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Jun 10, 2008 11:10 AMPublication: The East Hampton Press

East Hampton considering borrowing to cover deficit

Jun 10, 2008 11:10 AM

Four East Hampton Town Board members have asked State Assemblyman Fred W. Thiele Jr. to help them take steps toward borrowing $10 million or more to pay off the town’s spending deficit and get out of a deepening fiscal hole.

Councilman Pete Hammerle said this week that he and Councilwoman Julia Prince, with the support of other board members but not Supervisor Bill McGintee, personally asked Mr. Thiele to draft state legislation to allow the town to borrow the money it needs to make up the estimated million deficit, which stands at $10.1 million, at least, and perhaps more if the 2008 budget proves to be short of funds as well.

Mr. Hammerle said he hoped to receive a draft of the legislation from Mr. Thiele this week, possibly in time for yesterday’s Town Board work session, so that board members could start discussing the merits of the proposal.

The town needs the state assembly to take special action to clear the way for it to borrow money to cover a budget shortfall. Mr. Thiele said the legislature makes exceptions for municipalities a few times per year. The East Moriches School District was given such permission by special legislation two years ago, Mr. Thiele said.

In order to receive state support for taking out the loan, Mr. Thiele said the town would be forced to submit all of its financial statements to the state comptroller’s office for the life of the loan.

“It subjects the municipality to all sorts of additional fiscal accountability and oversight,” Mr. Thiele said. “Basically everything they do during this time frame will be subject to oversight by the comptrollers office.”

Supervisor Bill McGintee said that he thinks asking the state for help is still premature since the town does not even yet know the true extent of the deficit. A special highway capital projects fund has shown a deficit of $3.9 million since 2003 but may just be an accounting error, he said.

“I think Pete and the board are getting way ahead of themselves,” Mr. McGintee said this week. “We need to do a good analysis of this before we take any definitive action. I understand that there is a time limit on this but the board is spinning their wheels.”

If it wants state approval to cover its deficit with a bond issue, the town will have to show state lawmakers that it is taking steps to end the practices that led to the deficit, which was recently estimated to be at least $10.1 million by state auditors—and perhaps as much as $14 million. But the auditors are saying the town’s books are in such disarray that they can’t be sure of the exact number.

If the town is to take advantage of Mr. Thiele’s willingness to push a bill before other state lawmakers, it will have to make up its mind soon. The State Legislature ends its regular session for the year on June 23 and may not return for general business until January.

Mr. Hammerle said that borrowing the money, an idea suggested to Supervisor McGintee by Mr. Thiele recently, would have much less of a tax impact on East Hampton property owners than would trying to pay down the deficit through tax increases over one or two years. He said that borrowing $10 million on a 10-year repayment plan could be paid back through a one-time 4-percent tax increase.

“We could actually pay this back and end up having it cost taxpayers less than if we had raised taxes to cover the spending in the first place,” Mr. Hammerle said of the proposal. “You have a dedicated line in the budget to pay for it. $10 million over 10 years would be $1 million a year. It could be a lot less painful than some of the other things we’ve discussed.”

During a review of the deficit this winter, then believed to be only about $3.6 million, accountants from the town’s auditing firm suggested that the deficit could be made up through a one-time large tax increase, a hike of perhaps as much as 20 percent, effectively making up for years of insufficient increases. Brookhaven Town recently addressed its own budget through such a one-time increase.

With the deficit now broadening into double-digits, the tax increase necessary to wipe it out in one fell swoop would be too high for taxpayers to absorb, board members have said. Board members have been exploring a variety of ideas for paying down the deficit quicker and less painfully than just raising taxes. Councilwomen Pat Mansir and Julie Prince both suggested that the town sell off some assets, perhaps large pieces of property, and use the proceeds to pay the debts. Mr. McGintee has suggested that a combination of smaller tax increases paired with substantial cuts in spending, possibly including layoffs of town employees, would allow the deficit to be closed gradually over a few years.

Mr. Hammerle said that he thinks the latest idea—borrowing to close the gap—and the extent to which board members have been working together are good steps toward fixing both the immediate and underlying problems faced by the town. He said he is “feeling good” about the way the town government is operating for the first time in months.

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