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Southampton Village Administrator Charlene Kagel-Betts
This year’s state retirement system contribution would result in a $450,000 budget shortfall for Southampton Village — and due to the pandemic, the village could see an overall shortfall of $1.7 million.
Southampton Village Administrator Charlene Kagel-Betts is recommending that village officials sharpen their pencils and come up with budget cuts to make up for the shortfalls.
After looking at the anticipated shortfalls, Ms. Kagel-Betts decided to take a step back. She told the Village Board during its November 24 work session that she wanted to take a snapshot of the budget overall to see where things stood in the COVID-19 era.
Budget officers across the state anticipated a pandemic-wrought impact on their budgets and, said Ms. Kagel-Betts, “That has come to fruition.” A certified public accountant, the administrator projected an overall budget shortfall of $1.7 million, mostly due to an estimated $1.2 million revenue shortfall.
Beach permits and concession income is down by $225,000, while justice court fines and fees are down by $220,000. Building and zoning permit revenue is really the hardest hit, Ms. Kagel-Betts reported. That’s down $735,000. With interest rates at a record low, the village isn’t getting much interest income on its investments, either.
Compounding the loss of revenue are expenditures that ran over budget. The budget for Coopers Beach ran over by $80,000 due to the additional staffing needed to ensure compliance with COVID-19 regulations. FEMA will only reimburse for overtime costs, Ms. Kagel-Betts informed. “So we may not receive all the Coopers salary costs,” she predicted.
As previously reported, the surge in contributions by municipalities to the state retirement system occurred because the system relies on the stock market to value the plan’s assets. The Office of the State Comptroller calculates a municipality’s annual contribution every year at the end of March. The contribution relies on the health of a stock portfolio it manages for the expense and, in the wake of the pandemic, the market took a nosedive. Although employer contributions cover a large share of paid benefits, income from existing assets and appreciation of those assets can easily exceed other sources of plan revenue when investment returns are strong. When they are not, unexpected swings in the plan’s asset returns are offset by changes in employer contributions.
Municipalities across the state were hit with unexpectedly higher than usual pension bills. In Southampton Town, officials lamented an assessment $650,000 more than anticipated.
Because the contribution relates on the fluctuating market, Town Comptroller Leonard Marchese said the figure is “really hard to deal with.” But, there’s “a good likelihood” the contribution will be less next year if the market rebounds, he qualified during a discussion of the matter over the summer.
Looking for strategies to address the shortfall, Ms. Kagel-Betts said she discussed the matter with the village’s budget and finance committee. The “first line of defense,” she said, is to ask village department heads to find areas in their individual budgets where they can cut.
As an example, she mentioned budget lines related to special events as an area ripe for potential cuts, since the pandemic shutdown likely canceled many traditional events. She noted that as staff makes suggestions regarding trimmable areas, they also note any potential impact to services the cuts could have.
Budget cycles for villages and towns are different, with the village required by law to present its budget in the spring and towns debuting their spending plans during the fall. That meant village officials this year had to develop their budgets during March and April, times of great COVID-19 prompted uncertainty.
Still, according to Ms. Kagel-Betts, Mayor Jesse Warren’s proposed budget included an increased contingency line for COVID expenses. But even at $425,000, up from $175,000, it isn’t enough to cover the shortfalls.
This summer, Suffolk County Executive Steve Bellone sought federal aid with increasing urgency. The shutdown meant plummeting sales tax revenue, the main source of income for the county.
Asked how they’d fare with shutdown-related shortfalls, comptrollers in East Hampton and Southampton towns both said they’d call upon rainy day funds to help weather the pandemic storm. East Hampton boasted a $32 million in undesignated fund balance. Discussing the cost of COVID-19 over the summer, East Hampton Town Comptroller Len Bernard, Ms. Kagel-Betts’s former boss, mused that the mild winter of 2019, with its lack of snow removal expenditures, balanced out some of the extra costs. Additionally, increased mortgage tax revenue was a godsend.
In Southampton Town, reserves topped $45 million. Presenting what he described as a “bare bones” budget in September, Town Supervisor Jay Schneiderman said reserves might be used if revenue shares promised by the county don’t come through.
While there was no mention of using reserves during the November 24 work session, Ms. Kagel-Betts acknowledged that as of the 2019 audited financial statements, the village had about $7.3 million of unassigned fund balance.
“Although those reserves are available to use, it is not a recommended practice to rely upon surplus to meet operating needs, especially when there may be some lines that can be trimmed based upon prior year results,” she said. “So we are requesting the department heads look for some areas that may be trimmed — then, if needed, will tap our other resources.”
“We’re looking forward to working with you to put together a budget that works and accommodates the shortfalls due to COVID-19,” Mayor Warren said at the conclusion of the administrator’s presentation. “A lot of municipalities are in a similar situation. We’re confident we’ll be able to resolve this and close the fiscal year on a high note.”
Ms. Kagel-Betts expects to have suggested cuts prepared for discussion by the December work session.
