Some facts about the sales tax

By IRA COHEN, Sullivan County Treasurer

County officials say that the integrity of the current year’s budget, and likely next year’s as well, hangs in the balance due to the lack of a .5 percent increase in the sales tax. In contrast, our state representatives have insisted that keeping our local rate of 3.5 percent is critical to the financial well being of the citizens of the county. I do not intend to take sides here in this debate, but I do believe it is essential that the citizens of Sullivan County understand the basic facts regarding the issue in order to make their own decisions about it.

According to a recent report issued by the New York State Comptroller, sales taxes represented 8.6 percent of total local government revenues in New York State in 2004. In Sullivan County, the percentage is even higher: almost 16 percent of our total revenues in the past couple of years. Every increase of approximately $300,000 in needed county revenue represents a one percent increase in property taxes, while the 0.5 percent local sales tax increase being sought by county officials would generate approximately $3 million in additional revenues—the equivalent of an increase in property taxes of 10 percent.

Local sales tax rates in New York State range from three to 5.5 percent. When combined with the state sales tax rate of four percent, the average total sales tax here is 8.5 percent, compared to a national average of 5.93 percent. But while New York State’s rate is above the national average, that of Sullivan County at 7.5 percent, is lower than that of approximately 85 percent of New York State’s population.

My office has recently projected that even if the sales tax rate increase had been approved effective June 1, we would still experience a $2.9 million cash shortfall by the end of fiscal 2006 (an educated guess based on 2005 numbers). However, without the sales and room tax rate increase requested by the county, the shortfall will be $6 million—unless expenditures are drastically reduced for the remainder of the year.

What makes many of the necessary cuts particularly painful is the fact that the majority of expenses of county government are in the form of unfunded mandates imposed by the state, such as the $15 million we paid out on April 1 to make school districts whole—only one of many such examples. This gives legislators very little choice in what to cut.

What could exacerbate the situation is that our state officials have recently adopted, and the governor enacted, a law that will cap sales tax revenues on gasoline sales. While relief at the gas pumps is a worthy goal, Sullivan County may lose over $1 million in annual revenues should county officials opt into the new legislation. The county taxpayers would also have to make up for this loss, one way or the other.

It appears that the county’s efforts to obtain state legislation to increase the sales and room tax rates for 2006 have failed. This makes it unavoidable that the county will have to borrow money later this fall in order to fund the operation of the government for the remainder of the year. The likely method of borrowing is by Tax Anticipation Notes (TAN), which will be repaid by setting aside tax moneys received by my office, mainly in 2007. These tax receipts will, therefore, not be available to fund the 2007 budget, thereby increasing the likelihood that such short-term borrowing will need to be repeated again in 2007 and thereafter, even in the face of county budgets that will, in corresponding years, provide fewer services and programs to county residents.

Such deficit financing will result in additional costs, as well as a lower bond rating, which in turn will make financing county government more expensive. It is critical that our county and state leaders work together harmoniously in the future so that county officials can write budgets that are realistic and have integrity, and financing plans that will permit reasonable growth, economic development and affordable taxes. Every citizen of Sullivan County deserves nothing less!