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Aug 12, 2008 8:08 AMPublication: The East Hampton Press

EH Town to borrow $10 million against future loan

Aug 12, 2008 8:08 AM

The East Hampton Town Board agreed this week to take out a $10 million short-term loan to begin paying down the town’s multimillion-dollar deficit, in anticipation of taking out an even larger long-term loan sometime in 2009.

Supervisor Bill McGintee, who stated the town’s intention to seek a short-term loan last week, told board members at a board work session on Tuesday, August 5, that his examination of the town’s funding shortfall shows an approximately $8.6 million deficit through the end of 2007 that is expected to grow to about $10 million after 2008.

In a financial statement issued with a previous loan application, the town’s budget officer, Ted Hults, estimated that the total deficit would grow by about $4 million in 2008. Mr. McGintee said overspending for medical coverage does not appear to be as severe in 2008 as had been expected.

The town’s total 2008 budget is approximately $74 million. The town 
has overspent its adopted budget in each of the last three years by as much as $5 million.

Earlier this summer, the town received special permission from the State Legislature to borrow up to $15 million to pay off the deficit all at once, getting the town back to square one, with a minimal annual tax increase passed on to taxpayers to cover the 10-year loan. About $1 million would have to be figured into future budgets each year to pay down the deficit.

Board members have said that bonding to pay off the deficit over a long period will require only a one-time tax increase of as little as four percent. Before the deficit financing plan was introduced, the board had been looking at making drastic spending cuts, possibly including layoffs, and large tax increases of 20 percent or more.

The town cannot borrow the money to cover the deficit until the full extent of their needs is known, which will not be clear until after the independent audit of the 2008 budget is released, probably sometime in late summer 2009. The town has still not received the 2007 audit from its auditors, Albrecht, Viggiano, Zureck and Company, who halted their work last month on both the audits, and new accounting software being implemented in Town Hall, because they were owed more than $350,000 by the town.

To fill the gaps that are starving the town’s ability to pay bills and payroll on time, the town is acting now to borrow $10 million through a bond anticipation note, or BAN; it may take out another, smaller BAN next year prior to going out to bond for the full deficit amount.

“After that, every budget will have to come in in the black,” Supervisor McGintee said on Friday. “Then we’ll be adding back to the surplus and by the time the bond is paid off, we should have a healthy surplus again.”

The town has been forced to borrow millions against anticipated future revenues to cover costs and payroll checks because there are no surplus funds to draw on. Last month, the town fund from which payroll checks are drawn dwindled to as little as $900 at one point and the town was forced to borrow more than $500,000 from one of its other accounts so that paychecks could be issued the last week of July.

The town’s credit rating took a hit earlier because of its deficit. That will cost it more in interest charges. A $5.3 million bond anticipation note taken out in June to cover capital expenses was sold at 1.8 percent interest, while a $4 million revenue anticipation note taken out late last month to cover immediate spending needs until mortgage tax revenues can be collected was sold at more than 3 percent interest.

The town’s total debt payments, interest and principal, in 2007, according to preliminary audited numbers, was approximately $13 million.

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