Dan's Papers - May 30, 2008

The checks you see above are the checks that paid back $8 million borrowed from the real estate transfer tax (CPF) funds in East Hampton Town. The tax money, as you probably know, is collected to be exclusively used for the purchasing of open land in that town - farmland, parkland, waterfront land, etc. The idea is that when the privately owned land is bought and sold at the huge prices it commands, 2% of it goes into the fund so our public officials can purchase other open land. It's a fine idea. And it works, big time. In East Hampton last year, more than $20 million was collected for the fund.

Who borrowed $8 million from the CPF fund, you might ask? And wasn't that a bad thing to do? Well, there is an old rule that says if those in charge find out you borrowed something without telling anybody, if you immediately return it, then the idea that you borrowed it without intending to ever return it - a polite way of saying you were stealing - becomes less of a possibility.

The borrower was East Hampton Town itself, which pillaged these funds to pay anything and everything the town wanted. It was used to pay salaries, dig ditches, buy trucks, fund the court system, issue fishing licenses, whatever.

They were caught doing this by a state auditor. And so they scrambled to pay the money back. They did not go to a bank and hat-in-hand borrow the $8 million. They just took checks out of their various checkbooks and wrote a bunch of them.

So, they paid it back. So what? Well, how about this? These checks, shown above, were written and endorsed from five different East Hampton Town accounts and simply moved over to a sixth East Hampton Town account.

I thought I ought to try that. I opened my personal checking account, wrote a check for $8 million, endorsed it and put it back into another of my accounts on the same day. Works for me. I'm still exactly where I was before, except I have now paid back $8 million. Looks good.

You might say, "My God, this is an incredible subterfuge, just smoke and mirrors. Why would they think anybody would believe this?"

And the reason is that the $8 million has had added to it the notation, "CPF Fund." So it's a change in the ledger entry in the accounting books. So there. (And the transfer tax account is fine, but now the general fund for the town is in the red $8 plus million.)

This year is the tenth year that the real estate transfer tax has been in effect. When it was originally set up, it was set up as a separate account. Think of it this way - a man dies and leaves money to a college to be used only for scholarships for environmental studies. The college puts it not into their regular account, but into a special new account created to make sure the money is used for the purpose it was intended. It might also draw interest there. That's why you do that. And that is what all the other towns do.

In fact, that is what East Hampton originally did.

I spoke to Jay Schneiderman, who was the town supervisor in East Hampton just prior to our present supervisor, Bill McGintee. When he left office, that special account was intact. That is where the money to be used for land purchases went.

Sometime after Schneiderman left office to become our county legislator, it was decided the special account should be treated as if it were just another Town account. This was done after McGintee took office. It was done without the knowledge of most of the town councilmen from the Schneiderman era who remained in office. With this done, McGintee apparently felt free to use it as he wished, as if it were money that had come into the town coffers the regular way.

From this perspective, "paying back" the $8 plus million shortfall makes perfect sense. All you have to do is "think" it came out of one place, and "think" it went back into another within the same group of accounts. A bookkeeping entry.

But it still remains that they spent $8 plus million more than they took in.

This past week, McGintee announced the first of the measures he intends to take to stop the bleeding from the town and return it to a balanced budget for 2008. He is instigating a hiring freeze, and there is a new rule that whenever anybody quits their job, there will be no new person hired to replace them. He is also shutting down the town environmental department and letting those folks go. It had been the town environmental department that had been most helpful in determining what ought to be bought with the transfer money. Go figure that out.

In any case, doing these things may or may not result in a balanced budget for 2008, although the $8 plus million shortfall will remain on the books, now frozen in time, for 2007, to be dealt with by some future administration.

I should note that McGintee gets five stars from me for what he has done in spending the money he didn't have. He is a man with vision. The town is in great shape. The expansion of Town Hall - now including the historic old buildings moved there - is moving forward. No one is accusing McGintee of using the money he took from the account for his own personal purposes.

On the other hand, as the state auditors pore over the books, trying to sort out which column to put various income and expenditures in, they now are hinting that the shortfall might be more like $10 million, or maybe $11 million if you add up the total of the pillaged money from the fund during the '06 McGintee administration. They just can't be sure until they untangle everything.