Suffolk Closeup: Who should pay for county government?

Suffolk County

Suffolk County government remains in financial difficulty.

At the start of this year, Suffolk Executive Steve Bellone declared a “state of fiscal emergency” for county government for the fifth straight year. Mr. Bellone directed county departments to set aside 10 percent of planned expenditures in many accounts and gave himself control of hiring over 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 when they leave 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.

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 throughout the state have increasingly been using the sales tax to finance government operations . The percentage of Suffolk’s budget derived from the sales tax is 52 percent.

The problem with depending on the sales tax to run government is that it’s unreliable. 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 “Great Recession” hit in 2008. And although fiscal times are brighter in Suffolk and in most of the U.S. now, county government is still hurting.

As the Budget Review Office of the Suffolk Legislature said in its review of Mr. Bellone’s proposed 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 was perceived to be a problem for elected officials since residents didn’t like opening 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 officials, financing government mainly through the sales tax has been considered less of an affront to the citizens.

New York State first imposed a sales tax — initially 2 percent, now 4 percent — in 1965. Four years later, the state allowed counties and cities to also collect sales taxes. Like the state sales tax, local sales taxes have gone up and up. Suffolk’s sales tax started in 1969 at 2 percent. Now the Suffolk portion is 4.25 percent of the total 8.62 percent sales tax in the county.

In New York, counties have become “the class of government that is the most dependent on sales tax revenues, and this dependence is growing,” said a report titled “Local Government Sales Taxes in New York State: 2015 Update,” done by the 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.” The report 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. Alternatively, what Patrick Halpin did when he became Suffolk County executive in 1983 was, because of county fiscal difficulties, to arrange an increase in 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 to his campaign.

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

grossman_karl150 Karl Grossman’s syndicated “Suffolk Closeup” column is printed in the Shelter Island Reporter, a Times Review Media Group publication.