Southampton - Facing multiple fund deficits that early estimates place between $15 million and $20 million, the Southampton Town Board is pressed between two desperate options – mass layoffs or repealing the five percent property tax increase cap that has protected taxpayers from significant increases since 1992.

Southampton Town Comptroller Tamara Wright confirmed the supervisor's assertion that, according to the draft budget, half of the tax increase is for deficit reduction.

Supervisor Linda Kabot's tentative budget, submitted to the town board and comptroller on September 30, increases the tax levy by five percent and also calls for the elimination of 48 positions in town hall. According to Kabot, and confirmed by Town Comptroller Tamara Wright, approximately half of the property tax increase is for deficit reduction. "We're squeezing into our tax rate limitations old expenses," the supervisor explained, outlining a plan to exempt those expenses from the tax cap.

"The operating fund deficit totaled $7.5 million at year end 2007," Kabot explained during the fifth public hearing on the subject of altering the tax cap, "In addition to those known IOUs, a new IOU came to light in 2009 for the capital fund, from failed accounting transactions that the bookkeeping department failed to complete. That is almost $11 million, over $10 million," Kabot projected, however when the full reconciliation is finished the true deficit could be closer to $5 million or $6 million.

Along with the capital and general fund deficits, the town is also dealing with shortfalls in the police and highway funds over $1 million each. An increase in the tax levy of $1 million would bring the police fund deficit to "nearly zero," according to Kabot, and $1.5 million would "render the highway fund solvent with a 10 percent fund balance." Taxing for those deficits, however, would put the 2010 tax rate increase over the five percent threshold.

The $7.5 million deficit in the general fund, which the town began financing in 2008, will be zeroed out by the end of the next fiscal year through funding included in the 2010 budget. "The errors from the past," as Kabot called them – the failure to properly record transactions within the capital fund between 2004 and 2008 – "Would be the only ones eligible to go above the cap."

While the operating deficit is included in the 2010 budget, the deficit financing for the capital fund is not. "I do not have a plan in this year's tax bill for capital fund deficit reduction," Kabot explained, "I have a plan for bringing down spending." According to the supervisor, the five percent cap restricts her from including the necessary deficit financing in the 2010 budget without even more significant cuts to expenses, namely more layoffs.

Under the proposed amendment to chapter eight of the town code, the town board would be allowed to tax above the five percent cap solely for deficit financing, "So our tax rate increase for our general needs would be below the five percent cap," Kabot asserted. While any tax increase for operating expenses would be within the five percent limits, additional taxes could still be levied for expenses connected to deficit reduction.

Councilwoman Anna Throne-Holst, the Democratic nominee for supervisor, rebuffed Kabot's attempts to change the tax-cap law without full knowledge of the affect on the taxpayer.

The legislation, which was originally adopted in 1992 after a town-wide referendum, already allows the town to increase taxes in a given fiscal year above the five percent limit in the case of a public emergency or a public referendum approving spending for a specific project. The proposed amendment would add one additional clause: "Where the Town Board has established a deficit reduction plan pursuant to Town Board resolution to repay obligations and inter-fund loans made to various operating funds during 2003, 2004, 2005, 2006, 2007 and 2008."

"The goal here is to exempt deficit reduction plan payments," Deputy Town Attorney Kathleen Murray explained, "Importantly, pursuant to this amendment, all deficit reduction plans must be voted on by the board."

"Any deficit reduction plan for the police fund or the highway fund would be adopted by the board," Kabot concurred, "This will increase the board's involvement in the paying off of deficits and puts the process on the record."

The board chose to adjourn the hearing for the fifth time while its members analyze the budget situation and try to get real figures on the deficits.

The actual numbers are still a bit fuzzy, though, which led to hesitation among Kabot's fellow board members. "We have some proposed numbers here," Councilwoman Anna Throne-Holst, who is running for supervisor on the Democratic ticket, stated, "You're hearing this 'remain to be seen.' The truth is we don't have final plans for all of it, and until we have a final plan for all of it you won't have a real idea of how this will affect your tax bill."

The board had the option of closing the hearing without adopting the amendments, keeping that measure available during budget meetings, however board members Chris Nuzzi, Sally Pope and Throne-Holst all voted to adjourn the hearing to another time.

"You're making choices to stay within your spending plan," Kabot asserted, "If you're comfortable with the $4.5 million cut in spending that I've done," the bulk of which came at the cost of town jobs, "that allows you to pay off the operating expenses."

"We haven't had a chance to offer other proposals," Throne-Holst countered, "We haven't had a chance to deliberate."

Even with the tax-cap provision, layoffs may still be necessary in the end as the town scrambles to mend the books and close the gap. If the board cannot find a way to reduce expenses and downsize the cost of government, the taxpayer's failsafe may end up by the wayside.