Homeowners across Suffolk County have begun dropping out of a program that helps fund the replacement of aging home waste systems with nitrogen-reducing ones in the wake of Suffolk County Comptroller John Kennedy’s decision to issue 1099 income tax forms to those who received the grants.
County Executive Steve Bellone’s office said that a half dozen people who have already been awarded the $10,000 grants in 2019 have halted plans to replace their septic systems, and that many others who were in the process of applying have withdrawn their applications because of the concerns about the potential tax impact.
With a county program that was just starting to gather steam now stumbling, county officials and environmental advocates continued to hurl criticisms at Mr. Kennedy this week, saying his actions are irresponsible to county taxpayers and destructive to a critical environmental protection program.
“This is lunacy,” said Adrienne Esposito, the executive director of the nonprofit Citizens Campaign for the Environment, at a meeting of the Suffolk County Legislature’s Ways and Means Committee last week. “This is a program that was meant to benefit the public. It puts in jeopardy not just this program but all the other programs you’ve established to benefit the public.
“Every time you give a gift to a social service organization, this sets a precedent of giving a 1099 to the recipient of that organization’s gift,” she added, referring to the reporting document making the grant taxable. “What are you going to do—give 1099s to the people who go to a soup kitchen? Give 1099s to the people who use the food pantry?”
Kevin McDonald, a project director for The Nature Conservancy, said that he has overseen the issuance of grants for similarly arranged programs, and that the 1099s associated with the grant funding are always issued to the contractor or service provider to whom the money is given, not the homeowner.
“Homeowners who received no income have no business getting a 1099,” he said. “The only way we are actually going to get the reduction in nutrients and cleaner water is to have the smoothest running program possible. This is the exact opposite of smooth running.”
The critics of the comptroller’s actions all said they threatened the very foundation of the county program that has been celebrated as the most progressive in the county in decades.
“This 1099 issue will destroy the septic replacement program,” said Laura Tooman, the president of the Concerned Citizens of Montauk. “It will force people to continue to ignore our nitrogen problem. Suffolk will lose millions of dollars of funding, and Suffolk County will no longer be recognized as a leader in protecting water quality.”
County Legislator Bridget Fleming is the chairwoman of the Ways and Means Committee, which oversees the department Mr. Kennedy is elected to direct, known as the Department of Audit and Control. She said that $10 million in state funding for the county’s septic replacement program could be lost if the initiative suffers for lack of interest.
She also questioned Mr. Kennedy’s reasoning for having issued the 1099s and said it has financially hobbled many county residents already.
“The steps that have been taken by the Department of Audit and Control … have already created damage to individual taxpayers, to the tune of thousands of dollars, when they were trying to do the right thing,” Ms. Fleming said. “These are the people who are stepping up and saying, ‘Let me help.’”
Mr. Kennedy, who won re-election to his post just last fall, has said that he is only being cautious and ensuring that the county is not hit with large fines by the IRS for failing to issue requisite tax forms. His critics say his decision appears to be politically motivated—with the intention of reducing participation in a marquee program of Mr. Bellone, a Democrat, whom Mr. Kennedy, a Republican, is challenging in this fall’s county executive election.
The comptroller did not return a call seeking comment on the issue but Ms. Fleming read from a letter that he sent to the Ways and Means Committee at a hearing last Thursday, April 4.
“Almost one year ago [the comptroller’s office] offered a request to the county executive’s office to seek from the IRS a definitive private letter ruling for Suffolk County,” the letter from Mr. Kennedy to the committee reads. “Absent the IRS ruling, [the Department of Audit and Control] is left no option other than to file form 1099-G as required … or risk potentially millions of dollars in penalty for failing to report to the IRS.”
The letter goes on to note that the comptroller had sent a letter himself to the IRS in March asking for the ruling that he says Mr. Bellone’s office should have sought early in 2018. He said that until the ruling is received, his office will continue to issue the 1099 forms to any grant recipients.
Ms. Fleming said that the 65-page letter to the IRS does not, however, ask for an expedited response from the IRS, since taxpayers are waiting with thousands of dollars in tax bills potentially on their backs on April 15.
She also questioned his reasoning that the county executive’s office should have been seeking the IRS’s opinion and why he would “default” to issuing tax bills to residents before the matter was settled.
“If he had concern about it, he needed to follow his own responsibilities and follow up on it before this damage was done,” Ms. Fleming said in the county offices in Hauppauge on Thursday, noting that Mr. Bellone’s office had gotten an opinion from the county attorney’s office and from the independent law firm Harris Beach, who both said that 1099s did not need to be issued to homeowners. “If he’s worried about penalties, he has a fallback. There was careful research done in 2018 about … the standard rule of thumb.”
No members of the Ways and Means Committee supported Mr. Kennedy’s stance; the comptroller’s wife, Leslie Kennedy, is a county legislator and member of the committee but recused herself from the discussion. But the legislature’s presiding officer, Legislator DuWayne Gregory, said he could see the doubt that the comptroller’s position has raised about whether homeowners should be taxed for the grants they received.
“Let me play devil’s advocate: I agree that things could have been done differently. But the argument is that there is a benefit and … regardless of who receives the check, the benefit is to the homeowner,” he said. “To me, the check is almost irrelevant. The benefit could be considered income.”
Mr. McDonald and others said that benefits received from a public project, in a variety of forms, do not constitute taxable income.
“People in your home district, Mr. Gregory, get home energy assistance and get oil for their oil burner,” Ms. Esposito said. “According to this precedent, they should get a 1099. People in your district are going to be hooked up to the Southwest Sewer District for free—they should get a 1099.
“The devil has many advocates—he doesn’t need one more,” she added. “He has the comptroller.”
on Apr 9, 2019