The height of the COVID-19 pandemic spelled financial disaster for communities across the country. I’m sure you remember feeling the panic that set in, as local leaders grappled with prioritizing public safety amidst an unprecedented health crisis while simultaneously dealing with an economic nosedive. Just how bad did it get, and what stage of recovery is our state in today? Read on to get a recap of where we’ve been, how the rebound looks, and what’s ahead for our communities.
Local governments depend heavily on sales taxes as a major source of revenue, but as New Yorkers stayed home and bought less during the pandemic it created significant shortfalls within communities and collectively statewide. New York sales tax collections dropped by $1.8 billion or 10% in 2020 compared to 2019, State Comptroller Tom DiNapoli said in a report released in February 2021. For perspective, that’s a steeper drop than in the 2009 recession, when collections dropped 6%. Sales tax revenue dropped most sharply in the second quarter as former Gov. Andrew Cuomo closed nonessential businesses statewide. Collections plummeted 27.1% from April to June compared to the previous year. Drops in sales tax collection in New York City, which represents over 40% of sales tax collections statewide, fueled much of the state’s losses. The city saw a 35% drop from April to June, then a roughly 20% dip for the rest of the year.
While the pandemic isn’t over, things are finally starting to look up. Now, nearly two years later, local sales tax collections continue to show year-over-year growth after significant drops. Local sales tax collections totaled $5.2 billion in the third quarter (July-September of 2021), up $861 million (20%) from the same period last year and continuing the trend of exceeding pre-pandemic levels, according to a State Comptroller report released on October 28, 2021. Statewide, every region saw solid growth in sales tax collections during the third quarter compared to the same period last year. Outside of New York City, the July-September period marked the fifth quarter in a row that county and city sales tax receipts met or exceeded 2019 pre-pandemic levels for the same period. Some of the regions with the strongest third-quarter growth include Mid-Hudson (16.5%), Long Island (16.3%), and the Capital District (15.4%).
State property tax is telling a different story, and according to the latest data from the State Comptroller’s office, the New York City office market will take years to recover from the pandemic, with over $850 million in property taxes lost in the 2022 fiscal year. The traditional commercial property value is shifting dramatically, and I’m sure you’ve felt this crunch in your own community. The pandemic meant innovating and embracing remote working models, and the reality is while companies may have anticipated these alternative setups as temporary fixes, the majority of Americans have no interest in going back to the “old model” of work in an office building. According to a recent survey by FlexJobs, 65% of remote workers do not want to return to their offices, and many employers are continuing to use a remote work arrangement. Additionally, an employee working from home in a state where the employer is not headquartered creates several issues that we will likely be working out for years to come.
Overall, strength in statewide local collections likely reflects national changes. The U.S. Census Bureau’s advance monthly retail trade report shows strong year-over-year growth for the third quarter, especially in sectors such as gas stations (38%), clothing stores (35%), and restaurants and bars (34%). Increased costs for goods also increase sales tax collections, and the price of consumer goods and services during this third quarter grew by 5.3% over the same period last year, as measured by the Consumer Price Index. Looking ahead, local governments need to continue closely monitoring the overall employment and real estate markets, including differences in submarkets. By tracking what’s going on in your community, you can deliberate carefully over strategic choices to influence office employment and space and ensure that policy decisions will alleviate negative impacts on tax revenue and the economy. It’s also important for local governments to closely monitor changes as supply chain shortages and workforce disruptions continue to be huge factors in economic recovery. Want to consult one of our RBT government team professionals? Contact us today.