A file photo of former Suffolk County Executive Steve Levy...

A file photo of former Suffolk County Executive Steve Levy at a news conference in Hauppauge. (Aug. 16, 2011) Credit: Howard Schnapp

An internal legal memo by the administration of Suffolk County Executive Steve Bellone says former County Executive Steve Levy made "intentional and willful misstatements" to bond agencies during last fall's budget process.

Bellone acknowledged Tuesday that the document was given to legislative leaders in response to their concerns about "potential liabilities" that both the county and taxpayers "could face given this new information about the size of the deficit and the fact it had not been publicly disclosed."

That unsigned 29-page memo, obtained by Newsday and first reported by The Wall Street Journal, says "the number, timing and seriousness of these false and misleading statements combined with conflict of interest . . . created a pattern of deception and ethical questions that . . . places Suffolk County taxpayers at risk of continued deficits, potential litigation by investors in . . . county bonds" and possible penalties from the federal Securities and Exchange Commission. SEC spokesman John Nester declined to comment.

Some experts said budget wrangling is a part of politics and not prosecutable.

"I have no reason to believe there is any criminality," said Richard Ravitch, a former New York lieutenant governor and veteran fiscal troubleshooter. "It's almost a universal truth that politicians don't like to cut or tax and making optimistic assumptions is far more tempting, especially in a time of austerity."

Bellone spokesman Jon Schneider said the county executive has no position on whether an investigation should go forward. The administration's "only focus" is closing the county's $530 million deficit identified by a special panel on March 6, Schneider said.

Levy denounced the memo.

"This is vindictive nonsense by people who don't know what they are talking about," he said. "If making estimates that don't come in on the nose is a form of malfeasance, every budget official in America would be under investigation and the biggest culprit would be Steve Bellone."

Levy said he will ask District Attorney Thomas Spota to probe Bellone's budgeting practices when he served as Babylon Town supervisor -- in particular Bellone's handling of the garbage district. A 2009 state comptroller's report said Babylon kept an excessive surplus in the garbage fund and did not return enough to taxpayers. A district attorney spokesman declined to comment.

The memo was put together by a legal team including chief deputy Regina Calcaterra. She and Schneider shared the memo with a bipartisan group of four legislators before the panel laid out the magnitude of Suffolk budget deficit.

The memo assails Levy for budgeting $12 million in revenue from a land sale in Yaphank that never materialized, projecting $7.9 million in revenue from a federal tobacco case that wasn't yet settled and anticipating too much in traffic fines from red light cameras.

The memo pointed out that an October bond prospectus said the county anticipated receiving $9 million in state and federal aid related to Tropical Storm Irene. But the bond document also noted that it was "unknown at this time when and if such aid will be received."

Although the memo does not cite Levy by name, it describes an "Official A" in such detail that it includes the fact that Levy turned over his $4 million campaign fund to Spota following an investigation of Levy's campaign fundraising. It also cites an "Official B," referring to Levy's budget director Connie Corso, who also served as treasurer of Levy's campaign fundraising committee.

The memo called for an investigation of a "conflict of interest" in Corso's dual roles. The memo charges that Corso, who works as budget director under Bellone, "recklessly concealed or disguised" negative budget data because "the full extent of the crisis would likely damage Levy's political ambitions." Schneider declined to comment directly on Corso, but said the administration has "full confidence" in its fiscal team headed by Fred Pollert. Corso did not return calls for comment.

With Ted Phillips

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