Southampton Town Weighs Incentive To Raise Taxes

Boasting perhaps the most sound financial footing of any municipality in the state, Southampton Town enters its annual budgeting process in a unique position, while also facing an odd dilemma: Should it raise taxes simply to take advantage of an Albany incentive, one that appears to be intended to lower taxes?

In her tentative $88.5 million budget presented to the Town Board last week, Supervisor Anna Throne-Holst proposed a plan for 2015 that raises spending by about $3 million, a conservative 3 percent. The proposed increase would be largely offset by positive forecasts of climbing revenues due to a rebounding economy, and the town’s ability to throw in some money from its robust surplus fund.

But in addition to the $88.5 million, Ms. Throne-Holst has proposed that the town tack on an additional $1.3 million or so—enough to require an approximately 1.5-percent tax increase to town residents—to make what would normally be capital purchases. Residents would not ultimately feel the hit in their wallets because of an offer by Albany to refund taxpayers any tax increases, as long as the municipality’s budget does not pierce the state’s cap on tax levy increases, which is about 1.6 percent this year.

“I think we’d be foolish to leave that money on the table,” Ms. Throne-Holst said. “There isn’t a municipality that isn’t taking advantage of that money. The difference is that most, or all, are using it to balance their budgets. In our case, we could take that additional levy and create separate line item or revenue line.”

She added, “It’s more than a million dollars that we can put toward a well-planned, one-time expenditure that would go to very specific things that we need, such as police cars, systems upgrades in the police department, Good Ground Park—those sort of things.”

In one view, the rebate offer was intended as an incentive to municipalities and school districts to trim their budgets so that they fall below the cap, on the assumption that the belt-tightening would carry through to future fiscal years and save taxpayers money in the long run. But in the case of Southampton Town, or any town that had already planned to be substantially below the tax cap, it becomes a disincentive to cut spending—a point that leaves a bad taste in the mouth of some in light of Ms. Throne-Holst’s proposal.

“I’m uncomfortable with the entire premise,” Town Councilwoman Christine Scalera said. “You raise taxes so you have the ability to provide a certain level of services. To raise them for the purpose of receiving a rebate is something I’m not particularly comfortable with.

“There’s nothing for free,” she added. “That money came from taxpayers in some way, shape or form.”

Councilwoman Bridget Fleming said she sees Governor Andrew Cuomo’s offer not just as an incentive to lower tax rates across the board, but as an intentional move to aid municipalities that have made deep reductions in their spending since the onset of the recession, at the cost of services to their residents. Ms. Fleming has been a critic of the town’s continued conservative budgeting as it has climbed from the depths of deficit to towering surpluses.

“I think it’s intended to give some flexibility to the towns and school districts who have operated on recession budgets for years now without impacting taxpayers themselves,” she said. “I think we need to look very seriously at the service deficiencies in the town that have resulted from years of basically austerity spending and hiring freezes.”

Councilman Brad Bender acknowledged that the proposal does skew somewhat from the obvious intended purpose of the rebate. Still, he said the town could not be blamed for taking advantage of the availability of state support, especially considering that the town has trimmed its budgets by eliminating some of the very sort of spending that budgeters have now said could be taken up with the help of the additional state funds.

“It’s something I can wrap my head around, as long as it’s only one-time spending,” Mr. Bender said. “The town has been very conservative with its spending for a long time. There’s a number of things that are sorely needed. I think it could be a very good thing for our police department.”

The sort of one-time expenditures that the supervisor has proposed to add to the budget are typically the type that are financed using surplus funds, of which the town has more than ample supply. The town’s fund reserves stand at about $29 million, representing more than 30 percent of the operating budget. The town policy approved earlier this year is to maintain a minimum of 17 percent in reserves; auditing agencies typically recommend a minimum of 10 to 12 percent held in reserve for unforeseen expenses.

The adopted budgets in 2012 and 2013 each left some $4 million in surpluses, and Town Comptroller Len Marchese said the 2015 budget’s conservative revenue and spending forecasts will likely mean substantial additional surpluses, so long as there are no major unexpected expenses next year.

The budget Ms. Throne-Holst has pitched already taps $1.3 million in reserves to keep the tax levy flat. While that could create a gap between projected spending and tax revenues in 2016, Mr. Marchese said that such a deficit could be easily made up by increasing assessment values and with still-climbing revenues.

“If you spent every dollar in the budget, then you would spend down your surplus,” Mr. Marchese said. “Our budget is set up so that we are going to run a surplus, so that gets regenerated.”

State Assemblyman Fred W. Thiele Jr., a former Southampton Town supervisor, said he does not view the governor’s rebate offer as solely intended to be an incentive for spending cuts. At the same time, he does not think that allocating the funds for capital expenses, or budget padding, is a wise approach either. Instead, he recommended that the town dedicate the money, should it choose to add spending to the budget, to pay down some of its debt, a move that would reduce taxes in the future.

“I think what the governor intended when he proposed the tax freeze was that nobody would have an increase in their property taxes ... and make the state a more attractive place to live,” Mr. Thiele said. “But the only way I would do that is if you could use that increment to actually reduce your debt service. That way you’d be using the state money in a way that would reduce taxes in future years.

“I think using it for [capital spending] is hard to explain to the public,” he added.