Judge Says Southampton Trustees Must Give The Town Financial Control

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A State Supreme Court justice has declared that the Southampton Town Trustees must be considered a division of overall town government, rather than a separate entity, and that their budget and spending activities thus should be under the purview of the Town Board and town comptroller.

Justice Peter H. Mayer also said that the Board of Trustees may have been acting improperly, and possibly illegally, in keeping separate bank accounts and balances of public money, and spending it solely on the board’s authority—something the board has been doing for years, though the lawsuit in question focuses only on 2005 and after.

The ruling even seems to indicate that some members of the Trustees, current and former, could be held personally liable for reimbursement of public funds spent on improper expenditures.

Justice Mayer’s ruling, issued last Thursday, January 23, includes an injunction that forbids the Board of Trustees from holding its own bank accounts and authorizing expenditures without Town Board approval. The ruling requires that the plaintiffs—four residents of the Village of West Hampton Dunes who brought the lawsuit challenging the Trustees’ financial independence—post a bond of $140,000 to indemnify the Trustees against financial losses should the ruling ultimately be overturned. The injunction would not be enacted until it has been filed by the plaintiffs and signed by the judge, a process likely to take two to three weeks.

In the meantime, members of the Trustees have said they will appeal the ruling.

“I’m not worried about it at all,” Trustee Eric Shultz said the day the decision was released. “Appeals are granted automatically to government agencies. We’ve been successful many times in these lawsuits, and we expect we will be on this one, too, in the end.” An appeal would, typically, stay the ruling and block the imposition of the injunction.

The plaintiffs in the lawsuit claim that the Trustees improperly spent more than $1.5 million between 2005 and 2010 on purchases and contracts made without following state bidding guidelines, on gifts to nonprofit organizations, and on lawyers’ fees—most of which went to fighting lawsuits against West Hampton Dunes and its residents.

The Trustees have said the suit brought against them by the four residents, including the wife of the tiny village’s mayor, Gary Vegliante, was an attempt to cut off funding to their legal counsel on the various cases. For seven years, the Trustees have been embroiled in a suit against the village, Mayor Vegliante, and his wife, Claire, challenging their claim to ownership of 2 acres of land jutting out into Moriches Bay.

Judge Mayer’s ruling was unequivocal that the Trustees do not have and should never have had the power to create their own bank accounts and keep funds in accounts not overseen by the town comptroller,

“Town law … which specifically refers to the Trustees, dispels any notions of the financial independence of the Trustees from the town and Town Board,” the judge wrote, referring to the state’s statutes governing all incorporated townships. “It expressly indicates that the monies coming into the Trustees’ hands constitute town finances, meaning that said funds are to be credited to the town, over which the Town Board has general management and control.”

The judge seems to indicate that the Trustees are not beholden to the Town Board for permission for every decision they make about individual expenditures or contracts that have a financial expense, but that the Town Board must sign off on their appropriations in a broad sense.

“The Trustees … may, like the town supervisor, deposit and secure in their name monies coming into their hands, but the depository accounts must be town accounts,” the judge wrote. “The aforementioned reading of the town law does not eradicate the independent existence of the Trustees and Town Board, nor impinge on the Trustees’ ability to contract without prior authorization from the Town Board.”

The judge did not rule on whether any of the expenditures at issue in the plaintiffs’ complaint were actually improper, or whether the Trustees themselves had willingly and knowingly acted illegally, leaving those questions to be decided at a future date if there is a trial in the case.

Among the expenditures the plaintiffs pointed to were contributions to a number of environmentally minded nonprofit organizations. Mr. Shultz, the Trustees’ board president, said that the contributions were to groups with whom the Trustees were directly involved in shellfish or seagrass restoration efforts or water quality improvement projects and experiments.

As the longest-seated elected board in the nation, having been continuously in existence since the 1680s, the Southampton Town Trustees have long seen themselves as an autonomous entity, by virtue of the colonial-era decrees that first gave them their authority, and only partially tied in an official sense to the Town Board that took over most operations of the town three centuries later.

The Trustees rely on the Town Board’s budgeting and taxing authority to appropriate an annual budget for their operations, including salaries for bay constables, secretaries and maintenance staff.

The Trustees also collect a variety of fees for services under their control, like permits for docks and moorings on commonly held bay bottoms, and have typically controlled those funds independently from the operating funds. In the last two years, the amount the Trustees took into their non-operational accounts leapt substantially from the sale of sand mined out of flood plains in Mecox Bay and Sagg Pond. The Trustees made more than $1 million from the sale of sand for rebuilding dunes last year alone, in the wake of Superstorm Sandy.

The Trustees have claimed those funds were available for their discretionary control, acknowledging that they need robust reserves for numerous legal battles.

In defense of their current accounting practices, attorneys for the Trustees pointed to the stipulations of a legal bout between the Trustees and town, in which a judge laid out guidelines for the Trustees’ financial relationship with the Town Board. Those stipulations declared that the Trustees would have a fiduciary account created by the town over which they would have sole discretion for appropriations. All revenues they collected were to be in that fund as well.

“We think the 1994 judgment is preclusive on virtually all of the claims the plaintiffs make in this case,” Richard Cahn, the Trustees’ attorney in the case, said. “We have acknowledged that any charge made by the Trustees is subject to challenge by a taxpayer, and if the judge feels some of the expenses the Trustees made were improper, fine, OK, we’re happy to defend those.”

Nonetheless, prior to last year, the Trustees had been maintaining as many as eight separate accounts, each designated for revenues from different sources and earmarked for specific spending. The state comptroller’s office audited the Trustees last year and recommended that their eight separate bank accounts be consolidated. Following the audit, the Trustees consolidated their accounts as recommended, but they have maintained that the revenues they take in from selling sand are separate from the operational funding—a point that led to public jousting with Supervisor Anna Throne-Holst during the drafting of each of her last two town budgets.

Ms. Throne-Holst said the suit that led to the recent decision was actually what had called her office’s attention to the disconnect between the Trustees’ spending and the town’s understanding of how the Trustees’ budgets should be funded. She, too, pointed to the 1994 court settlement. “That said, the Trustee funds were supposed to support their budget, and any additional is what the Town Board would contribute,” Ms. Throne-Holst said. “The Trustees’ revenues should be the primary source, and they should go to the Town Board if they need more. The way it has worked has been the opposite. Gary Vegliante started looking into their coffers and how they were spending it, and that’s when I said we need to start looking at this.”

Mr. Vegliante, who has been the West Hampton Dunes mayor since the village’s creation 20 years ago, crowed about the decision and said that the Trustees appealing it would be a continuation of years of wasted money. “They’ve spent millions of dollars … and they haven’t won a thing,” he said. “… They’re making some up-island lawyer rich and haven’t gotten anything for it.”

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