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Apr 8, 2009 12:37 PMPublication: The Southampton Press

Capital budget discrepancy not yet resolved

Apr 8, 2009 12:37 PM

The potential deficit in Southampton Town’s capital budget grew last week, as town officials uncovered evidence that $1 million earmarked in the general fund for capital projects in 2004 was never transferred, just as another $4.9 million was never moved in 2005 and 2006.

“How can that be human error?” Town Supervisor Linda Kabot said of the newest revelation, referring to the reason former Town Comptroller Charlene Kagel provided when town officials learned last month about the funds not being moved for the 2005 and 2006 projects.

Town financial officials working on reconciling the capital budget unearthed the 2004 error last week, according to Ms. Kabot, who said that Ms. Kagel—who had informed the town of the 2005 and 2006 accounting blunders—has been advised by legal counsel to cease communicating with town officials.

The former comptroller, who had commented previously on the ongoing controversy, said legal counsel had also advised her to stop speaking to the press.

The failure to move the funds in 2004, 2005 and 2006, Ms. Kabot said, will have a significant impact on the 2010 budget—tax hikes, spending cuts and layoffs are all possible. Because the transfers were never made, the general fund balance in those years was artificially inflated, and the money that had been earmarked for capital projects was used by former Town Supervisor Patrick Heaney’s administration to offset other spending, and to keep the tax rate low.

In 2009, Ms. Kabot raised the tax rate by 5 percent, the maximum allowed under the town’s tax cap law. In the three previous years, Mr. Heaney avoided tax hikes, using general fund surplus to do so.

Further compounding the tax implications, Ms. Kabot said, is the fact that no capital bonds were issued in 2005, and in 2006 and 2007 the town held off on bond issuances until much later. Holding back on the bonds meant the town didn’t have to worry about paying the interest that would have started to accrue had those bonds been issued.

“This only deferred the impacts to the property tax rate,” Ms. Kabot said, “despite incurring substantial costs on major capital improvements.”

As an example, Ms. Kabot cited $2 million worth of improvements to the North Sea Community Park, which were completed in 2004. While funds from the capital budget were used for the work, no bond was ever issued to cover the costs. It must be issued this year to replace the funds taken out of the capital fund for the project.

While Ms. Kabot said it’s common practice to hold off on issuing bonds and acknowledged she’s done the same since becoming supervisor, she suggested that there is no reason to hold off for more than a year.

“The bonding was not consistent during those years,” Ms. Kabot said. “And that was due to human effort, not human error. Bonding was purposely forestalled.”

As the supervisor explained, the money to pay for capital projects was all combined in a single fund; when a project was completed, the town would issue the bond for an equal amount to replenish it. That is one reason why reconciling the capital budget discrepancy—at various times reported to be anywhere from $19 million to $250,000—is problematic, Ms. Kabot said, explaining that town officials are trying to separate each project.

Starting with 2009 capital projects, however, each project will have its own account, according to Town Management Services Administrator Richard Blowes.

In the meantime, the first quarter has come and gone, and the town’s multimillion-dollar capital budget discrepancy has not yet been resolved, though Ms. Kabot said town officials are zeroing in.

On Friday, Mr. Blowes presented a 30-page report to the Town Board focusing on the capital projects from 2003 to 2008. Ms. Kabot said the report does not resolve the town’s capital budget problems. “It’s an analytical tool,” she said of the report, “one that will help us formulate a final corrective plan.”

In his report, Mr. Blowes itemizes the expenses paid and revenue attributed—including bond proceeds, completed inter-fund transfers for direct appropriations, grants, state aid and other funding sources—for each capital project from 2003 to 2008. Those years have been reconciled, Mr. Blowes said, explaining that his report shows what actually occurred with the capital budget, while Deputy Supervisor Bill Jones presented a report showing what should have happened.

“I reconciled the projects to the capital ledger,” Mr. Blowes said. “What we need to do now is tie that into the actual budget.”

In other words, Mr. Blowes’s report reveals what the Town Board approved, but that doesn’t necessarily match up with the actual subsequent transactions. As Mr. Blowes explained: “If you had a year lease agreement to receive a certain amount of rent, Bill’s report would show what you should have received in rent, whereas my report shows what you actually received.” By linking the two reports, Mr. Blowes said, the town will know how much it is over or under for each project.

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Remember Linda, YOU were on the Board for all of this...why did you not ask the right questions then?
By SHNative (554), Southampton on Apr 8, 09 11:27 PM
We can't blame Linda for mistakes in 2004, 2005, and 2006. She was just a puppet attending meetings. Her own addmission is that she had no idea what was going on.
By Lefty46 (56), Westhampton on Apr 9, 09 7:44 AM
Whether you love George W. Bush or hate him, the fact is that he wound up being political poison. Right or wrong, this may be what's happening to Linda Kabot because of this mess. As Yogi Berra once said, "It's deja vu all over again".
By Turkey Bridge (1979), Quiogue on Apr 11, 09 11:45 PM