The Collapse of East Hampton: How One of the Country’s Priciest Towns Went Broke

The view down the leafy lanes is still bucolic and the ocean waves still soothing, but beneath the surface of East Hampton Town’s tranquil facade this summer are rumbling aftershocks provoked by what a recent grand jury report called “a complete collapse of fiscal management.”

Property owners are burdened by a two-year tax increase of almost 50 percent for village residents; severe municipal service cuts are expected; and some of the jewels in East Hampton’s crown, its public facilities and open space, are being pried out and put up for sale or lease.

The question that has townspeople, and visitors who get a whiff of the corpse of East Hampton’s flush days, so flummoxed is how a municipality that reaps the property taxes of some of the country’s most valuable real estate could go from solvency in 2003, with a $4.3 million surplus, to a crisis mode with a deficit that preliminary tallies estimate to be at least $31 million, and perhaps millions more.

Although the sequence of events has been explained in the grand jury report-the anticlimax of a prolonged investigation by the Suffolk County District Attorney’s Government Corruption Bureau into the conduct of former town officials-there lingers a pervasive sense of disbelief.

Town officials have had to go to the State Legislature-twice-for permission to issue deficit-financing bonds, for a total of $30 million, and hope to borrow $2 million more for employee separation payments to slash the workforce.

No one has alleged that any public money was diverted for personal gain, but the state of chaos surrounding the town’s finances over the last few years is stunning. Bank statements weren’t reconciled, accounts were left unbalanced from year to year. Budgets were overspent; capital projects bonds were never issued; and money from a variety of town accounts was used to patch over shortfalls in other accounts.

Political fault lines are deepening as the shock of the new reality sets in. Last November, a slate of Republican candidates for town supervisor and town board was elected by a wide margin. The Democrats who ran last fall against the successful team led by town supervisor-to-be Bill Wilkinson could have been viable candidates, but nobody much believed a Democrat had a prayer of getting elected in the face of what had just occurred.

Weeks before the election, William McGintee, the town’s three-term supervisor, who led an all-Democrat board, resigned. He had been a subject of the DA’s investigation and, in a statement, thanked the district attorney “for allowing me to resolve this matter.”

Many were incredulous that he could walk away without being charged.

The DA himself, Thomas J. Spota, kept that possibility open until this summer, when charges against Mr. McGintee’s budget officer, Ted Hults, were weighed. In the end, Mr. Spota said there was “insufficient evidence” that Mr. McGintee knew what Mr. Hults was doing, but called his legacy “a record of fiscal malfeasance.”

On May 15 of last year, Mr. Hults was driving in East Hampton when he was pulled over by government agents, according to anecdotal reports, and taken to a room at the Dutch Motel, a nondescript wedge overlooking the Montauk Highway.

In a deposition signed and annotated with the motel’s address, he said he was shopping at Macy’s at Herald Square in December 2006 when he received a call from Supervisor McGintee, who told him that the town couldn’t meet payroll.

The two discussed borrowing from the town’s community preservation fund, a sacrosanct land-purchase account-one of the nine financial improprieties for which Mr. Hults ultimately faced legal charges.

Members of the town board were shocked when they found out in early 2008 that $8 million from the land fund had been used for operating expenses. An audit this year concluded that at one point, $18 million had been transferred, and more than $9 million remains un-reimbursed.

When it came to financial matters, Mr. McGintee had an “I’m in charge” attitude and often punted inquiries from the board. The board-a group of laypeople that included a fisherman, a lifelong East Hamptoner who once owned a store, a retired teacher and a seasoned local politician with a landscaping business-had assumed everything was fine.

But the bombshells kept coming. Budgets relied on nonexistent surpluses. False information had been offered on bond documents. The supervisor refused to concede to the board’s demand to fire the budget officer. The town attorney resigned in protest. The state comptroller set up shop to conduct a full audit. Box loads of subpoenaed documents were carried out of Town Hall. Now, with a new administration in charge, though the long process of reviewing a massive mound of tangled transactions and unreconciled accounts is nearing an end, there is still no final tally for the town’s deficit, only the vexing certainty that it will take years for East Hampton to stop reeling.


Ms. Pilgrim is a deputy editor at The East Hampton Star who has covered town government through several administrations.



The Collapse of East Hampton: How One of the Country’s Priciest Towns Went Broke