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Apr 15, 2009 1:34 PMPublication: The Southampton Press

Southampton Town must issue $16 million in bonds this year

Apr 15, 2009 1:34 PM

The Southampton Town Board this year will issue some $10 million in bonds that had been approved to fund capital projects in 2005, 2006 and 2007, because the borrowing was deferred by the prior administration during those years, according to Town Supervisor Linda Kabot.

On top of that, the town must issue bonds to borrow another $6 million to cover the cost of current projects that are completed or nearing completion. That number could climb pending an analysis of the status of those 2008 projects, Ms. Kabot said, as that review may reveal that more projects are wrapped up and, therefore, in need of funding.

Although the town must float $10 million in bonds for the 2005, 2006 and 2007 projects, it’s not because those projects haven’t been paid for—they have. The money to fund capital projects was mingled in a single account, and town officials would draw funds from that collective account when they needed to pay for a project. When the capital account was low, another previously approved bond would be issued to replenish it.

The problem with this practice, however, is that money allocated for one project may end up actually funding another project, which makes keeping track of the capital budget more difficult. That is the difficulty town officials currently face as they sort through the books to determine the depth of a capital budget deficit that is currently estimated to be as high as nearly $6 million.

“Trying to trace that money back, the outflows and the inflows, is very difficult,” Deputy Supervisor Bill Jones said, adding that one way to better keep tabs on the capital budget is to have 
separate bank accounts for each project, which is what town officials are doing now. “New money is going 
into fresh accounts, starting with a zero balance,” Mr. Jones said. “That way we’ll know exactly what the borrowing is for. The controls will be much tighter.”

With all project funding mingled in a single capital account, the entire account was never emptied because of the nature of such projects, which are completed at various times. As Mr. Jones explained, it often makes sense to use available dollars in the capital account and then only borrow when necessary, or when the terms for a bond issue are favorable. When a bond is floated, the interest on that bond begins to accrue, and repayment begins, which, in turn, increases the town’s expenses for debt service. Ultimately, that impacts spending, and thus the property tax rate that pays for it.

Ms. Kabot said that’s the key to understanding the situation the town now faces because no bonds were issued in 2005, and issued late in the years of 2006 and 2007. While $11 million in bonds was borrowed in February 2006, that was to cover the cost of old projects that had finished, not to fund new ones, she said. “This only deferred the impacts on the tax rate,” she added, charging, “Forestalling bonding to keep the tax rate low was done purposefully.”

According to former Supervisor Patrick Heaney, whatever decisions the town made on the issuances of bonds for those years was based upon the professional market timing advice of Munistat Services Inc., the town’s bond counsel.

Once the Town Board authorizes a bond for a given project, when that bond is actually issued is usually a decision made by the town comptroller, according to Mr. Jones. Ms. Kabot said the supervisor gives direction to the comptroller on bond issuances.

Delaying the issuance of bonds, Ms. Kabot said, became common fiscal practice at Town Hall after 2002. “We’re all guilty of it,” Ms. Kabot said. “It delays the tax rate—but it’s risky.”

But whatever the tax implications from delaying the issuances of bonds, it did not keep any capital projects from being completed, according to Mr. Jones. “We’ve had available funds in the capital account to take us to the next borrowing,” he said.

Since problems in the town’s capital budget first came to light in January, the Town Board has decided to hold off on authorizing any new capital projects that are not essential for public safety. As the town works to reconcile the discrepancy in the capital budget—which has been reported to be anywhere from $250,000 to $19 million, although the current estimate is closer to $6 million—the Town Board will take a second look at old authorizations before any new bonds are issued.

Old projects that have received the go-ahead by the Town Board may be abandoned if work on those projects has not yet begun. Ms. Kabot said it was too early to determine what projects, if any, could be scrapped. But among the projects that could be postponed indefinitely, unless alternative funding is found, is a planned $20 million pool and recreation facility, the Southampton Aquatic Recreation Center, in Westhampton.

But what’s most troubling to Ms. Kabot is the fact that some $6 million in general fund surpluses earmarked to pay for capital projects for 2004, 2005 and 2006 was not moved into the capital account. “The bonding is not as much of a problem,” Ms. Kabot said. “So long as the Town Board authorized the bonds then we can issue them. It’s not a crisis.”

