TODAY'S PAPER
Good Morning
Good Morning
NewsHealthCoronavirus

Sales tax revenue increasing sharply, but analysts remain wary

Shoppers browse at the Nordstrom NYC Flagship store

Shoppers browse at the Nordstrom NYC Flagship store in New York on July 14. Credit: AP / Richard Drew

ALBANY — Sales tax revenue collected by counties — a signal of economic strength as well as the critical source of funds to avoid property tax increases — is rising sharply on Long Island and statewide, but the post-pandemic recovery remains uncertain, state and independent analysts told Newsday.

Muddying the economic outlook is that the rise in revenue from sales is bolstered in part by what may be temporarily high gasoline prices, a sharp increase in housing prices, billions of dollars in federal pandemic aid to governments and businesses and pent-up consumer demand, analysts said.

On Long Island, the second fiscal quarter this year showed a 60.2% increase over the same period in 2020, according to a report released this month by state Comptroller Thomas DiNapoli. That reflects $843.3 million in sales tax collections in the quarter, compared with $521.1 million in sales tax collections in the same quarter in 2020.

"The Long Island economy is on the rebound," said Matt Cohen, president and CEO of the Long Island Association business group. "But we are far from out of the woods yet, which makes it imperative we encourage vaccines and common sense safety measures so our economy continues to grow and meets the needs of small businesses still recovering from the impact of the pandemic."

The study also shows growth every month in Nassau and Suffolk and in most counties statewide this year.

Statewide, sales tax revenue for local governments grew 49.2% in the second fiscal quarter of April to June compared with the same period in 2020, during the height of the COVID-19 pandemic and the economic shutdown it forced. That’s a gain of more than $1.6 billion in the first half of this year compared with the first half of 2020, according to DiNapoli's report.

That gain is compared with an extremely weak fiscal quarter in 2020. However, the sales tax revenue collected by counties statewide was also 8.7% higher than the same period in 2019, before the pandemic, according to the report released this month.

Outside New York City, every region saw a growth of at least 18% over two years.

"The strength of these collections, along with federal aid, will give local governments statewide the chance to improve their fiscal stability, but it will take time to recover from the strain caused by the COVID-19 pandemic," DiNapoli, a Great Neck Plaza Democrat, said in the report. "While this is good news, local leaders are advised to budget carefully. If this pandemic has taught us anything, it’s to always plan for unpredictable circumstances."

Independent financial analysts agree, noting the economy remains volatile and the pandemic with its rising infection rates and emerging variants continues to cloud the state’s economic future.

"The recovery remains uneven," said Ken Pokalsky, vice president of the state Business Council. He said businesses are concerned the current revenue picture will spur more government spending, driving up the cost of doing business in the state.

"I don’t see enough data here to be able to say how much of the second quarter of 2021 increase is caused from delayed expenditures, versus actual growth in the economy," Pokalsky said.

The positive trend also benefits from some one-shot occurrences, including pent-up consumer demand from a year of economic shutdown because of the pandemic and state and local governments receiving billions of dollars from the federal American Rescue Plan.

"It’s no surprise that sales taxes are significantly up," said Patrick Orecki of the independent Citizens Budget Commission. "Overall, we need to keep watching these trends to ascertain how much is a temporary rise due to transfer payments and reopening and how much, if any, of it is in excess of long-term projections."

Peter Warren, director of research at the Empire Center think tank, said part of the positive trend appears to be that funds from the federal aid "far exceed the amounts required to replace lost revenue."

"This illustrates how, outside of New York City, the overall downturn in sales tax receipts across the state during the past year and a half was not nearly as steep as had been feared," Warren said.

But counties say that won’t necessarily add up to a surplus. Counties still have bills to pay from the pandemic for services to residents and public workers who needed protective equipment, such as masks and gowns, and overtime costs to compensate for sick employees.

"Increases in sales tax revenue means that counties are less reliant on property taxes to fund government programs and services," Acquario said. "Each county will make these decisions based on the needs of their communities and future sales tax results."

NYSAC said leading drivers of sales tax revenue have been automobile sales, restaurants, gasoline and clothing. In addition, internet sales that spiked during the pandemic remain above pre-pandemic levels, but it’s uncertain if this is a trend or if online sales will return to previous, lower rates of growth.

Sales tax from online shopping increased 72% from March 2020 to February 2021 to rise to the third-highest source of taxable sales in the state, from eighth a year ago, according to an analysis by NYSAC.

Lagging in DiNapoli’s data, however, is New York City. The city’s sales tax collections gain from May through June was still the strongest in a year at 44.6%, but it trails the gain of the rest of the state outside the city, which is pegged at 52.5% over the second quarter of 2020.

"This is an intense moment and it is a pivotal moment," Gov. Andrew M. Cuomo told the Association for a Better New York, a business group in New York City, on Wednesday. "Statewide, the economy is coming back. The numbers are good. The economy of the city is not coming back as quickly … so we do have a concern for New York City."

He said there is no certainty New York City — a critical economic engine of the state — will rebound. He said if 15% of workers continue to work remotely from their homes on Long Island and elsewhere and don’t return to their city offices, "that would have a devastating impact."

To that end, Cuomo urged all businesses to require their workers to return to work after Labor Day, as he orders most of the state’s 130,000-employee workforce back into their offices statewide at the same time.

"You need the synergy," Cuomo told the business operators. "We need that volume in the restaurants and shops. It’s not just about your business."

Health