Surplus Funds Could Shield Counties
From Seeking Property Tax Increases
A build-up of surplus funds in the coffers of many Hudson Valley counties could prevent elected officials from resorting to an increase in property taxes to offset expected budget shortfalls from declining sales taxes, reduced state aid and higher energy costs.
As the region’s economy slows, a windfall of surprisingly high tax receipts over the past several years should give county leaders plenty of flexibility to avoid sticking property owners with higher tax bills—if officials and citizens focus attention on drawing down the large, available cash reserves.
A survey of financial data from 22 counties in and around our region demonstrates that many of them, including Columbia and Dutchess, have built up enough of a financial cushion to offset a sharp decline in sales tax receipts and cover higher operating costs for at least the next few years without imposing higher levies.
As detailed in the Budget Scorecard Database, Columbia County has the most leeway of six counties in the mid-Hudson Valley with which to fill budget gaps in 2008 and beyond. Greene and Dutchess counties also have sizable excess “fund balances,” while Ulster, Putnam and especially Rensselaer have much smaller surplus reserves as a portion of their sales tax receipts.
The specific dollar amounts freely available to a given county are hard to derive from the data, obtained from the Office of the State Comptroller (OSC) for the 2007 calendar year, without a case-by-case analysis.
In Dutchess County, as an example, $25 million of its $81 million stated surplus in 2007 was reserved for capital projects that are still in the bidding or building stages, according to County Comptroller Diane Jablonski. But at least $33 million of the total is both “undesignated” and “unreserved,” and could be drawn on to offset budget shortfalls in lieu of raising property taxes or other levies at the discretion of the county’s legislature and executive. An additional $17 million of the $81 million total has already been reserved to offset future general expenses and Medicaid claims, Ms. Jablonski added.
To take the case of Dutchess County a step further, assume that retail sales activity– and corresponding tax receipts– drop from their record 2007 level by 10% this year. In Dutchess, among the counties most dependent on sales taxes to fund their operations, budget revenues would decline by about $12 million. Rather than rely on a property tax increase or other offsetting revenues, the county could draw on its $33 million free fund balance, and possibly other surplus accounts, and cover the lower level of sales tax receipts for nearly three years, all else being equal.
In Columbia County, which relies much more than Dutchess on property taxes to fund its budget, a 10% decline in sales taxes would reduce county revenues by only $2 million, compared to its free fund balance of over $20 million. With a ten-year coverage ratio, Columbia boasts one of the most over-funded balance sheets among all 22 counties in our sample. (See Tables 2, 3 and 4 in our on-line Budget Scorecard Database for a full ranking of sales and property tax coverage.)
Evaluating a county’s ability to withstand budget shortfalls also entails an analysis of its debt levels and capacity to borrow in order to supplement its funding. Again, Columbia has the most room to borrow among the six mid-Hudson counties, with Dutchess and Greene counties in reasonably sound shape to increase debt levels. Putnam, Rensselaer and, especially, Ulster already have debt levels per capita substantially above the average of our 22-county sample, though they are well below the legal limit for municipal borrowing.
Drawing on the unreserved fund balances could cause concern among municipal bond rating agencies, which may raise borrowing costs for a county if its overall financial health appears significantly weakened by the draw-down. County leaders need to weigh the possible impact on their credit rating against providing substantial property tax relief for their citizens as the boom years of plentiful revenues come to a close.
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