East Hampton Town Finances in Turmoil

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Turmoil surrounding East Hampton’s internal financial practices and a mounting budget deficit have raised questions early in the third term of Supervisor Bill McGintee’s administration about how well the town’s finances are being managed. ?Mr. McGintee and some Town Board members alternately blamed each other for the problems this week, while others said the board needs to tighten its review of annual spending and increase its involvement in the budget process.?Independent audits of the first two years of Mr. McGintee’s administration revealed that the town overspent its adopted budgets by as much as $5 million and has sunk into a more than $3.3 million deficit—a gap that is expected to grow as last year’s numbers are tallied. Officials from the state comptroller’s office are now auditing the town’s books, independent auditors have warned that the town’s all-important credit rating is at risk, and a grand jury has been empaneled to investigate the use of Community Preservation Funds over the last five years. Earlier this month, it was discovered that in 2007 the town borrowed nearly $8 million from the CPF for other uses.?The supervisor maintains that the money has all been repaid to the CPF—although cancelled checks provided by the town this week fall about a quarter of a million dollars short of the amount borrowed—and said again that the town’s grim fiscal picture is a narrow snapshot of his administration’s overall efforts to dig the town out of a quagmire created by his predecessor, Jay Schneiderman.?This week, though, Mr. McGintee placed some blame for the mounting budget deficit on unwillingness of the Town Board to cut spending or hike taxes to cover revenue shortfalls in recent years. ?”The spending is killing us,” Mr. McGintee said. “But the Town Board is not willing to reduce where we can. The bulk of the increasers are contracts, medical costs and retirement packages. Those can’t be avoided. I’ve challenged the board—tell me what you want to cut.”?But as the extent of the budget crisis has emerged, most board members have claimed that they were kept largely in the dark by the supervisor and town budget office. ?Some board members acknowledged that there has been stubbornness on spending. Pet projects and personal goals have pushed forward marginal projects, and overall the board hasn’t taken a firm stance on controlling spending, Councilman Brad Loewen said of his two years on the board. ?”We all kind of put ourselves in this position,” he said. “We, as board members, have to get a little more involved. We need to be looking very closely at some of things we may want to do but don’t really have to do.”?But others said the supervisor did not propose either tax increases or spending cuts until the true extent of the financial problems became public. ?”Spending has gone up, up, up. Everybody gets what they want, and taxes never go up,” Councilman Peter Hammerle said. “Why wasn’t there an increase last year, when they knew there was a deficit? There should have been increases every year.” ?Mr. McGintee said he proposed a 24-percent tax increase his first year in office, to offset the infusion of surplus funds from the two years prior. This week, he said that when he made the proposal, “all hell broke loose” around Town Hall.?But Councilman Hammerle remembers it differently. He said that, at the time of Mr. McGintee’s first budget in 2005, the supervisor believed a misplaced decimal point was to blame—that the original budget required a 25-percent tax hike, but Mr. McGintee had read it as 2.5 percent. As a result, there was a scramble to rework the budget.?”If he thinks that is true, he’s crazy,” he said flatly of the suggestion that the supervisor called for a large tax increase in his first budget to address the looming fiscal crisis. “He said it was supposed to be 2.5 percent. They had it all wrong. I spent a week working with him and Ted to fix that.”?Budget officer Ted Hults did not return repeated phone calls to his office seeking comment this week. ?Beyond the budgetary issues, the need for borrowing millions from the CPF fund between May and October of last year, whether or not it was a violation of the program’s founding statute, would seem to highlight at least a problem with money management. Mr. McGintee rejects that notion but says the town may need to reconsider the way it distributes money to town-sponsored programs and not-for-profits. ?”Maybe we have a cash flow problem,” he said this week. “Fees trickle in from a variety of sources throughout the year. Some years we have a lot of money in May, June and July, and some years not.”?Mr. McGintee suggested that the town needs a full-time accountant on staff to better track the details of money transfers. He also said that the problem could be at least partly addressed immediately by holding payment of grant money the town has promised to not-for-profits until the end of the year. ?Towns fairly commonly borrow money in the last few months of the year to cover payroll and bills until taxes from the fourth quarter start to come in. East Hampton took out this kind of loan, known as a tax anticipation loan, in late 2006. The interest paid is minimal since the loans are typically carried for only a few months. But a shortage of money as early as May may point to a broader problem. ?Councilwoman Julia Prince, the board’s newest member, said board members need to be better kept in the budgetary loop and need to be more vigilant in curbing spending. ?”I would expect the board to receive updates on every account every single month,” Ms. Prince said this week. “In any business, the CEO should give his top guys financial standing statements. From what I’m told, that hasn’t been the practice here over the last 20 years. That should change.”?Supervisor McGintee also pointed to a new computerized accounting system, known as Great Plains and developed by the town’s independent auditing firm, Albrecht Viggiano and Zureck of Happaugue, that will make individual checks on the accounting department possible. The town is spending more than $500,000 to implement the system.

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