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Linda's rationalizations and blame games are getting very stale. When will she show some leadership qualities?
By Hampton (50), Westhampton on Apr 15, 09 2:34 PM
Good job Linda-looks like progress is being made. As far as the $16 million dollar number-it could have been worst.
By eastquogueguy (22), East Quogue on Apr 15, 09 2:49 PM
Kabot was on the Town Board and voted for all of the budgets but is now "shocked" about the financial slight of hand. Maybe if she did her job and did not just rubber stamp a budget offered by fellow Republicans, the Town would not be in this mess. Did she read the budgets and understand them, or just nod her head yes like a puppet?

Want to fix the problem? No more town cars, phones, pensions and health insurance for Town Board members and their cronies inside Town Hall. That should ...more
By CommonSense (71), Southampton on Apr 15, 09 3:37 PM
Anyone in town hall hear of a chart of accounts, cost/revenue centers, commingling accounts? This i s bizarre. Would an individual tax payer put his wage income in schedule D? No. Come on, this is basic accounting.
By number19 (111), Westhampton on Apr 15, 09 4:20 PM
“We’re all guilty of it." Who is "we"? The buck stops with you, Ms. Kabot
By peoplefirst (787), Southampton on Apr 15, 09 4:38 PM
A pool? That's the last thing this town can afford, unless Linda has new and more original ideas of how to hid money so the next administration can pay.
By Lefty46 (56), Westhampton on Apr 15, 09 4:48 PM
Why should the former administration raise taxes? According to Linda “That’s when you should go to the taxpayers—when times are good and they can absorb it,” That is crazy. If they raised taxes for no reason, the Town would have spent that money too. We would still be in the same sinking boat with Linda at the helm.
By Mom of 2 (12), flanders on Apr 15, 09 8:03 PM
Number19 has it right - cost centers - basic accounting - simple stuff - no co-mingling.
I think Linda is addressing the situation - a lot of smoke and mirrors in the past administration - shame on them - they never should have resorted to this for a political gain by robbing Peter to pay Paul.
By North of Highway (280), Westhampton Beach on Apr 15, 09 9:43 PM
Thank you Skip Heaney for a fine job. Three years of fudging the figures.
Thank you Linda for following him over the cliff. And we keep voting them into office. What is wrong with us?
By Bob Whyte (48), Hampton Bays on Apr 16, 09 7:36 AM
Just a little foresight . I am hearing ugly rumblings from neighbors that are not pleased with the fact that houses similar to theirs are now being offered substantially below assessed valuation.Question? What will this Township do when their voices unite and demand a downward reassessment of property taxes.
By Father of 4 (4), Hampton Bays on Apr 16, 09 11:04 AM
The Town has made some serious mistakes by overdeveloping CR 39... look for the upcoming Peconic environmental crisis and threat to resort status. Mark my words -- we shall pay dearly. Money is one thing, health is another.
By deKooning (106), southampton on Apr 16, 09 11:19 AM
Father of 4 - tick...tick...tick....you're right
A time bomb of owner/voter anger getting ready to blow.
A disaster in the making
solution - a leaner and meaner government - somehow contain costs while providing services - a challenge to be sure that requires real managers with real skills and non-political considerations.
By North of Highway (280), Westhampton Beach on Apr 16, 09 12:39 PM
Let's see...who was on the board of the last administration? Oh...it was Nancy, Chris, and Linda. They could have done something about this mess years ago. They had a majority then and still have a majority now; it took new people on the Town Board to ask the right questions. We must now press the question, "Why didn't these board members do something when this was happening?”
By SHNative (554), Southampton on Apr 17, 09 7:03 PM
Our taxes in general with the exception of different school district funding requirements are very low when compared to surrounding towns. Just look at Riverhead & Southold they are 2-3x what your paying. I sort of agree with Kabot that during good times the taxe increases could have been absorbed better. But what seems to be comng out of this is that the governemtn has not been run like a business or by business people. If it were this would have been found out and handled a long time ago. The ...more
By North Sea Citizen (568), North Sea on Apr 18, 09 7:16 AM
Had the projects been properly bonded at the time, the operating budget should have been reduced to reflect the $10 in excess funds used improperly for capital projects. Also, with the current financial crisis in the debt market, we'll pay more over the life of the 30 year bonds for higher interest. Thanks Heany and Kabot.
Who is Ministat Services? Sounds like a "connected" firm that offered bad advice. Southampton Press-why not dig into this "consultant?"
And $20 million for another ...more
By sansouci (9), Southampton on Apr 19, 09 4:39 PM