State Actions Eroding the Local Tax Base
These actions have reduced local revenues and increased costs for the 57 counties outside of New York City by more than $480 million annually.
Over the last two state budget cycles, numerous actions have been taken in the State Budget that severely undermine the local tax base, especially sales tax. These actions have reduced local revenues and increased costs for the 57 counties outside of New York City by more than $480 million annually. This loss is equivalent to 9 percent of the entire county property tax levy outside of New York City.
When sales tax diversions and cuts identified below are combined with targeted reductions to New York City (just for public health and social services) the losses exceed $1 billion annually. Substituting more progressive state tax resources with regressive local revenues like sales tax, is an unsustainable path for New York's local governments and we must begin to reserve these actions.
Diversion of Local Sales Tax
Sales tax is the primary source of local revenues for more than half of all counties and the number one local resource to reduce pressure on property taxes. Additionally, sales tax is a vital resource for municipalities, as counties share about 25 percent of their local sales tax with towns, cities, villages and school districts to help reduce pressure on property taxes and to ensure the delivery of local services. In 2019, counties shared $2 billion in sales tax revenues with local governments.
Despite the vital role that local sales taxes play in funding local services and controlling property tax increases, the State has implemented two major sales tax diversions and used those funds for programs determined by the state. On a full annual basis, the diversion of local sales tax revenue to pay for state programs is now $484 million, including:
- $59 million for AIM-Related payments,
- $250 million for a fiscally distressed health facilities fund, and
- $175 million directed to MTA funding.
The diversion of local sales tax is only exacerbated during any economic slowdown as we witnessed over the last year with combined sales tax declines for counties and New York City of more than $1.6 billion through 2020.
Sales tax is also a much more regressive tax than those available to the state. Using regressive local taxes to support state spending initiatives is like robbing Peter to pay Paul, and it is unsustainable.
For these reasons, the reversal of the AIM-Related sales tax diversion is a top priority for New York's counties in the SFY 2022 budget, as well as ending the diversion of local sales tax to fund a fiscally distressed health facilities pool that has long been a state and federal funding responsibility.
New Unfunded Mandates and State Reimbursement Cuts
Compounding the trouble facing local governments, the State Budget has created new programs or expanded existing ones while providing only partial state support or no new funding at all. These have generated new costs of at least $306 million annually for the counties located outside of New York City, and hundreds of millions higher each year when New York City cuts are included;
- $165 million from 5 percent across the board cuts in SFY 2021 (20% was originally withheld, but not all of these funds have been fully restored to localities),
- $31 million in community college funding cuts in SFY 2021,
- $24 million in state funding for early voting reforms was not continued in SFY 2021,
- $25 million increase for counties in child welfare services, through a funding shift enacted by the state in SFY 2021,
- $25 million in new costs for mental health competency restoration implement through a cost shift in SFY 2021,
- $1.8 million in state funding cuts for veteran's peer-to-peer programs in SFY 2021,
- $34 million annually in new costs for counties outside of NYC for lead blood level monitoring, and
- New prevailing wage requirement effective January 1, 2022 that will increase costs for many projects that are partially funded with public funds.
In addition to state law changes, counties and New York City continue to struggle with lower fiscal resources due to the state administratively withholding federal Affordable Care Act enhanced federal Medicaid matching funds going back to SFY 2016-17. NYSAC estimates that more than $800 million in federal funding has been withheld over the last four years.
Strong counties make for a strong state, and as New York works to recover from the economic devastation wrought by the coronavirus pandemic, it is imperative that the local governments who have been serving on the front lines of responding to the crisis be provided with the resources and the flexibility they need for a full recovery. The New York State Association of Counties will continue to advocate for an end to sales tax diversions, unfunded mandates and the withholding of state reimbursements that moves our counties and state in the wrong direction.