Crunch time in local budget preparations as federal relief legislation stalls

As the leaves turn and the weather gets colder local governments in New York State shift into high gear in preparations for their 2021 budgets.  The leaves on the trees will look a lot nicer than those budgets.

Reduced business activity continues to cut substantially into local sales tax revenues, a major part of local budget funding.  Some government fee collections will also be affected as well as the payment of property taxes.  Things are better than they were in April and May, but pandemic restrictions on business activities make it likely that the situation will not improve a whole lot over the next several months, into 2021.

Local governments in Western New York are also negatively affected by the shutdown of personal cross- border traffic.  That land you can see a mile and a half across the Niagara River is Canada, but it might be sometime next year before you can drive over there again.  No Canadians coming over to shop in Western New York has also put a major crimp in sales tax revenues.

County and town budgets operate on a calendar fiscal year along with some cities.  The City of Buffalo has a July-June fiscal year that will be one quarter complete on September 30 with still no public action to deal with a fiscal crisis that was set in place when a grossly unbalanced budget was approved in June.

The County of Erie budget is by far the largest of the local governments in upstate New York, weighing in at $1.2 billion in 2020, which excludes the $372 million in sales tax revenues that the county collects and then disburses to cities, towns, villages, school districts and the Niagara Frontier Transportation Authority.  The county’s July 2020 Budget Monitoring Report indicates that sales tax revenues through that month were down 8.75 percent compared to 2019.

The county has accumulated substantial reserves, which stood at $102.5 million at the end of 2018 and grew several million more after the closing of the 2019 fiscal year.

The County Charter requires that by October 1 the County Executive must transmit his non-property tax estimate of revenues for the next year to the County Comptroller for his review.  The Executive’s proposed budget must be submitted to the County Legislature no later than October 15; in 2019 Poloncarz submitted his fiscal plan on October 1.  The Legislature will have until early December to approve the budget.

Look for County Executive Mark Poloncarz to use a significant of amount of the county’s fund balance as 2021 budget revenue.  The County Charter requires that the fund balance must remain at a minimum of five percent of the previous audited year’s General Fund balance; there are options for leaving less than the five percent mandate but such action requires a two-thirds vote of approval by the Legislature.  The five percent rule would mean the fund balance would need to be, at a minimum, somewhere in the range of $55-60 million.  It is unlikely that the county will need to get that close to the legal requirement.

Poloncarz will probably also makes some budget cuts and propose raising property taxes.  The County’s average property tax rate has decreased 6.2 percent in the past nine years.  Because of growth in the tax base, however, the actual tax levy has increased $113.2 million (47.6 percent) during that period.  Something in the range of a four to five percent increase in the levy would produce $14-18 million in additional property taxes. 

State law sets a cap on property tax increases at no more than two percent or the rate of inflation.  The Office of the State Comptroller has determined that the cap for 2021 will be 1.56 percent.  The County’s property tax levy cannot exceed that level of increase unless 60 percent of the total voting power of the County Legislature approves such an increase, which means that seven out of the eleven legislators must vote to raise property taxes beyond the cap.   There are seven Democrats, three Republicans and one Conservative on the current County Legislature.

Town governments are also completing their 2021 budget preparations.  Reduced sales tax revenues will impact the towns but not as significantly as the county.  Nonetheless the towns will be making spending cuts and raising their property taxes too.  The Town of Amherst has requested state legislation for deficit financing to help get them through the current crisis, with a payback period longer than the current two year limit.  Other town governments might make the same request.

All of this is occurring as Congress and the Trump administration dicker with the possibility of approving another round of pandemic relief that state and local governments hope might include aid for state and local governments to mitigate service cuts and tax increases.  Republican congressional leadership and the Trump administration are not much interested in helping.  House Democrats have pushed for this funding but there doesn’t seem to be much chance for action prior to the election.

Keep in mind that we in New York State annually send billions more in tax revenues to Washington than we regularly receive in return while other states like Mitch McConnell’s home state of Kentucky draw down much more than they send to Washington.

It is anyone’s guess as to when or how much federal money might be approved.  The election results will, as much as anything, help determine that answer.  If Biden wins and the Senate leadership flips to Democratic, any assistance will have to wait until after January 20.  State and local governments will have prepared their 2021 budgets in the meantime.

The 2021 fiscal year will be a trying experience and the difficulties will not go away quickly, even if a COVID-19 vaccine is available next year.  The pandemic and the deep economic pain have highlighted the fact that our national economy was not on firm ground, even before March 2020.  Income inequality has left millions of Americans vulnerable to an economic crisis, threatening people’s health and homes in very big ways.  The country as a whole is in a precarious situation when so many of its people are living one big medical bill or car repair charge away from a fiscal calamity such as a health care bankruptcy or the loss of a home.  Those issues will greatly impact state and local government budgeting.

The United States has been through financial crises in the past but knowing history doesn’t make things any easier.  We have more safety nets in place than there once were but the failure of the federal government to step up with another round of fiscal relief for individuals and state and local governments could make the 2020 issues even graver than ever before – another major issue for voters to consider as the start of voting gets closer.