- Assemblyman Fred Thiele
and Senator Ken LaValle
introduced legislation on Friday that would allow the Town of East Hampton to issue serial bonds and borrow up to $15 million to pay off its deficit, estimated at $10 million as of the end of 2007, a number that could rise as the result of a potential shortfall from the current fiscal year.
"It's very short and sweet," Councilman Pete Hammerle said of the legislation, adding that borrowing the money is the "least painful way for taxpayers" to pay for an estimated $10 million deficit.
Councilman Pete Hammerle, together with Prince, asked Thiele to introduce
the legislation, saying it will allow the town to start with a clean slate in 2009.
Supervisor William McGintee expressed serious reservations about the plan, calling it a "quick fix," adding, "Councilman Hammerle is way in front of himself, and doesn't even understand the ramifications that come with deficit financing."
If passed, the legislation will allow the town to begin the process of preparing for a bond sale, first by getting certification from the state comptroller's office as to the actual amount of the deficit. The bonds would be issued by December 31, 2009, and would allow the town to pay off the debt over a multi-year period. Hammerle estimated taxes would rise by approximately four percent in the township, "depending on the interest rates we get on the bond when we go out for a bond sale."
Under the conditions of the loan, the town would undergo "strict scrutiny" by the state comptroller's office, according to Thiele, and would be required to submit all financial statements, including budgets, for review by the state while paying off the bond. The town would also be required to notify the comptroller's office about any borrowing.
"It's an unfortunate situation, but deficit financing allows you to pay it off over a period of years so you don't end up with tax shock to the local resident," Thiele explained. Even if the town board decides not move forward right away with the loan it will serve as "another tool that they have in tool box to deal with deficit," he added.
Councilwomen Julia Prince and Pat Mansir have signaled their support for the plan, and Hammerle said Councilman Brad Loewen is also backing the plan. Using the state bonds to pay off the deficit will have a "less severe impact" on the tax base than by simply raising taxes, Prince suggested. "I think that this is the kindest way to go to straighten this out over a long period of time so it doesn't hit so hard on the backs of taxpayers," Mansir agreed.
Councilwoman Julia Prince said the bond sale would have a
"less severe impact" on the taxpayers.
Theile first notified McGintee of the possibility of using a loan to pay of the deficit two weeks ago. "I alerted him to the fact that if he wanted this option, time was of the essence," the assemblyman explained. Hammerle and Prince reportedly approached Thiele last week, asking him to move forward with the legislation before the end of the current legislative session, scheduled to come to a close by June 23. Despite the tight deadline
, "I'm still optimistic that we can get legislation passed for them," Thiele indicated.
Disagreements over how to solve the deficit issues have deepened the split between the supervisor and fellow members of the town board, reverberating on the heels of a request by the four board members that Supervisor McGintee replace Budget Officer Ted Hults, a request the supervisor rejected. Sending additional shockwaves through town hall, the surprise resignation of Town Attorney Laura Molinari on Tuesday was followed by Councilwoman Mansir's call for McGintee to resign.
Looking to avert future attacks from his fellow board members, McGintee said in an interview Thursday, " this board worries about the politics as opposed to running this as a business."
Home Rule Request
Hammerle said he will address the need for a home rule request to signal the town's support for the state legislation at Tuesday's brown bag session. Although McGintee has indicated he would support a home rule request in support of the legislation, he also indicated he would not support an immediate sale of bonds. "There's no rush," he contended. "We can get the potential in place, but not grab the bonds right away."
After discussion with the town's financial consultants, the supervisor remains in favor of paying off the deficit over a number of years through raising taxes and increasing fees and revenue collection. There is a "large untapped tax potential in the town," McGintee said. "This is a very wealthy town, and our tax rate is very low. We haven't even tipped the scales in terms of the income we bring in."
Borrowing funds would prove restrictive to the town and would still require a tax increase, McGintee charges. "If you're in a $10 million hole or if you borrow $10 million to break yourself even, you need to a four percent increase to pay for borrowing," he cautioned.
However, Hammerle said by borrowing the money to cover the deficit, the town would start off with a clean slate for the next fiscal year. "As long as 2009 budget breaks even or produces a surplus we should be fine," he noted.
"When you look around and you look at our tax base, we are in good shape. We just need to get it together," Councilwoman Prince concurred.
The town board recently collected $750,000 in budget cuts in an effort to lower the deficit, and, according to McGintee, an estimated $3.9 million deficit in the Highway Capital Fund has turned out to actually be a $900,000 shortfall. After reviewing the accounts with auditors from Albrecht, Viggiano, and Zureck, the firm currently examining the town's finances, on Thursday, McGintee said that $3 million of the money, which had been bonded out to pay for special projects, had been posted to other accounts, creating "a deficit that doesn't exist."