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Feb 29, 2012 11:25 AMPublication: The Southampton Press

Towns Say Borrowing From State Pension Fund Is Not Viable Long Term-Option

Feb 29, 2012 11:43 AM

Paying a portion of its soaring New York State pension costs over time, instead of all at once, might not be a long-term sustainable option for Southampton Town, officials said this week—even though they have done so two years in a row.

During the past two years, Southampton Town, along with East Hampton Town and many other municipalities in New York State, took advantage of a program offered by former Governor David Paterson that allowed them to finance the payment of escalating pension costs through the state’s $140 billion pension fund.

Some Southampton Town and East Hampton Town officials who opted into the plan, however, are having second thoughts, especially in light of a looming 2-percent property tax levy cap that has handcuffed local municipalities.

According to Southampton Town Comptroller Tamara Wright, $1.2 million of the town’s $6 million pension costs in 2011 and $164,000 in 2010 were offset. They will be paid back over a 10-year period at 5 percent interest. The funds that would have gone to the state were instead used to help pay for an early retirement incentive package that the town offered in an effort to reduce staff and balance the budget.

The provision was included in Supervisor Anna Throne-Holst’s 2010 budget, but she and Ms. Wright soon had second thoughts, and the supervisor unsuccessfully tried to pull it from that year’s spending plan. When the state plan was initially offered, both said its specifics were not immediately made clear and there was no option to repay the amount before the 10-year financing plan was up. That has since changed: Municipalities are now allowed to pay back the funds at any time.

When it was learned that the interest rate for the amortization was 5 percent, the supervisor felt the rate was too high and sponsored a resolution to prevent the town from participating in the state plan. The proposal divided the board along political lines, as the Republican-Conservative majority voted down the resolution and green-lighted the payment plan.

The following year, Ms. Throne-Holst said, she included it in the preliminary budget because she had been overridden the year before, but Councilwoman Bridget Fleming, a Democrat, objected to the plan and unsuccessfully tried to have it removed from the budget. Both years, Ms. Throne-Holst and Ms. Fleming were outvoted and the plan remained in the budget.

Southampton Town Councilman Chris Nuzzi, a Republican, said this week that he voted for the plan in an effort to keep taxes in check. “I thought it was a viable option because of the cost associated with the town opting into the early retirement system,” he said, noting that he and his colleagues never intended to participate in the program every year. “It was a significant cost up front. Instead of raising taxes to do it, we spread the cost out over a period of years, with the understanding that this is not going to be a yearly occurrence. … In my opinion, that would not be a healthy practice to engage in.”

Ms. Wright said New York State retirement costs spiked more than $1 million for 2011. “It was stunning,” she said. The amortization, she added, helped ease the impact of such a sharp surge. But she said that the 5 percent interest rate was “unexpectedly high,” given that the town could borrow through municipal bonds for less than 3 percent interest. She added that the supervisor and Ms. Fleming thought the amortization was a “terrible deal” for taxpayers.

“I’m not pointing fingers,” Ms. Throne-Holst said. “But it had been my hope from the beginning that we weren’t going to opt in.”

Ms. Throne-Holst added the 5 percent interest rate was a concern, as was the new financial terrain created by the 2-percent tax levy cap. The cap, Ms. Throne-Holst said, makes it harder for the town to opt out of the state’s borrowing plan.

The decision to opt in was made before the state imposed the tax levy cap, Ms. Wright said. Now, she said, the amortization could possibly send the town over the 2 percent cap, and a public hearing and resolution would be required for the town to decide to pierce the cap. “Once you’ve done this, it’s hard to get out of it,” Ms. Wright said.

The plan, said Councilman Jim Malone, a Conservative Party member, was a way to mitigate the “hefty impact” of the early retirement incentive that allowed the town to borrow from the state. “It was a one-time thing,” he said. “It’s not the answer, or a long-term solution. It was a bridge to help us get through this.”

In East Hampton, Budget Officer Len Bernard said the town offset approximately $300,000 in retirement costs in 2011 as a means of creating a cash flow to help ease a difficult transition from a financial crisis the municipality faced from 2005 to 2009. “It won’t happen again,” Mr. Bernard said, adding that the town planned to pay back the funds by the end of 2012.

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Southampton Republicans don't like fiscal sanity. After years of sloppy accounting that plunged us into deficits, after keeping an expensive and redundant department on life support, after driving out the one Comptroller who fixed some things, now they saddle us with 5% interest when we could borrow elsewhere for less than 3%. Smart, huh?

And they don't want to stop the madness, either. Exploiting the unaccountable absence of his Republican colleague, Christine Scalera, Councilman Chris ...more
By fidelis (199), westhampton beach on Mar 1, 12 5:14 AM
You just started a post with "Southampton Republicans don't like fiscal sanity". Do you actually expect us to read anything else after that? Young man, there is no single party in any government body that has a lock on fiscal insanity. Stop it.
By Toucan Sam (7), Southampton on Mar 1, 12 6:05 AM
1 member liked this comment
Governments don't survive without borrowing - which is unreal considering the amount of funds they confiscate illegally. There isn't anything left to borrow from, so their own pension fund is all that is left. Funny thing is the pension fund is borrowing money for itself, so when the hacks borrow money from the pension fund, that money was already borrowed. So as you can see, its all a bunch of nonsense and in fact, there isn't any money in reality. It is all on paper. And it is no shocker ...more
By Toucan Sam (7), Southampton on Mar 1, 12 6:10 AM
2 members liked this comment
Sounds like I heard that before,"I was for it before I was against it"and that coming from The Money Man Jim and the other book end Chris,,,
By Etians rd (543), Southampton on Mar 1, 12 10:40 AM
Mortgage backed securities weren't sustainable either.

Buy a 401k.

Oh, wait, Lloyd Blankfein owns those too...
By Mr. Z (11847), North Sea on Mar 1, 12 9:36 PM
Chasing their tail.
By Krispy (5), Southampton on Mar 2, 12 7:08 PM