Audit reveals concerns in Southampton Town budget

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Southampton Town Supervisor Linda Kabot.

Southampton’s opulent mansions and pristine open space belie a brewing fiscal crisis that, if left unchecked, could grow into a full grown budget storm.

Deficits in the town’s police, highway and waste management funds, totaling $7.2 million, and a dwindling source of cash on hand, were enough to cause Town Comptroller Steve Brautigam to tell the Town Board on Friday that if these trends were not reversed the town could expect to see “grave financial problems.”

On Friday, the town’s 2007 financial statements were presented to the board, Mr. Brautigam and Deputy Supervisor Richard Blowes by the Hauppauge independent auditing firm Albrecht, Viggiano, Zureck & Company.

“In my reviews of the town’s annual audit there were a number of funds with deficits at year’s end,” said Mr. Brautigam, who has served as comptroller since March. “Some of these funds began with negative balances, and they have progressively worsened.”

Mr. Brautigam described the fund balance deficits revealed in the audit as “red flags.” The cumulative negative fund balances, he said, were like IOUs the town’s general fund would have to pay off.

Currently, the deficit in the police fund stands at $4.5 million, the waste management fund is short $2 million, and the highway fund is $669,567 in the hole. According to the audit, tapping into the town’s general fund to help cover the operating costs of these departments from 2004 to 2007 helped lead to the current deficiencies.

In order to repay the general fund, police and highway taxes will need to be raised over the next few years, said Town Supervisor Linda Kabot. “Had this police deficit continued to grow we’d end up like East Hampton in another two years,” she said, referring to the neighbor to the east that has been plagued with fiscal problems as of late, including a $12 million deficit and revelations that the town’s embattled supervisor had been dipping into its Community Preservation Fund to pay salaries.

As further evidence of the concern over these deficits, the town recently hired FTI Consultants, a global advisory firm based in Baltimore, to conduct a separate “forensic audit” of the police and waste management funds, an action Town Councilwoman Anna Throne-Holst called for shortly after taking office in January. Those audits are set to begin at the end of this month, according to Ms. Kabot.

Additionally, the auditing firm’s findings revealed shortfalls in various special districts, such as an approximate $215,000 deficit in the Hampton Bays Water District. Negative balances for lesser amounts were also discovered in the Hampton Bays Public Parking District, Bridgehampton Public Parking District, Noyac Fire Protection District, and Bay Point Fire Protection District.

At year’s end for 2007, the town’s general fund balance was just under $16.7 million, but that number was substantially reduced after appropriations were made for the 2008 budget and the tax warrant was signed by former Town Supervisor Patrick Heaney shortly after he was defeated by Ms. Kabot in the general election.

The balance was further slashed when $4 million was put in a reserve fund for tax stabilization. Then, $1.5 million was used to keep the 2008 tax rate in check and another $4.6 million was earmarked for capital projects. Another $2 million was transferred to the town’s Affordable Housing Opportunity Bank.

As it stands now, the town’s unreserved general fund balance is $4.5 million. But, with some $7.2 million required to cover various town departments that are in the red, the town is technically in the red.

The town should have about $4.5 million from cash in its general surplus. But, debts in the highway and waste management departments as well the Hampton Bays Water District are squeezing the town’s checkbook. Similarly, the town should be holding just more than $3 million in cash for a tax stabilization reserve fund, but instead it is holding the police fund debt of $4.5 million.

The contingency fund balance of $767,265 has been reduced to under $200,000 in order to compensate for deficiencies in various departments, such as unforeseen legal fees in the Town Attorney’s Office associated with recent litigation with the Long Island Power Authority.

Another $3 million in capital reserve funds were used to purchase property for the Southampton Aquatic Recreation Center, or SHARC, and the Westhampton Community Center.

In 2005, the Town Board adopted a fiscal policy that requires its unreserved surplus to be 15 percent of its operating budget. Including debt service, the town’s budget is $77 million. The operating budget is $45 million, so in keeping with the 15 percent stipulation, $4.5 million should be allocated to unreserved budgetary surplus.