The midnight oil burned Tuesday evening at Southampton Town Hall as Supervisor Linda Kabot scrambled to meet the state-imposed filing deadline for her first budget.
Deputy Supervisor Richard Blowes and Town Comptroller Steve Brautigam helped Ms. Kabot crunch the numbers for the 2009 tentative budget, which is just under $80 million. Proposed spending would increase 4.3 percent over the $76.7 million budgeted in 2008.
The tax rate for the 2009 budget, according to Ms. Kabot’s office, will be set at $1.32 per $1,000 of a home’s assessed value. That is a 5.6-percent increase from the 2008 tax rate, which was $1.25 per $1,000. A local “tax cap” law prohibits the tax rate from being increased more than 5 percent from the prior year; town officials say the tax rates are rounded numbers, and the actual proposed increase is below the 5-percent cap.
In order to comply with the 5-percent “tax cap” law, just over $4.5 million was taken from budget surplus funds and applied toward tax rate reduction, Ms. Kabot said.
For a taxpayer with a home valued at $500,000, the $1.32-per-$1,000 tax rate means that a homeowner will pay $31.45 more in taxes for 2009. That tax rate encompasses the general, police, highway, part town, and emergency 911 funds. The total tax levy proposed in Ms. Kabot’s budget is $53,181,822.
The supervisor said the tax increase was “unavoidable” due to downturns in the economy and “artificially” low tax rates set in 2007 and 2008. In those years, Ms. Kabot said, “town spending substantially increased—in particular, the police fund.” Police expenditures total $22 million for uniformed patrol and civilian support services in 2009. The supervisor added that for 2009, deficit reduction allocations were needed, along with increases in tax levies to cover operating expenses.
At the same time, Ms. Kabot took aim at the policy of her predecessor, Patrick Heaney, who similarly used surplus funds to offset the tax rate in several recent years, during which the economy was stronger.
Now, Ms. Kabot said, the town is facing economic challenges that stem from a softening in the real estate market, a slowdown in the construction industry, and less-than-favorable interest rates from financial institutions. “Revenues which the town is dependent upon to keep property taxes down are declining,” Ms. Kabot said.
Despite the town’s recently improved bond rating by Standard & Poor’s, from AA+ to AAA, the supervisor acknowledged that the unreserved general fund balance is “not so healthy.” A year-end audit for 2007 revealed more than $7.2 million owed to the general fund. That includes a $4.5 million shortfall in the police fund and $2 million deficit in waste management.
Those deficiencies arose between 2004 and 2007, a time when the town, under Mr. Heaney’s direction, had been tapping a reserve of budgetary surplus funds as “one-shot revenues” to artificially suppress the tax rate, Ms. Kabot said.
The supervisor labeled the town’s fiscal strategy over the past few years as one of “borrowing from Peter to pay Paul, Mary, and Sue. Now, Peter has a bunch of IOUs in his wallet from Paul, Mary, and Sue, and very little cash on hand.”
Ms. Kabot said this borrowing practice has resulted in a “negative financial condition” for the town. “Property taxes must be increased to not only cover current operating expenses and prior deficits, but also to ensure adequate reserves are on hand to maintain the town’s high bond rating for its capital program,” the supervisor said.
In 2009, the practice of borrowing from the surplus will continue—the $4.5 million injection of funds into the budget will reduce the tax rate and soften the impacts on taxpayers—though police and highway district tax levies are being increased to pay down debt owed from spending in prior years. To do that, Ms. Kabot is tapping $577,775 from the part town fund, and $1.5 million in surplus from the land management enterprise fund.
An additional appropriation of $175,000 in surplus is being used from the E-911 fund, and $2.25 million from the tax stabilization reserve fund is being withdrawn and moved to the general budget to offset spending increases.
“Under this new administration,” Ms. Kabot said, “the 2009 tentative budget takes the necessary steps to implement true deficit reduction efforts and cost-cutting strategies as part of the Town Board’s fiduciary duties to taxpayers.” Ms. Kabot said her proposed budget addresses the “inter-fund loan” repayment obligations through a five-year deficit reduction plan with a corresponding line item on the property tax bills, reflecting debt owed for operating expenses paid out over the prior years that exceeded budgeted appropriations and actual revenues.
Ms. Kabot is proposing that mortgage tax receipts, which are more volatile than the predictable revenue stream of property taxes, be dedicated to capital, or long-range, projects. Those projects are financed over time as opposed to being considered operating, or day-to-day, expenses, which keep the wheels of town government turning.
The supervisor noted that the Town Board has agreed to a suggestion by Councilwoman Anna Throne-Holst to conduct a “forensic audit” of the $4.5 million police fund deficit. “The overall tax rate obligation for prior operating costs places constraints on the overall tax rate and compliance with the local 5-percent ‘tax cap’ law,” Ms. Kabot said, adding that, in addition to the police and highway funds, the general fund balance has several IOUs from other town funds that restrict cash flow. “Therefore, cutting costs and controlling spending, plus raising property taxes for these various operating funds, is necessary,” she said.
Additionally, revenues from the town’s Community Preservation Fund, financed by a 2-percent transfer tax on most real estate purchases, have fallen sharply: A total of $32 million in CPF revenue is anticipated for 2008, compared to a record $55 million the town collected in 2007.
Next year, Ms. Kabot’s budget anticipates just $30 million in CPF revenue, based on a slowing housing market. In addition, she is allocating $3 million in tax relief payments for eligible school districts charged to the CPF in the Payment in Lieu of Taxes, or PILOT, program, which reflects a $1.8 million decrease in PILOT subsidies for 2009.
“Tough times are afoot for many individuals,” the supervisor said. “Utility, housing, and fuel costs remain high.”
The supervisor is also proposing a 2.5 percent “cost-of-living” increase for all union employees in each of the departmental salaries allocations. “As supervisor, I am reaching out to the union leadership to request a one-year labor-management agreement be authorized for 2009 until the local economy improves,” Ms. Kabot said. The supervisor also proposed the same percentage cost-of-living increase for all administrative town employees.
Ms. Kabot said her spending plan for 2009 mirrors her “core principles of smaller government, less taxes, fiscal responsibility, transparency, and being responsive to true community needs.”
State law requires a budget to be filed in the town clerk’s office by midnight, October 1, and Ms. Kabot’s proposal got in under the wire. The Town Board will hold hearings during the month of October on Ms. Kabot’s plan and must adopt a final 2009 budget by November 20.
Brian Bossetta on Oct 1, 2008