Sales Tax Revenue and “Budget Busters”

By Albany County Executive Daniel P. McCoy

The recession and the housing market crisis have had a tremendous impact on many areas of county government, especially sales tax revenue.  Sales tax collections in Albany County plummeted $18.60 million dollars from $237.50 million in 2008 to $218.90 million in 2009. While the media reports say that most states have begun to emerge from the recession, these reports indicate that New York and the majority of its counties are not recovering as quickly as the rest of the country.  This fact, coupled with the fact that sales tax receipts are Albany County’s biggest source of revenue is problematic as we deal with “budget busters” such as rising pension contributions, healthcare costs, Medicaid, as well as the numerous unfunded mandates passed down from New York State.

Currently Albany County splits sales tax revenue 60/40 with its 19 municipalities based mostly on population.  In 2010, Albany County collected $222.2 million dollars in sales tax revenue with the county retaining $133.3 million and distributing $88.9 million to the municipalities. The City of Albany receives the largest portion of this municipal share which, in 2010 amounted to $28.45 million.

The dip in sales tax receipts has forced Albany County to make hard decisions. Those decisions include spending down reserves to continue providing the quality and quantity of services that New York State has mandated as well as the services to which residents have grown accustomed.  However, continuing to spend down reserves during the recession caused Albany County to be downgraded twice from our investment quality bond rating.  Recently, Standard and Poor’s gave Albany County a stable outlook due mainly to Albany County’s strong local economy anchored by government and higher education as well as the evolution into nanotechnology.  However, Albany County is dealing with a double edged sword; how do we continue to provide mandated services while the largest source of revenue, sales tax, has not grown as fast as the costs for these mandated services?  To put this into perspective, sales tax has rebounded to a 2007 level but our costs are at 2012 levels.

One of the areas that I am making a hallmark of my administration is to make Albany County more inviting to business. Economic development is essential to our county and it is imperative that we create a climate that is enticing to businesses and allows them to grow.  This initiative will lead to more people wanting to live and shop here.  However, there is an immediate need for solutions to provide ways to fund county services.

There is no comparison in the magnitude of services that the County provides versus services provided by cities, towns and villages. For example, police and fire are provided by most municipalities as is snow removal and maintenance.  Municipalities such as the City of Albany provide garbage pickup.  The suburban municipalities of Bethlehem, Colonie and Guilderland will collect and compost lawn and garden waste for residents free of charge.  While public safety and the other services that municipalities provide are important, the costs to provide these services pales in comparison to the costs of the services that counties provide for its residents.  As with most counties, our largest expense is Medicaid.  In 2011 Albany County paid a staggering $57.6 million in Medicaid costs alone.  Counties are also mandated to provide indigent legal services, foster care and adoption assistance, preschool education and special education.  Albany County is unique as it is a county that does not house a community college and is required to provide a share of tuition costs for its students who attend these schools.  In 2010 this amounted to $11 million for the students that live in our 19 municipalities.

County lawmakers have suggested that we raise the sales tax rate on goods and services.  This requires state legislation and as we saw in Saratoga County, the State Legislators representing this area were unwilling to sponsor unpopular legislation to increase the county sales tax rate. Some Albany County Legislators have proposed changing the formula from the current 60/40 to a 63/37 split.

A third option that I have been exploring is to cap the amount of sales tax distributed to municipalities at 2011 levels with any surplus revenue retained by Albany County.  In 2011 sales tax receipts were $8.5 million higher than in 2010, which would have resulted in an additional $3.4 million dollars for Albany County.  Municipalities in the county would have a set amount of revenue that they can expect in their budgets to provide the services that their residents currently enjoy. This solution would not require state legislation, which creates a potentially high bar to clear; rather it is incumbent on successful adoption of a resolution by the Albany County Legislature.

While I believe that the implementation of substantive mandate relief is the answer to enable counties to comply with the Governor’s 2% property tax cap, I am hopeful that the enactment of a sales tax distribution cap would provide much needed revenue to Albany County.  It would also allow our 19 municipalities to continue to collect the levels of sales tax revenue they are accustomed to as well as allow them the ability to easily craft their budgets.