Southampton Village Officials Back Up Claims That Tax Cap Was Pierced Under Previous Administrations

According to Southampton Village Administrator Charlene Kagel-Betts, the overall financial impact on the village as a result of the discovery in recent weeks, by the auditing firm PKF O’Connor Davies, that the village pierced the state-imposed tax levy increase cap in all but one budget year from 2013 to 2019: “Nothing.”

The current village administration says it appears the cap was pierced unknowingly and inadvertently. Still, officials from prior administrations, including former Mayor Mark Epley and former Village Administrator Stephen Funsch, said earlier this week that they are still not convinced that the tax cap was pierced on their watch.

At Southampton Village Hall on Monday morning, Kagel-Betts, Mayor Jesse Warren and Deputy Mayor Gina Arresta backed up their claim that the tax cap was indeed pierced in those years, presenting audited figures.

Disagreement between the current and former administrations about whether or not the cap was pierced — something Kagel-Betts said was first pointed out by the village’s new auditing firm — sent her and other village officials on a fact-finding mission over the past week, with Kagel-Betts reaching back out to the auditors to ask that they review their findings and also diving into state records to try to determine whether the cap was pierced legally or illegally.

Kagel-Betts said she was relieved when she realized that, because the tax cap was pierced legally, the village would not have to set aside $1.5 million in a reserve to be given back to taxpayers through a future levy reduction. That’s how much the village would be on the hook for had the cap been pierced without the authorizing legislation to do so.

Kagel-Betts noted that $1.5 million “is roughly what it’s going to cost for engineering services for our sewer,” referring to the village’s plans to get started on phase one of its sewer district project this year. “So when I saw that $1.5 million [potentially] going out the door, I was like …” She exhaled deeply.

Both Epley, who was the mayor from 2005 to 2017, and Funsch, the village administrator during much of the Epley administration, were still not convinced that the tax cap was pierced during those years.

“On every budget that was done, there was a worksheet done for the tax cap, and it showed the whole calculation,” Funsch said. “It would show that we’ve never broken the tax cap.”

Epley said he submitted a Freedom of Information Law request on April 28 for the copies of budget packets from those years — specifically, the page showing tax cap calculations. He had not received those yet, as of May 10, and said until he does, and can compare the numbers, he will remain highly skeptical.

“I’m having a difficult time around this,” Epley said. “This is something we took very seriously.”

He added, “I’m not saying we’re right all the time, but don’t accuse us of doing something here and not provide the information that backs all that stuff up.”

The Press contacted the New York State comptroller’s office for an opinion, but the office did not immediately weigh in.

Understanding how the tax cap appears to have been inadvertently pierced over such a long period of time, and how it went unnoticed by previous administrations and auditors, is a complicated process that involves delving into the numbers and gaining a deeper understanding of both tax cap calculations and the workings of the local laws surrounding it.

The part of the village’s annual revenue that is raised through property taxes is known as the tax levy, and there is a cap, mandated by the state, on annual levy increases, limiting it to a tax base growth factor plus 2 percent, or less based on inflation. However, that cap can be overridden in a given year if 60 percent of the Village Board agrees to do so by passing a local law.

The tax levy that the village reported to the state each year, along with the growth factors, carryovers and exclusions that contribute to the tax cap calculation, can be viewed on Open Book New York, part of the state comptroller’s website. The data comes with the caveat that it is “as submitted” by the local government and has not been modified or certified by the comptroller’s office.

For the fiscal years that ended in 2013, 2014, 2015, 2016, 2018, 2019 and 2021, the tax levy calculation on Open Book shows that Southampton Village budgeted a levy that would match — to the dollar — the allowable tax levy increase. For the 2017 budget, the levy was reported to be $143,139 under the cap, and in 2020, it’s reported as $151,578 under.

The 2021 budget was the first crafted under the Warren administration, but Warren himself voted against it after amendments were made that he disagreed with. According to Open Book, the budget met the tax cap exactly.

Warren’s 2022 budget, under which the tax levy decreased, had a levy that was $837,955 under the cap, and his 2023 budget is $754,714 under the cap, Open Book shows.

PKF O’Connor Davies prepared a tax cap analysis based on the assumption that the cap was pierced six times — but legally. The analysis says the village exceeded the cap in 2013, 2014, 2015, 2016, 2018 and 2019. In those fiscal years, the excess amount was as little as $4,438 and as much as $153,079.

The $153,079 overage came in the 2013 budget, the first one that was subject to the tax cap. The board had adopted a tax levy of $18,728,928, but then the additional amount was tacked onto the tax warrant. The warrant has a footnote that $153,079 “was the amount of omitted/pro rata taxes collected” out of the total.

Kagel-Betts explained that pro rata is the result of an adjustment to a property’s taxes mid-year, such as a house that was under construction.

