East Hampton learns bitter lessons from debt crisis

People in East Hampton have learned some bitter lessons in the past few months, as the town tries to work its way out of a $30 million to $40 million debt and what is being called by many an extreme case of fiscal mismanagement.

According to a special grand jury report released this week, town employees "destroyed the financial health of the town," by keeping the tax rate artificially low and ignoring the advice of auditors.

This week, former East Hampton Supervisor William McGintee accepted some blame but also pinned it on others.

"Unfortunately, for political reasons, and some through my own fault, I had an absentee town board," he said. "They were never around . . . it was an abdication of responsibility."

One former town board member, who asked his name not be used, was stung by the comment. "He's blaming us for what he did?" he asked.

McGintee, 58, resigned last year as part of an agreement in which prosecutors agreed to not charge him criminally. He maintains, "There were no crimes committed." The town's former budget director, Ted Hults, has pleaded guilty to official misconduct and securities fraud. Suffolk District Attorney Thomas Spota described McGintee's role in the budget fiasco as "malfeasance."

But if anyone has been left frustrated by East Hampton's financial mess, it is former supervisor Jay Schneiderman, now a Suffolk County legislator. He was elected in 1999 and served for four years as supervisor.

Three years ago, Schneiderman stood at a shaky podium outside of East Hampton town hall and tried to tell town residents that, financially, the sky was falling.

But this week, Schneiderman admitted, even he did not suspect how deeply flawed the town's finances were. "I thought they [the Democrats on the town board] were just going to raise taxes after the election," he said.

Even East Hampton Democratic leader Jeanie Frankel has learned some lessons. "There was a long history of town council people not appreciating that it ought to be part of their job to monitor what the chief financial officer [the town supervisor] was doing. I hope that will not be the case in the future," she said.

This week, Moody's Investors Service downgraded East Hampton's bond rating from Aa3 to A1 in conjunction with a $9.5-million bond sale being offered to clear up some of the town's debt.

But, it also improved the town's rating outlook from negative to stable, citing its cost-cutting measures and efforts to sell municipal resources and trim expenses.

The lowered rating "reflects depletion of the town's financial reserves following four consecutive operating deficits," Moody's said.

Former Hempstead Supervisor Rich Guardino, who directs the Scott Skodnek Business Development Center at Hofstra University - which does financial consulting with municipal governments - said the grand jury report showed an "extraordinary" breadth of negligence that went "well beyond carelessness."

"History is rife with situations where people for political reasons didn't do the right thing," Guardino said. "If getting re-elected, if keeping yourself in good standing with the electorate is the only reason for being in office, you are going to find yourself in these situations."