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February 14, 2013

 

DiNapoli: Growth of Local Sales Tax Collections Slows

Local sales tax collections in New York grew by $450 million in 2012, an increase of only 3.3 percent from 2011, according to a report issued today by State Comptroller Thomas P. DiNapoli. New York City had a slightly better growth rate of 3.5 percent.

DiNapoli’s report found sales tax collections have fluctuated significantly since the Great Recession in 2008 and 2009. For example, in 2009, local governments collected 6 percent less in taxes than in the prior year. In 2010, sales tax collections rebounded and increased 10 percent. In 2011, however, the growth rate was halved to 5 percent.

“The trends are pointing in the wrong direction,” said DiNapoli. “Communities across this state continue to feel the aftershocks of the Great Recession. The sluggish growth in sales tax revenues is now adding additional pressure to already strained local budgets.”

In recent years, an increasing number of counties, cities and towns have been relying more heavily on sales tax to finance local operations. Because sales tax revenues vary and are often lower during tough economic times, this dependency can strain local budgets if sales tax revenues come in lower than projected.

DiNapoli said growth rates in collections declined steadily in 2012. During the fourth quarter of 2011, collections grew 6 percent. By the first quarter of 2012, that growth diminished to 5.1 percent. The downward trend continued in the second quarter (4.2 percent), the third quarter (2.4 percent) and the fourth quarter (1.6 percent). In fact, fourth quarter growth in 2012 was the lowest since the first quarter of 2010 (1.3 percent).

DiNapoli’s report also found slower growth in local sales tax collections for two regions in New York can be attributed to the immediate economic effects of storm recovery. Collections in the southern tier were boosted in 2011 by purchases related to recovery from Hurricane Irene and Tropical Storm Lee, and the 2012 decline reflects a post-recovery slowdown of sales. Likewise, Long Island’s 1.1 percent growth in the fourth quarter of 2012 was depressed by the immediate economic effects of Hurricane Sandy. Simulative effects from the recovery are expected to more fully appear in the early quarters of 2013.

Additional findings in the report include:

  • The 15-year average annual growth rate in sales tax revenue is 4.4 percent;
  • Sales tax collections grew in every region of the state during 2012. The strongest growth was in central New York and the North Country at 4.3 percent. The weakest growth was in western New York (2.5 percent).
  • Four counties in New York had decreased sales tax collections in 2012 – Chemung (-1.8 percent); Schuyler (-1.8); Essex (-0.4) and Schoharie (-0.3);
  • Since 2001, counties’ overall reliance on sales tax revenue grew from 23 percent of total revenues to 32 percent; and
  • The state Legislature has not approved a county sales tax increase since 2010.

For a copy of the report visit: http://www.osc.state.ny.us/localgov/pubs/research/snapshot/localsalestax0213.pdf

In the coming months, DiNapoli will issue fiscal profiles on select cities across the state to further inform officials and citizens on some of the unique environmental and systemic pressures facing New York’s cities. As part of this effort, DiNapoli will also release in-depth reports on some of the issues that contribute to the financial pressures on local governments.

DiNapoli’s office recently finalized details of a new fiscal monitoring system that will calculate and publicize an overall score of fiscal stress for municipalities and school district across the state. The ‘early warning’ system will identify those headed toward fiscal crisis and give local officials and the public greater opportunity to consider options for turning things around.


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