Kabot Paints Gloomy Picture Of Economic Distress In State-Of-The Town Address

By Kelly Carroll

Town Supervisor Linda Kabot gave her financial State-of-the-Town address Tuesday, June 30 at Town Hall. Photos by Kelly Carroll

Southampton - Taking the podium for her financial State-of-the-Town address Tuesday afternoon, Southampton Town Supervisor Linda Kabot reaffirmed what she has been saying for the past several months: the financial well-being of the town is not healthy and needs special attention. With looming deficits and unexpected I.O.U.'s, she asserted, the town of Southampton is currently under "severe financial distress."

"The economic downturn requires that the Town Board take action to cut government spending but be ever mindful of the strain on taxpayers, which are also faced with difficult choices and [a] need to tighten the belt," Kabot asserted. "It is essential that we get our financial house in order."

Town Councilwoman Anna Throne-Holst said she is frustrated that corrective action plans aren't being based on actual numbers.

This distress, the supervisor said in her address, is due to several factors, the first being inter-fund borrowing across taxing districts. According to Kabot, general municipal law requires that these loans be repaid within the year, with interest, yet they have not been repaid for some time. The supervisor also blamed the "unreported liability" to the Town's capital fund - transfers of surplus funds that were never completed - for creating an overstatement of the Town's fund balances, most particularly in the general fund.

The supervisor projected that the Town's capital fund is $10 million in the hole due what she referred to as a "hidden I.O.U." Of that $10 million, Kabot estimated, approximately $8.7 million will impact the general fund. The remaining general fund balance of $6 million - after $2.3 million was taken out to stabilize the tax rate for 2009 - will not be enough to make up for this deficit, and she has proposed a several-year corrective action plan to chip away at it. "The significant fiscal distress requires strategic financial management by the Town decision-makers," Kabot offered.

Adding to the distress, the supervisor said that authorized debt from 2004 to 2007 has not been issued as bonds, which is money needed to pay for capital projects that have been completed. According to Kabot, "deferring principal and interest payments allowed the opportunity to provide a 'tax holiday'" in prior years. She added that because of these unissued bonds, there is the possibility of an approximate 4.4 percent increase in the Town tax rate next year, solely for the purpose of paying the capital fund's debt. That alone is expected to raise the tax rate from $1.32 per $1,000 of assessed valuation to $1.37.

While all of these factors are significant, Kabot continued, they were met with the economic downturn affecting the entire country, creating a mortgage tax revenue shortfall this year as well as declines in other building and licensing revenues and the probable decline in the assessed value of properties throughout the township. On top of these harrowing constraints, the supervisor pointed to past practice as reason for the present financial struggles.

Earlier this year, Kabot called a press conference to discuss corrective action for the Town's capital fund.

"In prior years, this information about deficits and deficiencies was white-washed to the public, in my view, and kept close to the vest," she asserted. "There was an overreaching desire on the part of the then-supervisor to insist upon tax rate freezes each year to support the operating budget using appropriations of budgetary surplus as 'one-shot revenues' to offset the tax levy."

Kabot contends that inter-fund borrowing was used to "cover up" overspending and deficits, and that with the general fund growing in better times, spending increases were "masked." The supervisor, a former member of the Town Board, added that a "go-along-to-get-along" attitude in prior years meant that certain reforms were never achieved.

Search For A Bottom Line
Kabot's comments, however, did not go over well with at least one of the Town Board members, Councilwoman Anna Throne-Holst. In an interview Tuesday night, the councilwoman asserted that the State-of-the-Town address "sounded more like a campaign speech."

"The finger-pointing-- " Throne-Holst commented, "we haven't reached a point where we can do that yet."

Throne-Holst said she has called for a forensic audit of the Town's cash balances and added that she is frustrated that the Town's financial issues have not been boiled down to a bottom line.

"I wish we could get to a point where we are talking about actual numbers," the councilwoman asserted. "I don't think we're helping people. We're confusing people. With no numbers, there's no actual plan." Throne-Holst also said she took exception to the supervisor's claims that the financial reconciliation and budgetary processes have been transparent ones. "There's still information we don't have," she asserted.

Some Progress Being Made
Despite all the bad news, however, the supervisor did indicate that progress is being made as corrective action plans already in place have decreased deficits within the police, highway and land management funds. According to Kabot, the police fund deficit has decreased from $4.5 million to $3.5 million; and the highway fund deficit, which was $750,000, will be decreased by $100,000.

"The Hamptons will survive the ebbs and flows of the economic downturn," the supervisor concluded. "We will persevere. We have been through recessionary conditions before. We know we need to work together to pull through this perfect storm of financial turmoil and economic distress."