“The state comptroller’s office says you have to add that to your tax levy and you have to include that in your levy cap calculation,” she said. “... That’s supposed to be in your total levy amount.”

She said the village cannot know its pro rata amount until it runs its tax rolls, which doesn’t happen until after the budget is adopted. She explained that when a budget has a levy that’s hundreds of thousands of dollars under the cap anyway, adding the pro rata on top of the budgeted levy won’t run the risk of piercing the cap.

But if the budgeted levy is already right at the level of the cap, adding the pro rata to that number would cause the levy to pierce.

“Did they inadvertently pierce the tax cap? Probably, because the warrant amount and the tax levy amount is different by the pro rata [amount]. Sometimes by more than the pro rata,” Kagel-Betts said. “I don’t know what was going through anybody’s heads while they were filing all this. But I don’t think it was an intentional thing.”

The tax warrant totaled $18,882,007 for 2013. When preparing the 2014 budget and tax levy, the village reported to New York State that the “prior year levy” was $18,891,237 — which was $162,309 more than the 2013 adopted tax levy, and $9,230 higher than the 2013 tax warrant. While $153,079 of the difference could be explained by the pro rata amount, there was no apparent explanation for the $9,230 in excess of the tax warrant.

According to Kagel-Betts and the new auditor’s analysis, if the tax warrant was higher than the tax levy cap, then the cap was pierced. As they explain it, the cap offers no exemption for pro rata.

Pro rata taxes were tacked onto the tax warrants through the 2016 budget year, and the warrant in the 2015 budget year also noted that “ag conversion” taxes contributed to the warrant. Starting with the warrant for the 2017 budget year and through 2021, the footnotes mention “special district taxes collected” rather than pro rata. The special district taxes amount was highest in 2019, at $77,503, and lowest in 2020, at $2,607.

“There’s no such thing as a special district tax, so I’m not really sure what those are,” Kagel-Betts said, though she speculated that they might be alarm bills or the cost of demolishing an unsafe structure added to tax bills, but she said those are special assessments, not a special tax.

Prior to the 2022 budget, the Village Board voted each budget cycle to adopt a local law to allow itself to pierce the tax cap. This was done annually as a precautionary measure — just in case the budget picture suddenly changed and the village was forced to pierce the cap to maintain services.

Each year, after the budget was adopted with a levy that seemingly did not exceed the cap, the board would then vote to repeal the local law. However, due to a clause in the laws, those repeals do not stick if the adopted budget includes a levy that exceeds the cap.

The way the annual law was written, if the board adopts a budget with a levy that does not exceed the cap, the law may be repealed by a simple resolution of the board without a public hearing and without any further local law. Since it now appears that the cap was indeed pierced, those repeal resolutions could be invalid.

Kagel-Betts said the repeals are, in fact, invalid — though, prior to The Press alerting her to the simple repeal clauses, she offered a different explanation: The Village Board voted to adopt local laws that repealed that earlier laws that allowed piercing the cap, but because those repeal laws were never filed with the secretary of state, the repeals are invalid and the original laws still stand.

The realization that the laws included a clause stating that a repeal law was unnecessary, and that a simple resolution would suffice, appears to change nothing. The effect is the same: The repeals are invalid, piercing the cap was done legally and the village does not need to set money aside in a reserve, as it would if it had been done illegally.

Kagel-Betts said her preferred method is to schedule a public hearing on the piercing law and the budget on the same night. If the budget is finalized without exceeding the cap, the Village Board takes no action on the piercing law, and it’s never adopted, avoiding the trouble of repealing.

While it appears, for now, that the conclusion of the story is that there won’t be any negative financial impact for the village, Warren shared his thoughts on what he believes the situation says about the prior administrations.

He referenced a chart that he likes to point to frequently that shows the steep increase in the village tax rate during the period of time in question, showing how the tax rate increased alongside a steep increase in the overall value of homes, both pushing up the levy.

“There’s just a lot of growth of the overall taxes that are being levied upon the village residents,” he said. “I think it was my 10th or 11th grade calculus teacher who played the Eagles song ‘Take It to the Limit.’ [The previous administrations] were taking it to the limit over and over again.

“There was a culture that existed for a very long time of just maxing out as much as we could or getting very close to it,” he continued. “And the reason, in my opinion, that we’re even having this conversation is that they left no cushion. Had they left a cushion, we wouldn’t be sitting in this room having this conversation.”

Arresta, Kagel-Betts and Warren also lamented the fact that the tax cap debacle has overshadowed the reason it came into question in the first place — because the village was attempting to make the case for creating a tax and contingency stabilization reserve fund, based on the presentation Arresta gave at a work session on April 26.

“This wasn’t supposed to be the story,” Kagel-Betts said.