DiNapoli: Sales tax revenue threatens fiscal health of localities

Amanda Fries

Times Union

Oct 6, 2020

Localities increasing reliance on sales taxes to buoy budgets has put communities at higher fiscal risk and highlighted the need for New York to continue direct aid payments to communities, according to a report released Tuesday by state Comptroller Thomas D. DiNapoli.

Counties and cities outside New York City are the most dependent on the tax revenues, encompassing 28.7 percent and 18.9 percent of total revenue, respectively, according to the local sales tax report released by DiNapoli.

Revenues from sales taxes began to plummet in March as non-essential businesses shuttered and thousands of New Yorkers worked from home to help reduce the spread of COVID-19.

Over the six-month period of the pandemic’s effects — from March through August — local governments received $1.5 billion, or 16.9 percent, less than they did during that same period in 2019, according to the comptroller.

“COVID-19 has decimated local sales tax revenue this year, blowing holes in the budgets of municipalities across New York,” DiNapoli said. “As we work to rebuild our economy, we must also help repair the damage that has already been inflicted. Just as our Main Street small businesses can’t rebuild alone, our local governments don’t have the means to do this themselves. Direct aid from the federal government is needed to help our communities recover.”

That prospect faded Tuesday as President Donald J. Trump tweeted that he would reject the Democrats' $2.4 trillion stimulus plan.

The comptroller's report found that 46 of New York's 57 counties shared nearly $2 billion in sales tax revenue with other local governments within their borders in 2019, with significant variations in how much they share and how it is allocated. Thirteen counties shared more than 40 percent of their sales taxes, including Saratoga County. Albany, Rensselaer and Schenectady counties share between 30 and 40 percent of the revenue with localities in their borders.

At the same time, DiNapoli’s report found that New York state has increasingly been tapping local sales tax collections for various purposes. In last year’s budget, $59 million was withheld from counties’ collections to make unrestricted aid payments to towns and villages, shifting the burden for these State Aid and Incentives for Municipalities (AIM) payments from the state to counties. This year’s budget withholds another $50 million from counties outside New York City to go to a state fund for financially distressed hospitals and nursing homes.