Committee wants a $2.5 million cut in East Hampton budget

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East Hampton Town’s budget advisory committee recommended Monday that the town immediately begin to trim expenses and generate revenue to make up for what it estimates will be a $2.5 million deficit in the town’s $68.5 million 2009 budget, but the town’s comptroller is concerned that this year’s deficit could easily be as high as $3 million.

Town Comptroller Janet Verneuille, who answered the budget advisory committee’s questions Monday night, said that she didn’t see how the town could cut $2.5 million from the budget without “massive layoffs.”

In addition, Ms. Verneuille estimates that the total deficit for 2007 could be $11 million to $12 million, although independent auditors had reported last month that the 2007 deficit would be only $9.6 million. The state has not yet accepted that audit because the town has been unable to reconcile its 2007 interfund transfers to ensure that the number is accurate.

Ms. Verneuille also said that the town will not likely know the amount of its 2008 deficit until this summer. She said that the town’s 2008 Annual Update Disclosure, a preliminary year-end report, will not likely be ready until late summer, though it had initially been expected to be ready in March.

The town had been allowed by New York State to borrow up to $15 million to cover its deficit through the end of 2008, but, according to Ms. Verneuille, it will need to use 2009 funds to cover the deficits from prior years if they are more than $15 million. Such a move would add to the projected shortfall this year.

Ms. Verneuille said that if mortgage tax revenue numbers for March are constant for the rest of the year, the town will face a shortfall of $2.1 million in mortgage taxes alone. The town had budgeted for just $4 million in mortgage tax revenue for 2009 after it fell short of its 2008 mortgage tax projection by an estimated $2 million.

“I have plenty of people who’ve told me what’s wrong,” Ms. Verneuille told the committee Monday night. “It’s not efficient to look at what’s wrong anymore. I think you should be looking at things that can bring in revenue. I don’t have time.”

Before Ms. Verneuille answered the committee’s questions, members of the group volunteered to help draft an austerity budget that would immediately reduce this year’s spending by $2.5 million.

“They may have reasons why they don’t want to have an austerity budget, but they’ve had reasons for the past two years,” said the committee’s chairman, Bob Kouffman, referring to the Town Board.

Ms. Verneuille, a Certified Public Accountant who became the town’s first comptroller in January, said that a large part of her difficulty getting to the bottom of the financial crisis has been that the town has 80 bank accounts whose transactions were rarely posted to the general ledger in 2008.

In particular, the “due to-due from” accounting between the town’s various funds has proved to be a major headache, she said. She said that the transfers between the funds may have gone from one fund to three other funds without clear notation as to where the money had been placed.

“I haven’t found anything that would make me uncomfortable as far as being fraudulent,” she said. “Some things are in the wrong funds and it’s challenging to undo.”

Ms. Verneuille added that work has not yet begun on the town’s 2008 independent audit, due in September, because most of the town’s bank accounts, except for its payroll and accounts payable accounts, which were necessary to keep the bills paid, were never reconciled against the general ledger in 2008.

“We’re at a standstill,” she said, adding that she needs more people in her office to undertake the task of going through all of the town’s voluminous transactions, but the town does not have the money to pay for more workers.

At a presentation to the Town Board two weeks ago, Ms. Verneuille had said that she believed it would take two to three years to develop controls over the town’s finances.

“I’m starting to wonder if three is enough to really do it right,” Ms. Verneuille told the Budget Advisory Committee.

Ms. Verneuille said that the has a plan in her head for instituting better internal controls and sorting out the town’s budget mess, but bristled somewhat when the committee members said that they would like to see her plan. She said that writing the plan down would be another distraction from a workload that she described as tremendous.

“The new Town Board should know your plan,” said Mr. Kouffman. “In the future I think it’s important that everybody have the road map.”

Ms. Verneuille said that she has been speaking with the members of the town government in Colonie in upstate New York, which she said had faced a crisis similar to East Hampton’s but was a year closer to resolving it.

She said that Colonie managed to dig itself out of its crisis by selling assets and instituting a one-time tax on homeowners. She said that Town Attorney John Jilnicki plans to discuss selling two parcels of town-owned land with the Town Board in executive session next Tuesday.

“You can only sell assets for so long,” said committee member Joe Gaviola.

“You could be selling them for 50 cents on the dollar at this point,” added committee member Job Potter. “This is the worst possible environment to liquidate real estate.”

Ms. Verneuille added that last year’s 24-percent tax hike is a recurring source of revenue, which she termed as a positive thing.

“That’s going to help the town’s budget but that’s not going to help the town’s people,” said Mr. Kouffman.

Ms. Verneuille said that, in Colonie, people were happier to pay a one-time tax, which brought in several million dollars of revenue to offset its deficit, than to pay higher taxes indefinitely.

“It’s just an idea,” she said.

“But probably not in an election year,” said Mr. Potter.

“One of the reasons we exist is the community didn’t like a 24 percent tax increase,” said Mr. Kouffman of the committee.

“You can’t increase costs and not increase revenue,” said Ms. Verneuille. “You can reduce services, but that’s not up to me.”

“We need to talk about significantly reducing the size of the town work force,” said Mr. Potter. “Nobody wants to talk about the most painful part of this.”

“Layoffs are the most painful part of any budget process,” said Mr. Kouffman. “That’s why we’ve been looking at other alternatives.”

Ms. Verneuille said that Colonie had not laid off employees, but had offered an early retirement plan.

Ms. Verneuille also said that the town needs to get into a position where it can generate contemporaneous budget reports and cash flow projections.

“Could you see us running out of cash?,” asked Mr. Gaviola.

He was met with an awkward pause before Ms. Verneuille said that she didn’t have enough information to make that determination.

“You’ve independently confirmed what our consensus was,” said Mr. Kouffman. “We have to know where the bottom is as soon as possible.”

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