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Control board action criticized Called costly to Erie County

The state-appointed control board is supposed to help Erie County save money. But by taking a hard line on a new county contract, the board appears to have cost the government $7 million to $10 million.

"I don't know how they are going to defend this," said Comptroller Mark C. Poloncarz.

Control board Chairman Anthony J. Baynes said the matter can simply be left to the next county executive, who takes office next year.

A company from Morristown, N.J., this spring was willing to pay $36.3 million for the right to collect and keep the overdue property tax payments that the county's staff has been unable to collect, plus the interest penalties allowed by law.

The Fiscal Stability Authority, however, found flaws -- chiefly in the fact the county had received only two offers -- one from American Tax Funding of Jupiter, Fla., the other from the New Jersey company, Xspand.

"There [are] companies that are begging to bid on this contract," Baynes said in May when he and other control board directors forced county officials to seek more offers.

County officials protested, saying the two offers had come from the leaders in the tax-lien industry. Plus Erie County had done business with Xspand for years under a different type of arrangement, and officials liked the company.

But Poloncarz, County Executive Joel A. Giambra and the Legislature had no choice but to discard the Xspand deal that was on the table because the control board would not approve it.

Over the next several weeks, the county followed the control board's direction, placing a new "request for proposals" in the Bond Buyer, a newspaper serving the financial community, and in the State Contract Reporter, read by companies seeking government business in New York.

Though they cast a wider net, county officials by last week's deadline received just two new offers. One came from Xspand, the other from American Tax Funding.

Xspand is a wholly owned subsidiary of Bear Stearns, the investment house that recently spent more than $1.6 billion to bail out two of its hedge funds after poor bets on subprime mortgages caused huge losses. Borrowers with bad credit defaulted at record rates nationwide as rising interest rates and flat or falling home prices left them unable to afford payments.

Xspand isn't saying why it changed its offer, but when county officials sliced open its envelope, they found Xspand lowered its offer to Erie County by $10 million.

American Tax Funding offered more than Xspand but still fell $7 million shy of the $36 million Xspand offered earlier this year.

That's why county officials are calling this the control board's $7 million to $10 million blunder.

"They have created extreme financial harm to the taxpayers, Giambra said of the control board's members this week, after results of the second offer had been tallied. "The deal is nowhere near as attractive."

With Xspand, the county would net roughly $26 million. With ATF, which didn't change its total offer significantly, the county would net roughly $29 million. Both are a long way from $36 million.

Another snag: County lawyers examining the fine print in American Tax Funding's offer are not sure the company met all aspects required in the request for proposals. There's a chance ATF's offer might be disqualified, leaving Xspand as the best bidder.

Poloncarz says he dislikes both deals and might not recommend either to the Legislature. It might make more sense, he said, to soup up the county's in-house tax-collection effort by hiring more people. Then, over the next several years the county might draw in the $36 million that Xspand was once willing to pay, he said.

"This is an example of the fiscal authority not trusting the leadership of Erie County," Poloncarz said, "telling us to redo everything and as a result getting a much worse deal."

Baynes said Wednesday that county leaders should not accept either offer if they don't like them.

"I would tell them to leave it on the table for the next county executive," he said. "Most counties in the country that are using companies like this are doing so because they are desperate."

He said potential bidders might have been scared off because Xspand had an edge; it has done business with Erie County for years and had inspected the roughly 8,000 properties with at least one tax lien placed on them.

"No other company wanted to invest any money into this deal knowing that Xspand had the upper hand," Baynes said, adding that county officials only placated the control board by seeking more offers.

"Obviously they were wrong in not putting it out to bid in the first place," he said.

Some county officials see this as a turning point with the control board.

"The governor should dissolve the control board," said Real Property Tax Director Joseph Maciejewski, "just for the fact they have cost us at least $7 million, and $450,000 to $600,000 in interest."


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