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Jun 22, 2010 6:51 PMPublication: The East Hampton Press

Grand jury details financial disarray and disaster in East Hampton

Editor's Note: Click here to read the special grand jury report on East Hampton Town's financial situation.
Jun 22, 2010 6:51 PM

RIVERHEAD—Suffolk County District Attorney Thomas Spota on Tuesday released the results of a two-year investigation by his office and six months of examination by a special grand jury into the financial collapse in East Hampton Town, placing the blame squarely on the shoulders of former Supervisor William McGintee and budget officer Ted Hults.

“This report is the former town supervisor’s legacy: a record of fiscal malfeasance rivaling any other town government in the history of the state,” Mr. Spota said at a press conference in a Riverhead courthouse on Tuesday. “The former supervisor has saddled the residents of the town with a bill that they are going to be paying for decades to come.”

But Mr. Spota and Assistant District Attorney Christopher McPartland, head of the county’s Bureau of Government Corruption, said Mr. McGintee’s behavior was not criminal and that he had apparently been wholly unaware of the illegal transfers of money and false statements made to investors by Mr. Hults.

“Numerous witnesses and supporting documentation all reflected the fact that he did not know what Ted Hults was doing when Hults moved the CPF money,” Mr. McPartland said. “And although Mr. McGintee signed the official statements, he did not know what the contents of them was.”

Mr. McGintee himself said he was looking forward to the report being released, confident that it would clear him of wrongdoing.

“I am very happy the report is coming out,” he said on Monday night. “We’ve been looked at by every different auditor, by the state comptroller, inside out and upside down. I feel like I am being exonerated. When it all comes to light I think everybody will fully understand what truly occurred.”

Mr. Hults pleaded guilty to two misdemeanor counts of securities fraud and official misconduct on Monday, but received no jail sentence or fine, for transferring at least $8 million from the town’s Community Preservation Fund, money intended for land purchases, to general operational costs and for submitting false reports to lenders about the town’s financial condition.

The 25-page grand jury report released on Tuesday details why Mr. Hults was transferring money into the town’s operational accounts and lying to investors about the financial status: the drawdown of the town’s checkbooks from a multimillion-dollar surplus to a deficit estimate, the D.A. said, could ultimately be $40 million.

The grand jury report points to a number of compounding factors as contributing to the quagmire: steeply climbing costs of health benefits for town employees, disastrously inadequate financial record keeping, failures by town officials to match spending to tax income, and the apparent refusal by politicians to raise taxes for fear of political consequences.

As annual employee benefits for the town’s Civil Service employees and police officers climbed by nearly $6 million between 2004 and 2007, the town made no commensurate adjustments to the tax rates to cover the increases in spending.

“Unfortunately, rather than acknowledging and properly budgeting for them, these increasing expenses were met by the town’s practice of under appropriating money despite the cost increases,” the grand jury’s report reads.

The woeful underfunding may have, at least in part, been a product of a financial management system that was severely lacking. The grand jury, which interviewed 17 witnesses and reviewed reams of town financial documents from 2003 through 2009, found that almost no controls were placed on spending and that the town’s budget office repeatedly ignored glaring warnings by the town’s independent auditors about badly needed controls on spending.

The grand jury highlighted findings by the New York State Comptroller’s office, pointing to poor controls of money from capital projects that was not accounted for properly. The capital projects fund and the CPF were typically kept in the same accounts, without the money being earmarked according to which project it was appropriated for. It wasn’t until the town’s independent auditing firm, Albrecht, Zureck & Viggiano, actually took over some of the town’s bookkeeping in late 2007, a highly unusual move made necessary by the departure of the only certified accountant in the budget office, that the depth of the financial shortfalls, and the misappropriated CPF monies, were discovered.

“Town officials were asleep at the switch when it came to town finances,” Mr. Spota said.

Further, the grand jury report said that elected officials repeatedly refused to raise taxes because of the perceived political consequences that would come with them, saying that ... “taxes were not raised to meet expected costs in order to preserve elected positions,” and that “while town officials refused to raise taxes as needed, they also chose not to cut spending as required.”

