Nassau County filed a lawsuit late Monday to block a state oversight board from taking control of the county's spending.

After the suit was filed in the county clerk's office, Deputy County Executive Patrick Foye resigned in protest. Foye said it was "irresponsible and wrong" to sue the state and "smear duly appointed members of a state board created to help elected county officials fix Nassau."

The lawsuit against the Nassau Interim Finance Authority is the latest twist in months of contentious debate between NIFA and Nassau County Executive Edward Mangano, a Republican. The NIFA board had voted unanimously last week to take control of Nassau's finances, contending the county's 2011 budget contains a $176 million deficit - nearly seven times the 1 percent gap that triggered a takeover under state law.

The board gave Nassau, one of the nation's wealthiest counties, until Feb. 15 to come up with a financial plan that eliminated risky revenue initiatives, expense cuts and contingencies contained in this year's $2.6 billion budget, which NIFA member George Marlin had contended was "built on a foundation of sand."

But Mangano has remained defiant, insisting that his budget is balanced and that NIFA was a "shadow government" that could spark a property tax hike. "The county does not need another . . . governmental body that offers no real savings," he told the Long Island Association Monday.

The lawsuit, which seeks an immediate stay of the control period pending an ultimate judgment annulling the decision, says it is impossible to determine whether there is a deficit or even the threat of one at this time because the county's final numbers for this year will not be determined until February 2012.

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"NIFA's imposition of the control period is not based upon the 'substantial likelihood' or 'imminence' that any such deficit will be incurred," the lawsuit said. "NIFA's imposition of a control period is arbitrary and capricious."

Until a judge rules, the takeover is unchanged. The lawsuit also challenged the constitutionality of the 2000 state law creating NIFA, and argued NIFA lacked the authority to impose a control period.

NIFA had no immediate reaction, but Marlin said the lawsuit was "a foolish mistake. It was my hope that the county executive would reach out and work with NIFA to resolve the county's fiscal woes."

In a statement, Foye, deputy for economic development, said that while he had "the highest regard" for Mangano, the "suit against the state will be costly, very likely will fail and, most importantly, win or lose, will add nothing to a long-term solution of the county's many woes."

Mangano issued a statement saying he appreciated Foye's service. "The county executive disagrees with Pat's opinion on NIFA's unwarranted actions and has therefore commenced suit to protect homeowners from a property tax increase," the statement said. NIFA members have said they cannot increase property taxes or direct Mangano to raise them.

Legis. Wayne Wink of Roslyn, the ranking Democrat on the Finance Committee of the Nassau County Legislature, said of the lawsuit: "It makes no sense to spend taxpayer money to attack the body meant to restore credibility to our county finances. At a time when we should all be working together, this simply delays dealing with the problem."

Desmond Ryan, executive director of the Association for a Better Long Island, a business group, said Mangano was "misdirecting his fire. The litigation is a distraction from solving the real issue of a serious budget gap."

The lawsuit announcement came at the end of a day when county officials said they planned to move millions of dollars in county bank accounts out of Wells Fargo Bank, where NIFA chairman Ronald Stack works, at the request of Legis. Peter Schmitt (R-Massapequa), presiding officer of the County Legislature.

It was unclear how much county money is in that account, but it held $82 million about seven months ago.