By Raheem Soto | Opinion
SOUTHAMPTON, N.Y. — One of the great mistakes in public finance is confusing the value of a community’s property with the financial capacity of the people who live there.
Southampton Town provides an excellent example.
Supervisor Maria Moore’s proposed 2027 budget calls for approximately $153.9 million in spending, an increase of more than $10 million, accompanied by a proposed 9.38% increase in the property-tax levy.
The immediate debate will undoubtedly center on percentages, spending priorities and whether the additional expenditures are justified.
But there is a more important economic question: Who ultimately bears the cost, and how long can that burden continue to increase?
Southampton is not an ordinary housing market. Seasonal residences, multimillion-dollar estates and second homes contribute substantially to the town’s property wealth. Yet the people who live here throughout the year operate within a very different economy.
Approximately one-quarter of Southampton residents are 65 or older. Many longtime homeowners purchased their properties decades before today’s extraordinary real estate valuations.
Their homes may be worth considerably more than they once were. Their incomes, however, may not be.
A retired couple living on Social Security and a modest pension cannot pay a property-tax bill with an increase in their home’s estimated market value.
That is the fundamental distinction between wealth on paper and the ability to pay.
The problem with government spending.
In the private economy, rising costs impose constraints. Businesses must increase productivity, find efficiencies, raise prices or risk losing customers.
Government operates under different incentives.
When municipal expenditures increase, officials can seek additional revenue from a tax base whose members cannot simply choose another provider of local government.
This does not mean every increase in government spending is unnecessary. Police protection, road maintenance and essential infrastructure carry real costs.
But it does mean that government must confront a discipline often absent from budget discussions: An expenditure can be worthwhile without being affordable at every proposed level.
Southampton’s property-tax levy has increased from approximately $73.6 million in 2022 to a proposed $104.3 million in 2027.
That represents roughly 42% growth in five years.
The question is whether household incomes, particularly those of retirees and middle-income year-round residents, have experienced anything approaching that increase.
There is little reason to assume they have.
The hidden cost of an aging population.
The U.S. Census Bureau estimates that approximately 25% of Southampton’s residents are age 65 or older.
That matters because retirees often lack the ability to increase their earnings in response to rising expenses.
Property taxes are imposed on the assessed value of property, not on the homeowner’s ability to pay.
A seasonal homeowner with substantial investment income may view an additional few hundred dollars as an inconvenience. A year-round resident balancing a pension, Social Security and rising healthcare costs may view that same increase very differently.
Neither resident is exempt from paying the tax. But the economic burden is not necessarily equal.
And we should not pretend that all seasonal homeowners are wealthy or that all permanent residents are struggling. The point is more fundamental: The same tax can impose very different sacrifices on different households.
The limits of a wealthy tax base
Southampton’s substantial seasonal housing market may allow the town to raise revenue that many communities simply cannot.
But the existence of taxable wealth does not eliminate the economic consequences of extracting more of it.
Nor does it establish that annual spending increases are sustainable indefinitely.
Consider what happens when a government expands permanent staffing, compensation and benefit obligations. These commitments generally continue into future budgets.
A road improvement may be completed this year. A new position can generate salary, insurance and retirement obligations for decades.
That does not make new employees unnecessary. It means the long-term cost must be considered alongside the immediate benefit.
There is also a distinction between the town government’s capacity to sustain spending and a resident’s capacity to sustain the taxes required to finance it.
A municipality can maintain strong reserves and excellent credit while some of its longtime residents become increasingly unable to afford living there.
The question Southampton should be asking.
The proposed 9.38% levy increase does not mean every property owner’s tax bill will increase by that percentage. Assessments, exemptions and tax districts influence individual bills.
And Southampton’s fiscal strength deserves acknowledgment. Strong reserves and a valuable property base provide flexibility that many municipalities lack.
But those facts do not eliminate the underlying economic question.
How rapidly can government spending grow before it begins changing who can afford to remain in the community?
A town that becomes increasingly dependent on the taxable value of expensive property may appear prosperous in its financial statements even as middle-income families, younger residents and retirees struggle with the cost of remaining there.
Eventually, the distinction between a wealthy community and a community of wealthy people becomes difficult to ignore.
Southampton’s Town Board should explain not merely how the proposed expenditures will be financed, but how its multiyear spending plans compare with the financial circumstances of permanent residents.
Government’s ability to raise revenue is not the same as taxpayers’ ability to absorb repeated increases.
Southampton may be rich in property. That does not mean every Southampton resident is rich in income. And a responsible budget should recognize the difference.
Raheem Soto is the publisher of AUXIO.TV. This column reflects the author’s analysis and opinion.