Dan's Papers - June 20, 2008 - EH Deficit Rises, McGintee Points To The Past

The East Hampton Town government has been facing increasing accusations and questions surrounding its spending and possible improper use of funding, as facts concerning the depth of the town's budget woes continue to surface with startling regularity.

East Hampton Town Supervisor Bill McGintee has found himself in the cross-hairs of many media outlets, as it seems more and more likely that actions under his watch may be directly responsible for the complete dissolution of a budgetary surplus that once stood at $12.3 million, and severely damaged the town's once-perfect credit rating.

However, a recent public admission by Assemblyman Fred W. Thiele, Jr. (R, I, C - Sag Harbor) has brought the furor to a fevered pitch. According to Thiele, he received a call on May 30 from a chief deputy in the State Comptroller's office, whose audit puts the town deficit in excess of $14 million.

That assessment has since been refuted by the Town Supervisor, who stated publicly that according to the town's independent auditors, the deficit stands at $8.2 million. In addition, he reports that a town financial advisor has demonstrated to him that the current debt - at the total he has claimed - could be repaired through tax increases and smart budgeting. McGintee has proposed town-wide cuts, improved focus on employee benefit spending and the size of the town government, and eventually taking the correct steps to maintain suitable levels of spending. He has announced plans for immediate fixes, including freezing funds set aside for professional travel (to meetings and/or conferences) and training, as well as for such amenities as office equipment and furniture. Other short-term plans include changes in town vehicle use and monthly budget reviews within the various departments.

Finally, on Monday, McGintee's office issued a press release pointing at former administration's poor accounting practices as the problem for, at least, the $3.9 million discrepancy. The release stated that, working with the town's independent auditors, the supervisor's office identified the source of the $3.9 million discrepancy to be the highway capital fund. The release referred back to the Lester administration 10 years ago, when "monies were budgeted for highway capital projects." It said that these funds "tripled to $3.9 million" during the Schneiderman administration. The problem, says the release, was that "the budget office did not make the correct posting to the various funds." It went on to admonish the former administrations for ignoring "accepted accounting practices in keeping track of transfers," but later conceded, "The Supervisor and budget office have been aware of poor accounting practices as reported by the town's auditors in the 2003 audit and have been working to correct these deficiencies."

Regardless of this recent defense by the office, there has been a rising sentiment that the town's budget problems may still be increasing, and possibly out of the Town Supervisor's control. Hoping to shed some light on the situation, Dan's Papers spoke with Assemblyman Thiele last week, prior to the release:

According to the press, you received a call from a chief deputy in the State Comptroller's office, concerning their full audit of the town. Is it common practice for the state to conduct such audits?

It is my understanding that the East Hampton audit was the result of a request that came from within the town itself. Such requests and such audits are not unusual. It the job of the State Comptroller to periodically audit municipalities.

The general understanding is that you received word that East Hampton has a serious financial problem, that the current deficit is higher than the sum reported by the town's independent auditors ($8.2 million after an expected repayment from the East Hampton Housing Authority). What was the deficit sum reported to you?

I was informed by the State Comptroller that the projected deficit for East Hampton is in excess of $14 million.

Town Supervisor Bill McGintee has refuted the number quoted by the State Comptroller's office. Do you have any ideas on why the state audit and the local independent audit could arrive at different conclusions?

I really don't. I will say that the State Comptroller has an impeccable record in this regard, and I have no reason to doubt his projections.

McGintee has stated that the deficit can be repaired through tax increases and careful budgeting. Would you agree that is enough?

This is clearly a local decision as to how to close this deficit. Senator LaValle and I certainly are available to assist the Town in any way they wish. I have been contacted by [East Hampton Town] Councilman [Pete] Hammerle and [East Hampton Town] Councilwoman [Julia] Prince about the option of special state legislation to bond the deficit in order to spread its repayment over a period of up to 10 years. Such legislation is passed in Albany from time to time for distressed local governments. It also requires that the town submit to fiscal oversight by the State Comptroller during the period of bonding.

It's already public knowledge that the town's credit rating has dropped significantly. What, if any, would be the next negative repercussions to follow for the town if the deficit situation is not improved?

The town could be subjected to further rating reductions, which will increase borrowing costs. If there is a failure to address the deficit, the town could become subject to the same sort of state oversight that Nassau County was subjected to several years ago.

Do you feel that the number reported to you by the State Comptroller's office is in danger of actually rising? Could the deficit potentially rise further?

I have confidence in the number reported by the State Comptroller. Of course, new information or changed future circumstances could change the number. Hopefully, there will be no more surprises.

[Editor's note: According to the release from the McGintee office, "The State's auditors are continuing their review of the Town's financial records from 2001 through 2007 and will not conclude their review until the end of August." -S.G.]