Tag Archive | "Ted Hults"

Justifiable Skepticism

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So what lessons can we learn from the Ted Hults/ Bill McGintee/ East Hampton financial collapse episode?

We’re reluctant to say that public officials should not be trusted with large sums of money, but what we have seen unfold here in the past year only justifies the skepticism the people have for their government. Motivated by power, greed or sheer incompetence, our elected and appointed officials are more often than we care to imagine guilty of abusing their authority.

In the case of East Hampton, the effort to deceive the public was driven by a need for elected officials to stay in power. Year after year budgets were presented that artificially kept tax demand down in an effort not to anger the voting public. At the same time, a demand for funds for employee wages, retirement and services continued to escalate. The town was presenting a false sense of financial stability so elected officials would continue to get elected while expenses flew out of control and revenues failed to meet the needs. It became so desperate that money dedicated to the Community Preservation Fund and capital funds for the Montauk Playhouse were redirected to help prop up the general fund — $12 million worth.

It is a disgraceful practice, carried out, we imagine, in many governments regularly; but not usually with such disastrous results. Some governments may actually be able to get away with this shell game when someone with a finer hand is at the controls. That was not the case in East Hampton.

Among the lessons here is that all governments — whether they be municipal such as villages and towns, or even school boards — need to be aware that the services and the benefits they promise have a cost to them. Board members and public employees need to understand that they work for the people who elected them and who pay their salaries, and are therefore beholden to those people whose money in the form of tax dollars they manage. The public is a body that needs to see how money is handled in clear and transparent ways, and the impact of decisions made by elected officials needs to be made apparent to the public.

And finally, while the public needs to understand — like officials do — that services cost, they also must ask questions and demand accountability. Because apparently our skepticism is justified.

In East Hampton, Hults Pleads Guilty, McGintee Will Face No Charges

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By Kathryn G. Menu

On Monday afternoon, former East Hampton Town Budget Director Ted Hults pled guilty to two misdemeanor counts of securities fraud and official misconduct before State Supreme Court Justice William Condon in Riverhead.

In exchange for the plea deal, Hults, 43, of Sag Harbor, will not serve any jail time and was only required to pay a $200 discharge fee.

The charges were among 14 felony and misdemeanors charges laid against Hults after an investigation into financial mismanagement in East Hampton Town. Former East Hampton Town Supervisor Bill McGintee, who resigned last fall in the midst of revelations about the town’s deepening financial woes, will not face any charges.

Hults admitted in court that official statements on the town’s financial position issued to Wall Street investors considering the purchase of East Hampton’s Bond Anticipation Notes (BANs) contained misrepresentations about the town’s financial status, according to a release issued by Suffolk County District Attorney Thomas Spota. Hults also admitted that he illegally transferred $8 million from the town’s Community Preservation Fund (CPF) to other town operating budgets to meet day-to-day expenses, and that he was warned by then town attorney Laura Molinari that such a practice was illegal.

“I don’t believe you are a bad person,” said Justice Condon to Hults on Monday, calling his incompetence as a budget director “nothing short of stunning.”

According to Government Corruption Bureau Chief Christopher McPartland, it was Hults’ lack of a criminal record and the fact that he did not personally profit from his criminal behavior that led the county to accept the guilty plea in exchange for a conditional discharge. As long as Hults stays out of legal trouble, all other counts against him will be dropped.

Following Hults’ plea, on Tuesday Spota released a blistering grand jury report. compiled during a six-month long investigation, detailing the “rapid collapse of the Town of East Hampton’s financial condition” from 2003 to 2009, resulting in a $30 to $40 million deficit.

McGintee was supervisor from January of 2004 to 2009 with Hults serving as his budget officer. Suffolk County Legislator Jay Schneiderman was town supervisor in 2003, with Len Bernard, the current East Hampton Town Budget Officer under supervisor Bill Wilkinson, serving as his budget officer.

The town’s debt will be bonded through deficit financing approved by the New York State Legislature, “at a great cost to the Town of East Hampton taxpayers,” the grand jury statement reads.

According to the report, the financial decline of the town was the result of “steadily increasing costs,” in particular for employee benefits, salaries and retirement costs, with town officials at the same time “for political expediency” refusing to raise taxes or cut expenses.

In respect to rising employee benefit costs for town civil service employees and police officers, the report states that the town under budgeted $6 million to cover those expenses from 2004 to 2007.

The grand jury found that tax cuts without spending cuts under the Schneiderman administration in the 2003 and 2004 budgets left the town in need of a 25 percent tax increase, with a McGintee administration town board only adopting a nine percent tax increase for the 2005 fiscal year.

In interviews with town employees during the course of the investigation, the grand jury states it was told the reasons to not raise taxes despite the necessity were politically motivated.

“Each witness testified consistently that taxes were not raised to meet expected costs in order to preserve elected positions,” the report reads. “The stated concern was that if taxes were raised substantially, then those facing election might be voted out.”

The town’s refusal to follow the advice of independent auditors and implement financial controls is also cited as it contributed to the financial meltdown. In recommendations made in 2003 and November of 2004, auditors urged the town to establish procedures to monitor the town’s budget, and take steps to better control spending. Auditors also noted that the town’s books and records were not being closed properly, on a monthly basis, and that accounting records were not being maintained “timely and accurately,” and suggested the town use software to track expenditures of capital projects rather than track them manually.

As of 2008, none of these practices were implemented despite the recommendation, according to the grand jury report.

