Southampton - "This is all political," New York State Assemblyman Fred Thiele (R-Sag Harbor) said as he headed home to Sag Harbor last week after the Assembly ended its session for the summer. He was talking about the increasingly controversial and perhaps endangered Community Preservation Fund (CPF) and its Payment In Lieu Of Taxes (PILOT) programs.

"The CPF has a big mortgage," Southampton Town Supervisor Linda Kabot has said.

The debate in Southampton Town, where the CPF fund revenues have been declining steadily since 2007, is raging as a result of a recently completed audit by the New York State Comptroller. The State Audit revealed Southampton Town officials made a $5 million error resulting in the overpayment of PILOT funds over the last three years that has left hard core preservationists fuming. Among those expressing the most anger is Thiele. "That is $5 million that should have gone to save land," the assemblyman said. "The town has mismanaged this fund."

Community activists, school administrators, taxpayers and environmentalists largely agree with the assessment that the situation is all political, but they disagree about what to do next. While they disagree, the CPF revenues continue to decline as the real estate market stagnates. The fund, originally created to preserve the community by purchasing farmland or the development rights to the land, derives its revenues by collecting a 2 percent transfer tax at the closing table each time a property is sold in the any of the five East End towns. In 2007, Southampton Town collected $54 million. This number dropped to $34 million in 2008. Town officials are now projecting an estimated $15 million in revenue by the end of the year, if the town continues to collect at least $1 million a month.

The impact of these declining revenues is highlighted by the town's nearly $1 million per month debt service created by years of borrowing against the fund's revenues.

"The CPF has a big mortgage," Southampton Town Supervisor Linda Kabot pointed out. Town officials would like to protect their credit rating and preserve their ability to go to bond to continue an aggressive land acquisition program without compromising their ability to make PILOT payments along the way as funds decline.

Thiele contends the town should reimburse the CPF fund. Kabot does not agree - advocating a forgiveness clause instead. "The school districts did not do anything wrong," Thiele said, "but the town did, and the town should pay these monies back to the CPF."

According to State Assemblyman Fred Thiele, the town of Southampton has mismanaged their CPF fund.

"If we do that," Kabot countered, "we are placing the burden on all of the town's taxpayers."

PILOT payments are made to only three school districts in Southampton and include the Riverhead-Flanders School District and the Eastport-South Manor District in addition to Hampton Bays. These three districts qualify for payments in lieu of taxes based on a need index established by the New York State Department of Education. The town also makes PILOT payments to qualifying fire and ambulance districts.

The Town is still debating the 2007 law drafted by Thiele and sponsored by New York State Senator Ken LaValle (R-Port Jefferson) which was passed by the State Legislature but was not subject to a town-wide permissive referendum. The legislation took town officials by surprise and made it possible for the Hampton Bays School District to receive its first PILOT payment of $1.5 million.

In addition to setting off a debate concerning the referendum issue, the 2007 law resulted in an on-going debate yet to be resolved concerning the method of calculation used to make payments.

Town officials hope to make an estimated $2 million in PILOT payments to eligible districts in 2010. The PILOTS will result in a slightly reduced tax bill to district residents. The payments are made annually at the discretion of the Town and may range anywhere from zero to 10 percent of the previous year's CPF total, a policy that critics charge is now becoming less than sensible as revenues decline.

Opponents of the PILOT program liken the payments to the concept of putting a band-aid on a massive wound, noting the $1.5 million payment made to Hampton Bays barely makes a dent in the district's $42 million annual operating budget. Others point to the need to revisit the state aid to education formula. Purists hark back to the original purpose of the fund.

Thiele, largely credited with drafting the original CPF laws a decade ago, has been a major supporter of PILOT programs. The assemblyman has also been the "go to guy" or "guru" whenever town officials struggled with issues concerning the funds management. He explained his recent absence at many Town Board work sessions where his input may have been valuable to a busy schedule and prior commitments. "My feelings about the CPF and the PILOTS and the situation in Southampton are well known," Thiele said. "Everyone knows what I think and they know where they can find me."

The CPF program celebrated it's 10th Anniversary in 2008.

"I think the whole tax loss/tax levy debate is much ado about nothing," Thiele said last week.

Calculation Debate
Those at Town Hall charged with administering the fund disagree. A tax loss basis includes all tax-exempt government owned land while a tax levy basis would limit the calculation to land that has been taken off the tax rolls for preservation purposes only, a logic that is supported by the fact that government acquisition of land to preserve open face and protect the character of the community inherently reduces the tax base. In Hampton Bays this is particularly acute where large stretches of ocean beaches have been turned into park lands. The absence of a string of multi-million dollar homes on these dunes speaks volumes about a that community's tax base when compared to other parts of Southampton. "An ocean front home represents alot of property tax," Larry Luce, business manager of the Hampton Bays School District commented.

The town cannot officially make this change without enabling state legislation introduced by Thiele. That legislation has yet not made its way out of committee and onto the House floor.

Meanwhile, town officials are going over their tax rolls under the watchful eye of the New York State Comptroller. Last year, Thiele planned a party to celebrate the CPF fund's 10th anniversary. This year, no one is in a party mood.