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Jul 22, 2009 1:54 PMPublication: The Southampton Press

PILOTs are facing more turbulence

Jul 22, 2009 1:54 PM

Southampton Town officials are now considering a proposed corrective plan that could start the process of recovering some $6.7 million of overpayments the town made in the form of tax relief subsidies since 2003.

The proposal, if approved, would reduce future payments in lieu of taxes, or PILOTs, that are received by school and fire districts in western Southampton Town. Those eligible districts, which include the Riverhead and Hampton Bays school districts, receive the annual payments to help offset the loss of revenue created when land is preserved and removed from the tax rolls.

A recent audit conducted by the New York State comptroller’s office of the town’s Community Preservation Fund, a portion of which can be allocated for PILOTs, revealed that the town had used inaccurate assessments and ineligible properties to calculate the payments. The comptroller’s office, which examined the fund from April 1999 through March 2008, now wants Southampton Town to pay back overpayments it made to the fund.

As a result, the town officials are now scrambling to reimburse the CPF without harming the school and fire districts that are receiving the payments—a balance that is proving difficult to strike.

Southampton Town Attorney Dan Adams reviewed the working draft of the corrective action plan for recovering those funds for the Town Board on Friday, which reduces future payments to compensate for past excesses the districts received.

For example, in 2007, the Riverhead School District received an extra $2 million in PILOTs because the town incorporated the district’s entire tax levy, which extends beyond the town’s borders, instead of the portion of the district confined within Southampton Town. The tax levy for the entire district was $76.1 million, whereas the tax levy for the town’s share of the district was only $12.8 million.

Evaluating the district in total resulted in the inflated payment, the audit revealed. Under the recovery plan discussed Friday, the town would reduce PILOT allocations to the district by $500,000 in each of four years, or $250,000 each year for eight years, to make up for the $2 million overpayment in 2007.

But, according to New York State Assemblyman Fred W. Thiele Jr., such a strategy is nothing more than an “installment plan” and does not “hold the districts harmless,” which was one of the tenets of the comptroller’s recommendations to the town for recovering the overpayments.

And while Mr. Thiele said the comptroller is allowing the town and State Legislature to work out the PILOT controversy, the assemblyman said there would be no agreement unless the districts were forgiven for the overpayments. As Mr. Thiele has continually argued, the excess payments resulted from mismanagement by the town and not the districts and, therefore, the districts should not be penalized for the town’s errors.

“It has certainly been my position that this is not the fault of the districts, and they shouldn’t have to pay it back,” Mr. Thiele said.

Another factor that boosted the payments was a $44 million error in Southampton Town’s assessment of a 155-acre property on Dune Road in Hampton Bays. That property, most of which is wetlands that stretch all the way to Shinnecock Bay and cannot be developed, was assessed at $47.6 million when its actual value was less than $3 million, according to Mr. Thiele.

Other options to pay back the CPF, besides reducing future PILOTs, include tapping into the general fund or floating a bond. Neither option is plausible right now considering the state of the town’s finances.

Kevin McDonald, director of public lands for The Nature Conservancy and one of the principal players in pushing the original CPF legislation through Albany in 1998, said town officials have used “budgetary and political gymnastics” to arrive at the calculations that added up to the inflated payments.

“There was a lot of manufacturing to produce a certain number,” Mr. McDonald said. “How do we make the biggest PILOT payment possible and still pass the smell and laugh test?

“Look behind what actually happened,” he continued. “Instead of using eligible properties within the town, they used the whole district and went outside of the town because they wanted a bigger number.”

Mr. McDonald added that PILOT discussions at the town level are often confusing, and purposely so.

“Calculating PILOTs is not ambiguous,” Mr. McDonald said. “There are two limitations on the fund. You can’t exceed the tax liability of the eligible lands within the town and the PILOTs can’t exceed more than 10 percent of the fund in any one year.”

This is why, Mr. McDonald argues, Town Supervisor Linda Kabot’s proposal to create a PILOT reserve fund is flawed. The idea behind the reserve fund is to allocate a portion of PILOTs for future years. So, if in one year the town were to allocate 8 percent of the CPF to the districts in the form of PILOTs, then the remaining 2 percent could be put into the reserve.

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