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Oct 13, 2008 12:21 PMPublication: The Southampton Press

Southampton Town Board at work on budget

Oct 13, 2008 12:21 PM

Supervisor Kabot’s budget includes $1.275 million in deficit reduction allocations as part of a five-year deficit reduction strategy, a plan mandated by state law. That money will be set aside to reimburse the general fund, which subsidized shortfalls in the police and highway funds between 2004 and 2007.

Of the $1.275 million, $750,000 plus $350,000 in interest would be allocated to the police fund, and $150,000 plus $25,000 in interest would be applied to the highway fund. The total general fund deficit, compiled over the four-year period, is $7.2 million.

It’s been more than a decade, Ms. Kabot said, since the town has experienced financial turmoil. In recent years, Southampton has benefited from a healthy economy driven mainly by a burgeoning real estate market. Suffolk County collects mortgage taxes—a 1-percent levy on all money borrowed for house purchases—and returns that money directly to the town. In recent years, the town has budgeted the mortgage tax revenues conservatively, understating what was anticipated, a policy that resulted in healthy surpluses.

In 2007, for instance, according to Mr. Blowes, the town took in $12 million in mortgage tax receipts but budgeted for only $8 million. That extra $4 million allowed the town to offset spending and suppress the tax rate. For 2008, however, that once reliable revenue stream has almost dried up, forcing the town to tighten its belt for 2009.

Before the recent Wall Street implosion, Suffolk County released a report in July projecting a steep decline in mortgage tax revenues for 2008. As of June of this year, Southampton has collected only $5.5 million in mortgage tax revenue, a 36-percent drop from the $8.7 million it collected in the first six months of 2007. A lower surplus in town coffers for 2008 means less surplus money to allocate toward spending as a way of keeping the tax rate from climbing in 2009.

But that’s not the town’s only problem, according to Tamara Wright, a private consultant the town hired to help craft this year’s budget. “Overall, revenues are down,” Ms. Wright said, referring to fees for service and building permits as well tax sources. “There’s just not as much surplus for 2009.”

This is why, Ms. Kabot said, she is proposing a 5-percent tax increase for 2009, the maximum allowed under the town’s tax cap law. According to the supervisor, spending against those surpluses in prior years, along with a slowing down of construction activity and rising interest rates, made the tax hike “unavoidable.”

“It’s the perfect storm of decreased mortgage taxes, increased spending, and pulling in less revenue,” Ms. Kabot said.

Tax Hike Not Certain

But Ms. Throne-Holst said she’s not ready to concede that a tax hike is inevitable.

“This is not the time to ask taxpayers to pay more,” she said, adding that she wanted to pore over the town’s capital budget to see if there was a way to cut spending and keep the tax rate stable. “We may not be able to, but I think we owe it to the taxpayers to try,” the councilwoman said.

Ms. Throne-Holst’s focus will be spending charged to the operating budget that should be in the capital budget. For example, the town is currently replacing the roof at Town Hall. The funding source for that project is the capital budget. But there are town employees whose salary is drawn from the operating budget, yet are working full time on managing the roof replacement as well as other renovations. In such a case, capital funds could be used to cover that portion of their salaries, reducing the operating budget, she said.

“The only way to prevent raising the tax rate is to find enough spending in the operating budget that should be in the capital budget,” Ms. Wright said. That’s a risky strategy, she added, which would pay off only if the economy improves the following year—a gamble Ms. Throne-Holst said she is willing to at least consider.

Yet, should the downward trend continue, then the money used to reduce taxes now would not be available in surplus the following year. Instead of using any extra funds to keep the tax rate stable, Town Comptroller Steve Brautigam said he would rather take that money and rebuild the town’s surplus. “You don’t know what is going to happen in the next year,” Mr. Brautigam said. “If you don’t have any surplus, then that means raising taxes and possible layoffs.”

In order to make the right decision on the tax rate, Ms. Throne-Holst said she wanted to know how much would be necessary in spending cuts to offset the tax hike.

Those dollar values, according to Ms. Wright, are being calculated. “I believe the Town Board is being very prudent and sound, and that no one wants to see taxes go up,” Ms. Wright said. “I think everyone is asking the right questions and trying to avoid a financial crisis.”

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