Real Property Taxes and Sales Taxes Are Major Local Revenue Sources

• Real property taxes remain the single largest source of local government revenue in the State, accounting for $36.6 billion, or 43 percent, of the $85 billion in total revenue from local fiscal years ending in 2019 (not including New York City).
• School districts and towns received $22.9 billion and $4.3 billion, respectively, in revenues from real property taxes (representing 53 percent of total revenues for each), while villages received $1.4 billion (47 percent). With 93 percent of their total revenue coming from property taxes ($0.8 billion), fire districts are the most dependent on this source. 
• State aid is the next largest revenue source for local governments. It is a major source for school districts, accounting for $16.2 billion, 38 percent of total revenues. State aid also represents a significant share of revenues for other local governments—for social service programs in counties, for highways (mostly in cities and towns) and as unrestricted municipal aid (mainly in cities).
• Sales and use taxes are also an important revenue source for local governments, representing $11 billion, or 13 percent of total revenue in 2019, and are the largest single revenue source for counties (34 percent).
• Local sales tax collections declined by $1.8 billion, or 10 percent, in calendar year 2020. This major decline was the result of the impact of COVID-19 on New York’s economy, especially during the shutdowns in the spring of 2020. As restrictions eased, sales tax collections improved, with much of the State seeing stronger collections than before the pandemic in the first two quarters of 2021, although New York City’s collections were still below pre-pandemic levels.

Property Tax – Allowable Levy Growth Is Increasing Again After a Decline

• Generally, the property tax cap law limits levy increases to the lesser of 2 percent or the rate of inflation, with some exceptions, though each local government’s tax cap calculation involves a multi-step formula. The law also includes provisions for a local government to override the tax cap.
• The calculated allowable levy growth dipped below 2 percent for all local governments with fiscal years beginning between March 1, 2020 and October 1, 2021. As the low inflation rates during the pandemic took hold, allowable levy growth dropped, to a low of 1.09 percent for local governments with fiscal years beginning on September 1, 2021, the lowest since 2017. While it did not approach the near-zero growth seen in 2016, these reductions in allowable levy growth did reduce local government budgetary flexibility during the COVID-19 pandemic. With the inflation increasing, allowable levy growth increased to 2 percent for local governments with fiscal years beginning on January 1, 2022.

Education and Employee Benefits Account for Half of Local Government Expenditures

• In 2019, total local government expenditures were $88.8 billion. School districts spent $44.7 billion, counties spent $26.1 billion, towns spent $8.6 billion, cities (not including New York City) spent $5.3 billion, villages spent $3.2 billion and fire districts spent $0.9 billion.
• The mix of local government expenditures varies by class. Overall, education made up 31 percent of total local government expenditures for the 2019 fiscal year ($27.4 billion). Most of this is school district spending on primary and secondary education.
• Employee benefits accounted for another 19 percent of local government spending ($16.7 billion). This is the fastest growing segment, increasing at an annual rate of 3.8 percent over the 10-year period ending in the 2019 fiscal year, twice the annual rate of growth in total expenditures of 1.9 percent. 

Fiscal Stress Remained Low in 2020, but Significant Risks May Still Emerge

• The Office of the State Comptroller analyzes the financial condition of each municipality and school district through its Fiscal Stress Monitoring System, which combines several financial indicators into an overall score intended to measure each entity’s budgetary solvency.
• Based on 2020 financial reports, 61 local governments and school districts were designated as being in fiscal stress (2.9 percent of those scored). Of these, 11 were in significant fiscal stress, 12 were in moderate fiscal stress and 38 were susceptible to fiscal stress.
• School districts had the largest number of entities in stress, with 31 in total.
• However, cities had the highest incidence of stress, with 13.5 percent (7 of 52 scored) being in some level of stress. This was an increase from 2019, when 11.5 percent (6 of 52 cities scored) were in stress.
• For counties, 10.9 percent (6 of 55 counties scored) were in a stress category, a decline from 12.7 percent (7 of 55 counties scored) in 2019.
• Towns and villages had much lower rates of stress than other classes.
• While local governments did not see significant increases in fiscal stress in 2020, there are still risks to the fiscal health of local governments, as pandemic-related issues continue to affect local economies.