As economy reopens, local governments are hurting

The Enterprise — Michael Koff

“We need that bail-out,” said Albany County Executive Daniel McCoy on Tuesday of federal stimulus money. “We’ve been on the front lines.”

ALBANY COUNTY — Albany County is down $16 million from where it was last year for second-quarter sales-tax revenues, the county’s executive Daniel McCoy, reported on Monday.

He termed the 25-percent drop from a year ago “a very huge hit.”

The first quarter — January, February, and March — was up slightly, 4.49 percent, from 2029. The statewide shutdown to stem the spread of coronavirus was instituted in mid-March.

Between January and June of 2019, Albany County brought in $139.1 million in sales-tax revenue. Over that same time period this year, that number has dropped by roughly 11.17 percent, or $15.5 million, to $123.6 million.

Additionally, Albany County is not collecting the usual amounts from other revenue sources like hotels, which amounts to $30 million or $40 million, McCoy said.

He hopes the fifth federal stimulus package will have significant funds for counties. “We need that bail-out,” said McCoy. “We’ve been on the front lines.”

In his six years as county executive, McCoy said he had built up reserves of over $68 million. But he also said, “We owed the state comptroller $38  million … That was from that little recession of ’08 - ’09,” said McCoy.

“The major portion of our hit is [because] we have Crossgates and Colonie Center in our county,” said McCoy. The county depends on those venues, which attract many out-of-town shoppers, for sales-tax revenues.

Those two large indoor malls had been closed from mid-March until last Friday. Governor Andrew Cuomo allowed malls with systems that filter out coronavirus to reopen in Phase 4 regions, but, as of this week, numerous stores in Guilderland’s Crossgates Mall were still closed and the crowds were not huge.

Because Albany County shares its sales tax with municipalities, based on population, the large dip in sales-tax revenue will also affect local towns.

In 2020, Guilderland got roughly 35 percent of its $36 million budget from county sales tax; New Scotland got 27 percent of its $8 million budget, Berne got  41 percent of its $2.6 million budget, Knox got 46 percent of its $2.2 million budget, Rensselaerville got 26 percent of its $2.6 million budget, and Westerlo got 40 percent of its $3.1 million budget.

 

“Profound impact”

A report issued this month by the state’s comptroller, Thomas DiNapoli, notes that local governments face a double dilemma: Reductions in revenues are expected from otherwise normal taxable sales and personal and business incomes while at the same time public-health spending has increased.

The 19-page report notes major risks to sales tax, property tax, and state aid.

Like McCoy, DiNapoli hopes for federal aid. “Additional federal aid is needed to ensure that municipalities and school districts have the resources to provide critical services New York residents depend on.” It goes on, “Much of the recent federal aid to localities, while helpful, is targeted to a small subset of municipalities and does not address the larger issue of budget stress caused by the economic shutdowns.”

The report also notes that most state aid to local governments was held flat or reduced in the recent state budget and some local governments have already had to face significant mid-year reductions in state aid.

In 2018, state aid made up a quarter of all local-government revenues. By far the largest amount of state aid is for education. The current state budget gives the governor unprecedented power to reduce spending at certain times during the fiscal year if there are revenue shortfalls.

While the amounts to be withheld or cut from specific aid programs are still largely to be determined the Division of Budget withheld  20 percent of the May and June Aid and Incentives for Municipalities, known as AIM, payments due to 12 cities and the June Video Lottery Terminal aid payments due to 15 counties, cities, towns, and villages. The combined reductions totalled nearly $76 million and it has not been determined if the withheld aid will be restored.

The National Bureau of Economic Research announced in June that the United States had officially entered a recession as of 2020. DiNapoli’s report notes, however, that the effects of the shutdowns due to the coronavirus have been much quicker and deeper than those of a “typical” recession.

In those typical recessions, people still eat out at restaurants and buy clothes even if they look for less costly options or put off large purchases. And, in earlier recessions, reductions haven’t happened all at once. While the long-term economic impact is unclear, it is clear, the report says, that retail sales of taxable goods and services have already been greatly affected. 

Sales-tax collections will likely continue to decline over the next several months, the report says.

The U.S. Census Bureau reports that, in May, retail sails across the nation were down 7.7 percent from a year ago with much steeper drops in clothing, down 63 percent; gasoline stations, down 32 percent, electronics and appliance stores, down 31 percent; and department stores, down 26 percent.

April was worse, with a drop of 21.2 percent compared to last year.

At the state level, New York’s budget plan anticipates a 15.5-percent drop in state sales-tax collections for April 2020 through March 2021. Also, the 2020-21 state budget requires that counties forego a portion of their sales-tax collections to support a state fund to aid financially distressed hospitals and nursing homes.

One initiative that might help mitigate COVID-19’s impact on local sales-tax revenues is the state’s actions in 2019 to fully capture sales taxes on internet transactions with out-of-state vendors. With many local businesses closed, it’s likely that more purchases will be made online.

The largest single source of revenue for local governments and school districts is the real property tax. Historically, local governments have used property taxes to replace other budget losses but now their ability to do so is more limited.

New York’s local real property taxes are already high compared with other states; New York ranked fourth of 50 states in collections per capita in 2017. Effective tax rates per $1,000 of property value are highest upstate, while tax bills per household are highest downstate, DiNapoli’s report says, adding that high tax payments are exacerbated for some by the 2017 federal cap on itemized deductions for state and local taxes.

“Early indicators show that the pandemic is causing economic insecurity for both residential and commercial property taxpayers, calling into question their ability to pay existing property tax bills, let alone higher ones,” the report says. This is particularly problematic for counties since most are required to make local governments and school districts whole for any property taxes that remain uncollected.

Finally, since 2012, the state has limited the ability of local governments and school districts to raise total property tax levies in any single year, generally restricting annual levy growth to 2 percent or the prior year’s inflation rate, whichever is lower.

Besides revenues from taxes, municipal governments typically garner a quarter of their revenues from a variety of service charges. Often, these are fees for utilities, like water or wastewater or electricity or for sanitation services. Often, industrial, manufacturing, and other local businesses are the largest users of these services and they have seen dramatic cuts or have been shut down since March.

Federal aid typically covers just 5 percent of local government budgets. But, between 2008 and 2010, in response to the Great Recession in 2008-09, federal aid to local governments in New York State, excluding New York City, increased by nearly 60 percent.

The CARES (Coronavirus Aid, Relief, and Economic Security) Act enacted in March, while allocating resources to state and local governments, is mostly targeted to paying for additional costs for COVID-19 response. The state plans to use most of the money from the CARES Act Education Stabilization Fund — totaling just over $1.1 billion statewide — to counterbalance the expected Pandemic Adjustment to state school aid.

“Even though New York State is opening back up,” DiNapoli’s report concludes, “its local governments are only beginning to feel the profound impact of COVID-19 on their revenues.”

More Regional News

  • Albany County COVID-19 cases, starting in the beginning of March, appeared to reach an apex in mid-April, then continued to largely decline through the four phases of reopening the economy. But now, over the last two weeks, new cases, followed by hospitalizations and deaths, are on the rise.

  • Governor Andrew Cuomo said of televised Major League Baseball games, without fans in attendance, “I think it would be good for the economy, I think it would be good for the psyche, I think it would be good for the nation’s soul.”

  • Albany County residents who call 518-447-7777 will be directed to services relating to health insurance, pregnancy support, domestic violence, addiction support, social services, and more. The monthly call volume has about doubled since June.

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