East Hampton Town won permission from the state legislature on Thursday to borrow up to $15 million through bonding to close its budget deficit, which Supervisor Bill McGintee says is between $9 and $10 million accrued over three years. The state comptroller’s office, which is conducting a review of the town’s books, puts the deficit at about $12 million, according to Assemblyman Fred W. Thiele Jr.
The four town council members recently asked Mr. Thiele and Senator Kenneth P. LaValle to sponsor bills that would give the town special permission to pay off its deficit through borrowing. Normally, bond issues may not be used to cover deficit spending.
Supervisor McGintee argued that it was too early to seek bonding authority to cover the deficit; he asserted that it might not be necessary because spending cuts and tax increases could close the deficit over time. However, Mr. McGintee has said he would not necessarily oppose the bonding option that the other Town Board members asked Mr. Thiele to put on the table.
Mr. Thiele announced on Thursday afternoon that his bill in the Assembly and Mr. LaValle’s in the Senate had both been passed by a wide margin. The bills were held up in committee briefly, along with legislation updating the Community Preservation Fund bylaws, because of other legislators’ concerns about East Hampton’s financial situation, Mr. Thiele said.
“The situation in East Hampton did have an affect on both bills,” Mr. Thiele said on Monday. “People were asking questions about what was going on down here. But I was able to assure them that, whatever the reasons for it, the deficit needs to be addressed. As for the CPF legislation, it was designed to make governments more transparent and more accountable and once I explained everything both bills went forward.”
The CPF legislation was driven, in part, by revelations that East Hampton had borrowed from its CPF money to pay bills. Using CPF funds for anything but preservation and some related expenses is expressly prohibited under state law but Supervisor McGintee has argued that the law does not prohibit a transfer of money as a loan.
The legislation allowing deficit borrowing in East Hampton must be signed by Governor David Paterson to become law, which Mr. Thiele said should happen sometime this week or next.
The legislation requires the town to subject its finances to state oversight for the life of any bond issue, the maximum term of which was set at 10 years, according to Mr. Thiele. The town must give the state comptroller quarterly budget reports, copies of its proposed annual budgets, a three-year financial plan, and notification of any plan to borrow money for any purpose, according to Mr. Thiele. Also, the comptroller is required to confirm and certify the amount of the town’s deficit before any bond may be issued.
“This legislation will provide the Town of East Hampton with a much-needed tool to minimize the property tax impact of the current deficit,” commented Mr. Thiele. “By spreading the repayment of the deficit over a 10-year period, residents can avoid the tax shock of closing the deficit in one year. Further, residents can be assured that the state comptroller will oversee town finances and provide the expertise” of his office “to return the town to fiscal health.”
The Town Board has not resolved to take advantage of the bond permission yet and Supervisor McGintee has said it may not be the best route for the town to follow. But board members said this week that the bond looks like the least painful path for taxpayers.
It is not yet a sure thing that the town will seek to float a bond to close the deficit but it’s looking likely. “I think that we still have some questions that have to be looked at—the devil is always in the details and I’m sure there are details here because money isn’t free,” Councilman Brad Loewen said on Monday. “But it seems like this is the best of our choices as long as we know exactly what we’re getting into.”
Councilman Pete Hammerle, who asked Mr. Thiele to introduce the bond proposal, said that borrowing the money would be the best way to pay off the deficit in short order without raising taxes considerably. He said that the bond would allow a single tax increase of as little as four percent. He said the detailed reporting of spending and budget proposal that would have to be given to the state would not be a problem for the town in the future. With a new computerized accounting system scheduled to be brought online later this summer, the reporting should be easy, he said.
“I think we should easily be able to meet the requirements,” he said. “There is nothing wrong with regular reporting and supposedly we’re heading in a direction where regular reporting is going to be an everyday occurrence.”
Mr. McGintee, who was on vacation this week, has described the deficit—which was first confirmed when an audit the town’s 2005 budget was released by the town’s auditors in late 2007, after Mr. McGintee won a very narrow election victory—as “uncollected tax revenues.” Since then, increasing deficits have been found and reported in the 2006 and 2007 budgets and an even wider gap is expected for 2008.