For municipalities to overcome COVID fiscal fallout, officials need to embrace new ideas, strategies

Albert Einstein once said: “We cannot solve our problems with the same thinking we used when we created them.”

Sometimes it’s better to have someone a lot more learned and famous to share the message you want to convey. I thought Albert Einstein definitely fit the bill.

Recent reports by the State Comptroller paint in very stark detail the fiscal damage COVID-19 has wrought on municipal finances in New York State.

Recently, the Alliance for Balanced Growth and the Orange County Partnership staged an informative and well-attended webinar that covered some of the opportunities that may exist for Orange County municipalities and school districts to take advantage of in the era of COVID-19. Panelists included Andrew Fetherston, Maser Consulting; Tom Weddell, RBT CPAs; Brian Flynn, PKF O’Connor Davies and Alan Seidman, President of Construction Contractors Association. The panel was moderated by John Lavelle of Rand Commercial.

This column is a follow-up to that session and will offer some tangible options municipalities can consider to deal with the pandemic from accounting firm, RBT CPAs, LLP of Newburgh.

The fiscal fallout

However, let’s first provide some concrete details on the fiscal fallout from COVID-19 in New York State.

“COVID-19 has decimated local sales tax revenue this year, blowing holes in the budgets of municipalities across New York State,” New York State Comptroller Thomas DiNapoli said recently. “As we work to rebuild our economy, we must also help repair the damage that has already been inflicted. Just as our Main Street small businesses can’t rebuild alone, our local governments don’t have the means to do this themselves.”

DiNapoli’s office reported on Oct. 18 that sales tax revenue for local governments in New York state dropped 9.5 percent in the third quarter compared to the same period last year.

‘Our local governments are hurting’

Sales tax collections from July to September totaled $4.3 billion, or $452 million less than last year.

“The third quarter sales tax figures show a significant improvement from the 27.1 percent decline we saw during the second quarter of this year,” DiNapoli said. “Still, collections are down, especially in New York City, and local governments are facing serious fiscal challenges. The federal government must come up with a plan on how it is going to provide financial help to local governments during this difficult time. New York is resilient, but our local governments are hurting.”

For September, New York City saw a 43.9 percent decline in collections compared to the same month in 2019, while the rest of the state rose 19 percent.

‘What value is the resident getting from this service/”

Statewide, local sales tax collections declined by 11.8 percent, or $225 million, for the single month of September 2020 compared to the same month in 2019. So far in 2020, year-to-date (January through September), collections declined 11% or $1.5 billion compared to the same period last year.

With that troubling financial information and the specter of rising COVID infection rates in Orange County and elsewhere, the following are some possible remedies municipalities can consider thanks to our friends at RBT CPAs.

One possibility is for localities to explore alternative methods of revenue generation. RBT CPAs notes that local governments should revisit all the services they provide and then ask: “What value is the resident getting from this service? What is the cost to provide that service? Are the residents who reap the most benefit paying a proportional share of the cost, or is there a need to restructure?”

Local governments provide a wealth of services to the people who live within their municipal borders. Determining the cost of those services and charging appropriate, proportional fees can help municipalities generate the revenue needed to continue providing those valuable and valued benefits to taxpayers.

The firm cited the City of Middletown, which charges a set residential fee included in taxes, but also charges extra for bulk pickups. Middletown charges a monthly rate for its commercial trash customers, with charges set out in the city code fee schedule.

“Many municipalities also charge modest recreation fees for rentals of pavilions, fields, or other public amenities.

A municipality might also charge the person renting out part of a park a special event fee. Reasonable fees can help defray the cost of clean-up or maintenance. Those municipalities with golf courses should carefully review the total costs of owning and operating the course to ensure that the revenues generated cover the total costs whether through concession contracts, greens or other fees,” the accounting firm noted.

Another remedy could be short-term borrowing.

“COVID-19 has left many New York municipalities short on cash as they grapple with a triple threat: falling sales tax revenues, holds on state aid, and unexpected expenses due to the pandemic. Short-term borrowing strategies can provide local governments with the funds to stay afloat until property tax payments or other revenues arrive to replenish the coffers,” RBT CPAs note.

They add that there are two main reasons a municipal government might issue short-term debt: because of revenue shortfalls, or because there has been an unforeseen expense. COVID checks both boxes.

The main avenues for short-term debt issuance to address those issues are tax anticipation notes, revenue anticipation notes and budget notes. In dire cases, a municipality may also use deficit financing, also known as a deficiency note.

Business Improvement Districts

Some of the other ideas RBT has floated of late for municipalities looking for ways to generate revenue considering establishing improvement districts, such as Business Improvement Districts (BIDs), to fund needed services in high demand areas. Such a venture would not impose an undue fiscal burden on other municipal taxpayers.

In its recent briefing, RBT cited examples of the Middletown Business Improvement District and the Town of Woodbury BID as prime examples of successful local initiatives. RBT also suggests localities consider engaging in shared services to help reduce costs.

Maureen Halahan is the president & CEO of the Orange County Partnership, a private not-for-profit office of economic development that serves as the external marketing agency for business development in Orange County.