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The problem with East Hampton and other small towns is that everyone knows each other. Whenever an idea was passed around about cutbacks, townies would gang up on board members who would then retreat in fear. Maybe now that the cat's out of the bag someone will show the courage to act without fear of reprisal. Simple things like controlling healthcare costs should be addressed professionally. It is hard to be loved when the ship is sinking and your at the helm handing out candy bars. This town needed ...more
By jekgbs (35), East Hampton on Jun 23, 10 9:45 AM
1 member liked this comment
If you followed town government you would know that Mr. McGintee stood alone on healthcare reform. He battled the union and a cowardly, no-show town board for almost 2 years before he accomplished that goal. Hammerle, Mansir, Foster and Prince cost the taxpayer almost 3 million dollars due to their inaction and pandering.
By no spin (16), East Hampton on Jun 23, 10 10:39 AM
My point exactly no spin
By jekgbs (35), East Hampton on Jun 23, 10 10:55 AM
1 member liked this comment
OK its settled. He's not a crook. Only the most inept "manager" in the history of NY State municipal government.
By zaz (197), East Hampton on Jun 23, 10 2:00 PM
McGintee "knew or should have known" as lawyers are fond of saying. Hults takes the fall but doesn't have to do time. Great precedent. It should be the same when they finally unravel the Heaney years in Southampton. That is fast coming down the pike. Small town thieves and hypocrites. Imagine a poor guy who steals a donut from a 7-ll; probably gets 5 - 10 or deported.
By Phanex (83), Southampton on Jun 23, 10 4:00 PM
2 members liked this comment
The law has decided. McGintee is free and Hults is gone with a scolding. Time to stop scapegoating them. Time to look at what we all demanded that put us here. Stop living the good life when we don't have the means. Stop listening to promises and blaming employees who serve us. Time to stop rewarding incompetance because they suck up and punishing those who do good jobs because they speak the truth. Time to prioritize and stop being selfish. But we most certainly won't because its so easy to hate ...more
By facts man (148), east hampton on Jun 23, 10 5:22 PM
Does anyone know if a copy of the grand jury report can be obtained? Its about time towns on the east end publish their financial statements, instead of requiring freedom of information act requests to get them. Of course, you would also have to get the statements for school districts, library districts, the CPF, and god knows what else to fully understand how much debt the towns have put us on the hook for. Oh, for those who arent' following, the Greek crisis is happening because the Greeks ...more
By saggish (8), sag harbor on Jun 23, 10 9:23 PM
To Mr. No Spin. I would say you are wrong and Billbonac is correct. Ask Peter Hammerle what happened with that 2005 budget. He will tell you that the 25% was a mistake, he went to McGintee who agreed, and the mistake was corrected. There was never any analysis or any intention to raise taxes by 25%. Hammerle is the one who found the error and the budget was withdrawn and resubmitted. There are many people in Town Hall that know this for a fact. Ask Hammerle. The Press should ask Hammerle, ...more
By formertbm (76), east hampton on Jun 23, 10 9:57 PM
Is this the same Pete Hammerle and Pat Mansir who rarely showed up for work. Perhaps the DA should investigate how they can collect a pension and never work. There are many people at town hall who know this for a fact.
By no spin (16), East Hampton on Jun 23, 10 10:06 PM
The Supervisor is the chief fiscal officer of the Town and is
responsible for the Town’s daily operations, including reporting to the Board.
Jun 23, 10 10:26 PM appended by Mr. Z
END QUOTE.
By Mr. Z (11692), North Sea on Jun 23, 10 10:26 PM
That's exactly right, Mr. Z, the Supervisor is the chief fiscal and the chief financial officer of the town -- the buck stops there. As Phanex correctly observes above, there has been similar mismanagement in Southampton Town. The only difference is that the Southampton misrule has been by Republicans, and hasn't been quite so blatant, but the bottom-line damage is the same: overdevelopment, bloated administration, complaisant review boards, and horrendous deficits. The same trail in Southampton ...more
By Turkey Bridge (1966), Quiogue on Jun 24, 10 12:00 PM
1 member liked this comment
All I know is that when I purchased a cottage in Sag Harbor, in East Hampton Town, I had to pay about $9000 towards the land preservation fund, which I fully supported even though it hurt me financially. Where is my money now? Which piece of land did it actually fund? Or did it line the pockets of some miserably inadequate town employees? I want my money back!!
By Kenny Mann (3), Sag Harbor on Jun 24, 10 12:17 PM
Could it be possible that it funded Daytons' Island that sand pile in three mile harbor that the owners couldn't sell to anyone. East Hampton Town under McGintee paid 3.8 milllion dollars for it.
By housewife (79), east hampton on Jun 24, 10 1:32 PM
Could it be possible that it funded Daytons' Island that sand pile in three mile harbor that the owners couldn't sell to anyone. East Hampton Town under McGintee paid 3.8 milllion dollars for it.
By housewife (79), east hampton on Jun 24, 10 1:33 PM
Schneiderman...McGintee...Wilkinson...it is all the same thing. The town's form of government is wrong - There should be a professional town manager who is hired by and reports to an elected town board. Modern town governments of a certain size are too complex to be managed by amateurs, how ever well intentioned they may be.
By Sag (54), Sag harbor on Jun 25, 10 10:19 AM
If he told the GJ that he proposed a tax increase of 25% for 2005, then he did purjure himself based on the account of board members at the time and about 10 people who work in Town Hall Someone just has to ask the Clerk for copies of all tentative budgets submitted to the Clerk until they got the correct one. This will show exactly what happened. McGintee should still be prosecutable if he perjured himself before the GJ.
By formertbm (76), east hampton on Jun 25, 10 5:51 PM
And I quote the first page of the Grand Jury report:

"The Supervisor is the chief fiscal officer of the Town and is
responsible for the Town’s daily operations, including reporting to the Board."

A poor, poor, pitiful supervisor it makes him, because he SHOULD HAVE BEEN AWARE of not only the budget, but where the funds were coming from, and how expenses were to be covered. THAT WAS HIS JOB! It is what a Supervisor is supposed to do. If he, and others actually did it (their ...more
Jun 27, 10 2:21 AM appended by Mr. Z
What "saved" McGintee? A MECHANICAL SIGNATURE. Because he NEVER signed a document himself, there cannot be criminal culpability.
By Mr. Z (11692), North Sea on Jun 26, 10 2:21 AM
Main problem was, is that McGintee may have NEVER put his own hand to a piece of paper.

About all of the paperwork had a "mechanical signature" on it. He has "plausible deniability" down to a science at this point.

New law? NO MORE STAMPING OF SIGNATURES.

"Teflon Stuporvisor", indeed...
By Mr. Z (11692), North Sea on Jun 27, 10 9:32 PM