Over the next five years, Southampton taxpayers will shoulder the burden of righting the town’s fiscal ship, according to Supervisor Linda Kabot, who issued a draft report on correcting the town’s finances Monday.

In the report, the overall impact of a series of fiscal blunders over several recent years—a figure that has grown steadily in the past few months—is now estimated to be more than $10 million, with $8.7 million of that involving money from the town’s general fund.

A preliminary schedule proposed by Ms. Kabot in the report shows that the town will set aside $1 million in general fund money in each of the next five years to help cover the budget deficit, which was caused when numerous transfers from the general fund to the capital fund were never completed, although the town’s books suggested they had been. Ms. Kabot said she hopes to make up the difference by abandoning some unfinished projects and finding new funding sources to cover some of the internal debt.

Meanwhile, the town has identified more than $16 million in bonds for capital projects that had been approved by the Town Board but never issued. The town will issue $10 million of that total as soon as possible, and the report estimates that the fiscal impact will be steep: a 4.4-percent tax rate increase will be required just to cover the new annual cost of repaying the bonds.

By the end of the month, the supervisor said she hopes to have a final version of the corrective action plan to submit to state officials.

Ms. Kabot said the report is still “a work in progress.” However, it is clear from the supervisor’s report that the town’s troubles stem from three issues: the failure to complete budget transfers designed to cover the cost of capital projects, inter-fund loans to cover operational expenses that were never paid back, and numerous bonds that were approved but never issued by the town.

The biggest impact is from the more than $10 million in direct appropriations from the years 2004, 2005 and 2006—cash from the General Fund earmarked to pay for certain capital projects—that was never actually transferred into the appropriate accounts. Failure to move this money, Ms. Kabot said, resulted in an inflated general fund balance, prompting the Town Board to spend more money than it actually had.

Part of the solution, Ms. Kabot said, is for the town’s auditors, Albrecht, Viggiano and Zureck, to restate the current fund balance incorporating the direct appropriation errors during those years. So far, the firm has failed to do so.

The corrective action plan, Ms. Kabot said, proposes an adjustment to the total capital budget figure based on actual spending, which will require Town Board amendments to decrease the authorized capital budgets for various projects and diversify the funding sources. In other words, town officials must determine the status of its capital projects in order to know how much money has been spent on each. Once that is done, projects may potentially be abandoned or scrapped, thus reducing the deficit.

Town officials are also conducting an analysis of alternative sources of funding, other than the general fund—such as the park reserve and drainage funds—to determine if money from those accounts may be used to pay for capital projects that the Town Board either chooses to complete or is contractually obligated to finish.

Along with the incomplete direct appropriation transfers, Ms. Kabot said “borrowing from Peter to pay Paul” in the operating budget, along with authorized but unissued bonds to pay for completed capital projects, helped put the town in a financial quagmire.

Since 2003, Ms. Kabot said money from the town’s general fund was used to cover expenses in the Police, Waste Management and Highway funds. “These loans kept property taxes artificially lower for those taxing districts,” Ms. Kabot said. As of December 31, 2007, according to the supervisor, $7.5 million in operating deficits were reported in those funds.

In February 2008, at the behest of Town Councilwoman Anna Throne-Holst, the town hired FTI consulting, based in Manhattan, to conduct a forensic audit of the Police Fund. That report is due this summer. Ms. Kabot said the Town Board is also in the process of selecting a firm, possibly FTI, to perform such an audit of the much troubled Capital Fund.

In addition to the direct appropriation and inter-fund loan concerns, the town must now issue some $10 million in previously authorized bonds to pay for capital projects the Town Board approved from 2004 through 2007. Though the bonds were approved by prior Town Boards, the actual issuance of those bonds was deferred and other money in the capital budget used to pay for those projects. By issuing the bonds now, the town will basically be replenishing the capital budget.

Ms. Kabot has publicly criticized the practice of her predecessor, former Town Supervisor Patrick Heaney, of delaying the bond issues, suggesting that it was an attempt to simply delay the fiscal impact of the projects.