Karl Grossman: Suffolk’s Perils of Depending on Sales Tax

Tue, Mar 29, 2016

Opinions, Suffolk

Sales-Tax

Suffolk County government remains in financial difficulty.

At the start of this year, viagra usa Suffolk Executive Steve Bellone declared a “state of fiscal emergency” for county government for the fifth straight year. He directed county departments to set aside 10 percent of planned expenditures in many accounts. He also gave himself control over hiring by other countywide elected officials.

Last week, he made a deal with the Association of Municipal Employees to drop the county’s $12 million 2016 payment to the benefit fund (for dental, vision and other services) for the union’s 4,800 county employees. This would be repaid starting next year at $1 million a year for 12 years. Earlier, he proposed a “lag payroll” with workers receiving withheld pay upon leaving their county jobs. Meanwhile, the county’s 2016 $2.1 billion operating budget includes more than $100 million in what are considered “one-shot” borrowing maneuvers and the sale of county properties.

What is happening?

The key reason for the county’s financial troubles involve fluctuations in what has been for decades an ever-increasing reliance on sales tax receipts to run Suffolk government.

This has not only become a pattern and problem in Suffolk. Counties through the state since a sales tax came to New York—first on a state level and then on county and city levels—have increasingly been using the sales tax to finance government operations.

And Suffolk is among the leading counties in New York to do so.

The percentage of the county budget derived from the sales tax is now 52 percent.

The problem with depending on the sales tax to run government is that it is unsteady. In good economic times, sales tax receipts are flush. But with economic downturns, sales tax collections suffer a corresponding decline. That was especially severe when the so-called Great Recession hit in 2008. And although fiscal times are brighter in Suffolk and in most of the U.S. since, county government is still hurting.

As the Budget Review Office of the Suffolk Legislature said in its review of Mr. Bellone’s recommended county budget for 2016: “The number one issue from a fiscal perspective is sales tax. The county relies heavily on this source of revenue and of late collections have been coming in at levels that could be…short.” It stated: “The recommended budget will require the legislature to make difficult choices regarding tradeoffs between service provision and fiscal reality.”

There was a time when the local revenue that financed Suffolk government came from property taxes and fees. This could be difficult for county elected officials in that people didn’t like getting their tax bills and seeing a large increase. This is despite the fact that the county property tax has always been a minor portion of the property tax bill. The biggest portion was—and continues to be—school taxes. The property tax bill for 2016, for example, averages out countywide to 68 percent for school taxes and 11.4 percent for county purposes. For elected county officials, financing government mainly through the sales tax has been considered a less direct tax affront.

It was 1965 when New York State first imposed a sales tax—initially 2%. (It’s now 4%.) In 1969, the state allowed counties and cities to also take in sales taxes. Like the state sales tax, local sales taxes have gone up and up. Suffolk’s sales tax started in 1969 also at 2%. Now the

Suffolk portion is 4.25% of the total 8.625% sales tax in the county. (Some 0.375% of sales tax paid in downstate counties, including Suffolk, goes to the MTA.)

In New York, counties have become “the class of government that is the most dependent on sale tax revenues, and this dependence is growing,” said a report titled “Local Government Sales Taxes in New York State: 2015 Update” done by state comptroller. “Historically, counties received the largest share of their revenues from the property tax. In recent decades, however, sales tax revenue has become more and more essential for funding county governments, taking over the largest share status from the property tax,” It added: “However, while the property tax is generally a stable source of revenue, the sales tax can be fairly volatile.”

With financial trouble, some Suffolk County executives—and administrators of other county governments—have moved to raise their local sales tax percentage. On the other hand, what Patrick Halpin did when he became Suffolk County executive in 1983 was, because of county fiscal difficulties, arrange to increase the property tax. The result was outrage by Suffolk property owners when their tax bills came. Democrat Halpin was tagged with the moniker “High-Tax Halpin” by Republican Robert Gaffney who ran against him and won with the property tax hike central.

Another wrinkle: estimating sales tax income is dicey. A main reason for the recent decline in anticipated collections was the surprise big drop in gasoline prices. With Suffolk counting on over $1 billion in sales tax money a year, just a 1% dip means a more than $10 million sudden shortfall.

 

Karl GrossmanKarl Grossman has covered Long Island politics for over 50 years.  He is an honored member of the Long Island Journalism Hall of Fame.

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