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Jul 29, 2008 1:15 PMPublication: The East Hampton Press

East Hampton officials see deficit deepening

Jul 29, 2008 1:15 PM

East Hampton Town is telling potential creditors that it expects to see its general fund deficit grow by at least $4 million after the 2008 fiscal year, according to a report issued last week by the town budget office. Some town officials are saying that projection might be optimistic and the deficit increase could be greater.

With the town estimated to be between $9 million and $12 million in the red, even the most conservative estimates for 2008 would push the total deficit to more than $13 million. The town recently received permission from the state to borrow up to $15 million to pay off the deficit that will have accumulated through the end of the current year.

The deficit projection was made in a financial report issued as part of the town’s application for a short-term loan known as a revenue anticipation note, or RAN, to help cover costs until delayed mortgage tax revenues are received. The town is seeking to borrow $4 million to cover operating costs for the next few months while waiting for mortgage tax revenues from the county.

The town’s “part-town” fund, which is used to pay employees, dwindled to just $900 last week, sparking rumors among employees that they wouldn’t receive paychecks last Friday. The paychecks were issued as scheduled.

Late last week, after having already approved going out on the RAN, the town received from the county some of the mortgage tax revenues due to it from the last three months of 2007 and the first three months of 2008. The town was due some $2.3 million from that period though it is not clear whether it received the entire amount.

Town budget officer Ted Hults declined to comment and Supervisor Bill McGintee did not return several phone calls seeking comment.

The town’s independent auditors, Albrecht Viggiano Zureck and Company, have estimated that the town’s deficit will stand at approximately $8.6 million, after it is paid about $4 million that is due to be paid back to the town’s general fund when the town housing authority completes the purchase of the Springs-Fireplace Apartments in the next few weeks from the town. Construction of the apartments was paid for by the town in anticipation of the housing authority taking out a mortgage for the entire construction price, to be paid back with rental revenues.

The money still owed led accountants for State Comptroller Thomas DiNapoli’s office to estimate the town’s deficit at $12 million recently.

In the financial statement issued with the RAN prospectus, the town states that its deficit currently stands at $8.5 million through the end of 2007, though the 2007 audit has not been completed and the town’s auditors have said the actual deficit could be “slightly higher.” A similar financial statement issued this spring, when the town was seeking $5.3 million in loans for capital projects, grossly misstated the financial picture in the town and led to the resignation of Town Attorney Laura Molinari because Mr. Hults had written in the report that it had been reviewed by her office when it had not.

Town Board members, who received copies of the most recent financial statement issued with the RAN this week, also prepared by Mr. Hults, said the $4 million estimate is probably the minimum the deficit will grow in 2008, despite efforts by the board to cut costs in recent months.

“I would say that is a rosy picture,” Councilman Pete Hammerle said. “If it’s held to just $4 million, I would say we did our jobs these last few months.”

The board recently cut $750,000 in expenses, largely by putting off the filling of vacant staff positions, to make up for a budgeted surplus the town does not actually have. The 2008 budget was prepared before the extent of the deepening deficit was known.

Mr. Hammerle noted that the 2008 budget includes $2.2 million in Community Preservation Fund revenues for work that will be done at properties purchased with CPF money, even though a detailed accounting of what the work is has not yet been issued.

New CPF bylaws require that any “maintenance and stewardship” work paid for with CPF funds must be accounted for in detail and Mr. Hammerle, as far back as the early fall of 2007, questioned whether the town would be able to show that it spent $2.2 million on such work. The original 2008 budget issued by Supervisor McGintee called for $2.7 million in CPF money to be included in the revenue stream.

“Are we using that whole $2.2 million number,” Mr. Hammerle wondered aloud, “or is that going to be $1.7 million, which leaves us another $500,000. Are mortgage taxes going to come in? We’re projecting $5.9 million in the budget, are we going to get there? There’s a lot of variables still.”

The councilman, the longest serving member of the Town Board, said he did not know how the budget office got the money to pay employees last week. He said he had asked for a detailed accounting of exactly what revenues had come in recently, if there had been any borrowing and from where and when and how the town proposes to pay it back. Mr. Hammerle said he had not received any response from the budget office as of midday Tuesday.

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