Keep Local Taxes Local

By Dave Lucas, NYSAC Director of Finance and Intergovernmental Affairs

In the SFY 2019 budget, New York State began a troubling and unprecedented practice of intercepting and diverting local sales taxes to fund state programs; first to backfill $59 million in state cuts to the AIM local government assistance program, and again in the SFY 2021 budget to finance a temporary state controlled $250 million per year distressed health facilities fund in response to the COVID pandemic.

This practice of funding state programs with local sales taxes is counterproductive, undermines transparency and accountability to taxpayers and results in highly regressive tax policy. The primary result is that it increases pressure on property taxes, compromises the delivery and availability of local services, and has cost local taxpayers $677 million to date.

Thankfully, the Governor’s SFY 2023 budget proposes to reverse diversion of local sales taxes for AIM-related payments and returns fiscal responsibility for this program back to the state. County elected officials and local taxpayers are thankful for the Governor’s partnership in addressing this issue.

But with the good, comes some bad. The Executive Budget also proposes to make a temporary COVID emergency program that was intended to help fiscally distressed health facilities through the unknowns of the pandemic a permanent program using $250 million in local taxes to pay for it ($50 million from counties and $200 million from New York City).

The state should sunset the diversion of local sales tax to support state spending for a distressed health facilities pool as scheduled (March 31, 2022), or end it no later than the expiration of the federal public health emergency declared for the COVID-19 pandemic.

1. The Distressed Provider Assistance Program was meant to be a temporary program to address emergency needs related to the COVID-19 pandemic.

2. As of January 26, 2022, nearly two full years into the pandemic and through multiple waves of COVID infections, hospitalizations, and deaths, no funding has been provided to health facilities through the Distressed

Provider Assistance Fund despite the state having diverted $500 million in local sales tax for this program. In fact, on March 31, 2021, the last day of the state fiscal year, the state moved $250 million out of the Distressed Provider

Assistance Fund and deposited it into the state general fund.

3. For more than 50 years, aiding distressed health facilities has been a state and federal responsibility. This policy is nothing more than a cost shift from the state to local governments.

Funding state programs with local sales taxes • increases pressure on property taxes, • compromises the delivery and availability of local services, • and has cost local taxpayers $677 million to date.

4. Local governments do not have the same revenue generating capacity to support this type of an initiative. The state has a much broader tax base and far more progressive tax code that can call on high income individuals and multibillion corporations to generate revenues. New

York counties have a much narrower tax base and must rely on more regressive taxes such as property and sales.

5. Federal COVID pandemic relief funds provided unprecedented support to New York’s health facilities and health care providers to the tune of $13.8 billion in federal assistance, with $30 billion of $175 billion authorized still to be distributed. These federal payments replaced 87 percent of the lost revenues for health facilities in New York through the first half of 2020 during the height of the pandemic.

6. The state increased fiscal distress for health facilities at the start of the pandemic by cutting hundreds of millions of dollars in funding to health facilities and providers. Some programs that were cut were specifically designed to help distressed health facilities, including across-the-board reimbursement rate cuts, elimination of

Enhanced Safety Net Funding Pools, elimination of equity funding pools to facilities, reduced indigent care pools, among others.

Even with these cuts in place the state still provided no funding to health facilities during COVID from the distressed health facilities fund.

7. The Governor’s proposed SFY 2023 budget is restoring some of the state’s prior cuts and investing more than $10 billion in state and federal matching funds to help the health care industry, eliminating the need for more local taxes to support state funding responsibilities.

8. Diverting local sales tax increases pressure on property taxes. Sales tax is the number one revenue source for most counties and the primary local revenue to support local services, especially for frontline workers responding to the pandemic. The sales tax is also the number one local revenue for counties to keep property taxes lower, including for hundreds of cities, towns and villages across the state that receive a share of the county sales tax.

9. Counties and New York City already support health providers in need by paying $8 billion annually to support state Medicaid program benefits and services.

Diverting more local taxes to replace state resources and responsibilities is unnecessary.

10. Keeping local taxes local is the best way possible to ensure accountability and transparency to the taxpayer and we should not abandon that principle.

It’s true that as a state and nation we are in uncharted waters as the pandemic, and its economic side effects continue to evolve. But it is equally true that the state’s finances have never been stronger. What better time to chart a new course toward fairness and respect for local control over local taxes.