically stonewalled for 10 months. We tried to work with them. They’re not acting in good faith. When they came out with a new budget [for 2016] that made things worse, not better, we knew that they weren’t for real.”