Sagaponack Village, Under Fire From State Comptroller, Explains Use of 'State Aid'

Eight years of fiscal management in the Town of Southampton under the leadership of Supervisor Jay Schneiderman has again yielded an Aaa bond rating from Moody’s in its investor report of August 18.

While the reaffirmed top bond rating may not come as much of a surprise to anyone who follows town government — Southampton has a large and stable tax base, ample reserves, a manageable debt burden and conservative budgeting practices — there’s a surprising tidbit on the New York State comptroller’s website that signals the Village of Sagaponack may be on a bit of shaky fiscal ground.

How does the wealthiest zip code in Southampton, one of the wealthiest in America, wind up on a comptroller dataset that says its finances are under “moderate environmental stress,” owing to Sagaponack’s reliance on state aid in recent budgets?

Welcome to the “Sagaponack Paradox,” where a runaway real estate market is met with numbers-crunchers in State Comptroller Thomas P. DiNapoli’s office, who gauged fiscal stress levels across the state using various “environmental” factors, such as the reliance on state aid, shifting demographics, the median household income in a municipality, and other factors.

Sagaponack scored a 43 on the environmental stress test, earning almost half its score, 20 points over the budget period between 2020 and 2022 when 42 percent of its budget, on average, was derived from state aid, the comptroller said.

Lower scores indicate an absence of environmental stressors even as a higher reliance on state aid would indicate that a community is of lesser means or needs to shore up its budget for lack of locally generated revenue. Those factors do not appear to be in play in Sagaponack.

But the village’s score of 43 put it into the “moderate environmental stress” category. Anything above 50 would be considered “significant environmental stress.” In 2022, just over half of the village’s final $2 million in revenues came from state and federal aid, the comptroller reported — most of it from the state. According to the dataset, Sagaponack had a higher score, by far, than any other village in Suffolk County.

So what’s the rub?

The “state aid” that spiked the Sagaponack revenue stream was derived from a state mortgage tax applied to new mortgages and which is funneled, by law, from the state back into the municipality where the sale took place. For that reason, the mortgage tax revenue is considered “state aid” to the municipality.

According to Sagaponack budget documents, the village took in $403,000 in mortgage tax payments in 2020, about $600,000 in 2021, and just shy of $900,000 in 2022 — on total revenue that ranged from around $1.5 million to $2 million per year over that time, inclusive of the state aid.

The village doesn’t have a police or highway department of its own, and contracts with the town for those services. Its elected officials are unpaid. Much of the revenue it does take in is from building-related permits and fees.

Each year, the village slots in an estimated $300,000 in anticipated state aid on that budget line. This year, it budgeted for $333,000 — but the village expects to collect $816,000 by year’s end.

Sagaponack’s clerk-treasurer, Rhodi Cary-Winchell, said she’s aware of the comptroller’s report and that “while the board does review and takes into consideration the state comptroller’s reports and comments, the reality paints a different picture.”

“You are correct in that we always receive more than we budget,” said Cary-Winchell, “but we are conservative in that we do not want to rely on this revenue stream to continue, as one never knows when the bottom will fall out when we create our budget. And, as you know, during the pandemic years, the real estate market out here was going crazy as hordes of people were trying to escape. So that attributed to the huge increase in the revenue in the mortgage tax that year.”

What’s Sagaponack doing with the budget windfall?

“At the end of the year, any excess revenues are transferred to the Capital Highway Fund and to the Tree Fund, which funds the repairs and repaving of our roads and maintains our street trees,” said Cary-Winchell.