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The COVID-19 pandemic has negatively affected many local governments' revenues and its impact will likely be severe for many municipalities' finances, according to a report released yesterday by New York State Comptroller Thomas P. DiNapoli.  As sales tax revenues fall by double-digits and state aid is reduced or delayed, DiNapoli called on the federal government to provide aid to local governments before drastic service cuts occur.

"Local governments are under extreme fiscal pressure. Costs for fighting the pandemic are adding up while revenues are rapidly falling," DiNapoli said. "In this year's state budget, aid to local governments was flat and now the state has withheld some aid. Local governments can only tighten their belts so far. They need federal aid and they need it now."

Federal aid is typically only a minor component of local government revenues in New York — about 5 percent of total revenues in 2018, excluding New York City. In extraordinary circumstances the federal government has stepped in with financial assistance to help states and local governments weather difficult times. Between 2008 and 2010, in response to the Great Recession, federal aid to local governments in New York increased by nearly 60 percent and was critical in shoring up local finances.

The report notes that sales taxes are one of the most important sources of revenue for many of New York's local governments and are directly affected by the economic pause and social distancing measures implemented to control COVID-19. Sales tax collections for local governments in May fell 32.3 percent from last year. From March through May 2020, local governments have received $824 million, or 19.2 percent less, in sales taxes than they did during that same period in 2019.

Another risk to local revenues is the flow of state aid. The state budget director withheld 20 percent of May and June Aid and Incentives for Municipalities (AIM) payments to 12 cities and 20 percent of June Video Lottery Terminal (VLT) aid payments to 15 counties, cities, towns and villages. These combined reductions totaled $75.9 million. It is not yet determined if this aid will be paid to municipalities at a later date. While property taxes provide revenue stability for local governments, the tax cap and other constraints will likely limit their use to shore up local revenues. Property taxes could also be impacted by owners not being able to make payments.

DiNapoli said his office is tracking sales taxes on a monthly basis as well as pushing for legislation that gives local governments and school districts more flexibility in repaying debt and using reserve funds for pandemic-related expenses. The legislation has passed both the Assembly and the Senate and is awaiting action by the Governor.

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