“This decline in the town’s financial condition occurred because the Board and Town officials engaged in poor budgeting practices, including failing to appropriate adequate funding for expenses, and then routinely over-expending the appropriations,” read a statement from the New York State Comptroller’s Office. “Rather than taking necessary steps to match revenues to expenses, the Board and Town officials tried to finance budgets by appropriating unavailable fund balance, which further increased deficits. In addition, Town officials did not provide, and the Board did not demand, accurate and timely financial information to prepare sound budgets and to monitor spending.”

According to the grand jury report, the State Comptroller’s office found that poor budget estimates and non-existent fund balances led to a $7.5 million decline in surplus funds from December 2003 to December 2007.

The grand jury also found $8 million of CPF monies were improperly used – a fact, it notes, that was hidden from the town board and the public, and $4 million funds for capital projects like the Montauk Playhouse were improperly used to pay for general fund expenses.

According to the county district attorney’s office, McGintee and the town board were unaware Hults was illegally moving the CPF monies to cover general expenses in the town.

“The Town of East Hampton’s financial condition was propelled into a state of crisis between 2003 and 2009 by town employees who destroyed the financial health of the town,” concludes the grand jury report. “Trained professional accountants and lawyers gave critical advice regarding the town’s finances which was disregarded by certain town employees to the detriment of Town of East Hampton residents.”

The grand jury adds the town board should enact legislation creating liability and accountability for officials “who delegate authority blindly” and adopt secure financial policies. 

Budget Officer Faces Felony Charges

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East Hampton Town’s former budget officer Edward “Ted” Hults was arraigned on seven felony charges and two misdemeanors Thursday morning after a months long investigation by Suffolk County District Attorney Thomas Spota into alleged criminal mismanagement and fraud related to illegal transfers from the town’s Community Preservation Fund and misrepresentations allegedly made by Hults on bond applications.

For over a year, Hults and East Hampton Town Supervisor Bill McGintee have been under scrutiny, and investigation, over the town’s finances, as the town went from an $11 million surplus in 2004 when McGintee was elected to what is expected to near an $18 million deficit by the close of the next fiscal year.

McGintee has yet to be charged with any crimes, although according to published reports he has retained legal counsel.

Hults, who resigned as budget officer three weeks ago, was arraigned at East Hampton Town Justice Court on a felony charge of defrauding the government, and a misdemeanor count of official misconduct as a result of the alleged transfer of $8 million from the town’s CPF to other operating funds, despite warnings from the town attorney that such transfers were illegal.

He was also charged with two counts of fraudulent practices in respect to stocks, bonds and other securities, two counts of falsifying business records in the first degree and two counts of offering a false instrument for filing in the first degree – all felony crimes, as well as an additional misdemeanor count for official misconduct in relation to allegations that Hults prepared bond documents with false information in July and August of 2007 in an effort to borrow money on behalf of the town.

According to a release issued by District Attorney Spota’s office on Thursday, Hults allegedly prepared a bond anticipation note for the town in June and August of 2007 that stated the town had a surplus of $171,573 when in fact it was running a deficit of over $900,000. Another misrepresentation made in the note, said Spota, was that former town attorney Laura Molinari had reviewed the documents when in fact she had not. Molinari resigned last year as town attorney after joining town board members in calling for Hults’ dismissal.

According to the district attorney’s office, the felony counts have the potential to carry 16-month to four-year sentences, while the misdemeanor counts are punishable by up to a year in jail.

Hults pled not guilty to the misdemeanor charges and did not enter a plea for the felony counts.

During his arraignment on Thursday, Chris McPartland, chief of the county’s government corruption bureau, which has been handling an investigation of town officials’ alleged crimes, did not request bail for Hults, citing his cooperation with the district attorney’s office. East Hampton Town Justice Lisa Rana released Hults on his own recognizance and the court will reconvene to hear the matter on July 30 at 9:30 a.m.

Following Hults’ arraignment, district attorney Spota and New York State Comptroller Thomas DiNapoli – whose office has been investigating the misuse of CPF throughout the five East End towns – convened a press conference to discuss both the district attorney’s investigation and the state comptroller’s findings.

Noting East Hampton is often viewed as a playground for the rich and famous, Spota noted many residents of the town are hardworking men and women, sometimes working two jobs, and now wondering how they will manage not only their mortgage payments, but also sky-high taxes.

“They are entitled, in my view, to rely on their public officials to be running an honest, efficient open government,” said Spota. “Unfortunately that has not happened in East Hampton.”

Spota said the criminal mismanagement and fraud committed by Hults was not for personal gain – Hults has not been accused of embezzlement – but rather for “political advantage.”

“These lies did not personally enrich Hults in anyway, or anyone else,” said Spota. “He did it to hide the deteriorating financial situation that would, if uncovered, create significant political problems for the town supervisor who at that time was running for reelection.”

According to Spota, the “scheme” began in December of 2006 when Hults allegedly received a call from McGintee reporting that the town was unable to meet its payroll for its over 500 employees. It was then, Hults told the district attorney’s office, that he suggested they take monies from CPF to meet payroll and other financial obligations.

“It is very, very clear in the law, and Hults and McGintee were warned and told by the town attorney that the CPF is to be used only to acquire open space and farmland,” said Spota.

In addition to covering payroll, according to Spota, the $8 million taken from CPF also covered town expenses at the airport, for highway street lighting and for garbage removal.

“These illegal transfers were made to hide from the taxpayers and voters in the town the horrendous fiscal condition that the town was truly in,” said Spota.