The East Hampton Village Board is cutting spending to build up its contingency fund as revenues decline with the economy.
The village, responding to the revenue falloff, will cut spending three to four percent, or about half a million dollars out of the current budget of $17,813,841, according to Larry Cantwell, the village administrator.
Mr. Cantwell recommended the adjustment to the mayor and board halfway through the current fiscal year—despite what he said was a village surplus of $3,476,490—as a cautionary measure in response to the economy’s sharp downturn over the last six months, he said in an interview. Even though the board budgeted for a drop of 40 percent in its mortgage tax revenues in 2008-2009 compared to 2007-2008, Mr. Cantwell said the falloff will be even greater than that.
“We don’t know if the bottom is going to fall out,” Mr. Cantwell said. “Rather than rely on the surplus, it makes more sense to adjust the budget now while we can. If we don’t, three or four months down the road we’ll have less flexibility to deal with whatever problems arise because we’ll have used up more of our resources.”
Also down are the returns on all the village’s investments as interest rates fall from between 2 and 3 percent to less than 1 percent. The interest income that the village budgeted for last June, $280,000, will be cut in half, Mr. Cantwell said.
There will also be a drop in what Suffolk County pays the village for operating its local 911 call center. Suffolk County collects a tax on landline telephone bills, called a 911 surcharge, which pays for emergency call centers throughout the county. It uses the money for its own system and shares a portion with municipalities that have their own centers, such as the village. The 911 payment has fallen from $80,000 to $40,000 because cell phone use has increased so much it has reduced the tax revenue made from calls placed on landlines.
Last, the village underestimated the amount it would have to pay the state in December for its retirement fund obligations. It was budgeted at $860,000 but came to $940,000.
The shortfalls may get worse, Mr. Cantwell said. Revenues from the mortgage tax—what’s collected by the county every time a real estate transaction transpires—will continue to fall as the real estate market here stalls, following the national pattern.
“I don’t know what’s going to come in” in mortgage tax revenues “but we know that real estate transactions have fallen off a cliff,” Mr. Cantwell said.
The village budgeted for $550,000 in estimated mortgage tax revenue. It receives the payment from the county in two installments; the first will arrive by the end of this month.
“We’re not really worried,” said Trustee Barbara Borsack, the village deputy mayor. “I think the village is in good shape but we’re trying to be pro-active. Building permits will decline—that’s a huge change there,” which means a falloff in application fee revenues. “The rest remains to be seen, such as how many beach stickers we’ll sell this summer.”
The village made $840,000 last year selling beach parking permits to non-residents—2,800 permits at $300 apiece. “Every year up until now, we’ve sold out,” Mr. Cantwell said. “We start selling in February and last year they were sold out by the middle of April. This year I don’t know what to expect.”
The same goes for the Seaspray Cottages, which the village owns and rents every summer, bringing in a total of $545,000. They always rent for the whole season and Mr. Cantwell said he has a waiting list of 200 people—but he said what actually happens this year might be different from past experiences. Lease commitments must be made by March 1.
One bit of good news on the budget front is that the village’s liability insurance premium turned out to be $80,000 less than what was budgeted for it, which is a “terrific savings,” Mr. Cantwell said. The original budget set aside $430,000. Mr. Cantwell estimated the total insurance bill will be $350,000. He said the village’s “experience rating” has been good in terms of litigation and lawsuits, so its rates have gone down.
When Mr. Cantwell decided the village should limit budget expenses and build the contingency fund, he met with department heads Scott Fithian, the superintendant of public works; Jerry Larson, the chief of police, and Kenneth Collum, the fire marshal, to identify areas where they could cut back.
For now, they decided to cut travel expenses for the police and fire departments, not to purchase some equipment and to hold off on some road, drainage, and sidewalk work. So far, those cuts total $272,000 that will be transferred to the contingency fund.
With the town of East Hampton in dire financial straits and Southampton making major budget cuts, Mr. Cantwell said the village is, in comparison, doing well, considering its $3.4 million cushion. But with revenues falling, it has to take precautionary measures. “We’re only doing what we should be doing,” Mr. Cantwell said.
The town of East Hampton fell into deficit spending in 2005, and has continued to run deficits through 2008, but the Town Board and supervisor appeared unaware of it until a state audit of the 2005 budget was released in late 2007. The 2006 audit, released a few months later, showed the deficit had widened. The required state audit for 2007 is months overdue but the deficit is expected to have increased then and in 2008 to possibly $12 million.