At a meeting of the Legislature’s Budget Committee on Tuesday night, Chemung County Executive Tom Santulli and Deputy County Executive Mike Krusen presented a proposal to change the way sales tax revenue is shared among the county, the City of Elmira and the remaining towns and villages. If approved by the legislature, the proposed changes would remain in effect for six years. A video of the presentation can be viewed here.

Background

In order to discuss the proposal, it is important to have a basic understanding of how sales tax allocation currently works in Chemung County. Most of this information can be found in a report by the Center for Governmental Research (CGR) that was released in January, 2018 and can be found here.

The current sales tax rate in Chemung County is 8%, comprised of a 4% county sales tax (the “local share”) and a 4% state sales tax. Prior to enforcement of the Financial Restructuring Plan in 2015, the county retained 62.5% of the local share, and 37.5% was given to its municipalities, including the City of Elmira.

Today, three years after the Financial Restructuring Plan went into effect, the county retains 74.2% of the local share, with just 26.6% going to its municipalities. In other words, sales tax revenue going to the municipalities has decreased by 10.9% at the same time the county’s portion increased by 11.7%.

To compare this data in dollars rather than percentages, the county retained an additional $3,500,000 of gross sales tax revenue before accounting for the value shared service agreements since 2015, while revenue flowing to its municipalities decreased by the same amount, figures set forth in a letter from Krusen accompanying the CGR report (included in the link above.)

As their revenue streams have decreased, many municipal officials have stressed the need to revise the current sales tax allocation formula regardless of whatever offset they may have received through shared services. However, as I described in detail in a blog post last week (found here), county administrators have been adamant that changes to the sales tax plan are unnecessary - until now.

Indeed, in the letter accompanying the CGR report, Krusen states that the county did not intend to make any changes to the sales tax plan until at least 2019 in order to allow for further studies of the current plan’s efficacy:

“Since 2018 marks the last scheduled sales tax formula adjustment and the full impact of these modifications need further observation and monitoring it would not be prudent to consider any further adjustments to the County sales tax formula that is current law. There should be an extended period for additional review of impacts to municipal services, property taxes and reserve accounts to determine the full impact of formula adjustments.

This review function can best be accomplished through the development of a Council of Government structure that creates a financial review sub-committee. The review committee support function can be housed in the County Treasurer’s office. Such expanded responsibilities should be funded by the County with agreed upon financial metrics jointly developed by all municipalities and reported out by the year end after the proceeding years fiscal results have been evaluated. The first report would be available in the fall of 2018 covering results from 2017 and 2018 the last year of the formula adjustments would be reported in the fall of 2019.”

Shortly thereafter, in an article published in the Star Gazette just after the CGR report was released entitled “Chemung County sales tax shift working, Elmira still sinking“, Santulli stated:

“CGR took a snapshot of how we are doing today. The health of governments is the story, except the City of Elmira, Towns and villages have fund balances that are more than adequate. This is a positive and to their credit.”

Then, on July 12, 2018, Krusen published an Op-Ed in the Star Gazette entitled “Facts about Chemung County’s Tax Plan” wherein he stated:

“The (sales tax) plan has been effective in that it has provided greater financial stability to the county and lowered excessive municipal fund balances. Our governments continue to work more cooperatively and have held the line on spending. Much credit goes to our local government leaders for answering the call to be even more resourceful with taxpayer monies.

While the decision has not pleased everyone, it is clear that this plan has increased cooperation and has created greater opportunity to work together and provide public services more efficiently. Now that is a plan we should all be able to get behind.”

The Proposal

To the surprise of many, the proposal by Santulli and Krusen calls for increasing the amount of sales tax revenue going to all municipalities except for the City of Elmira by 3.4%, a reallocation that would remain in place, according to their plan, for six years.

The proposal does not call for any increase of revenue going to the city, but instead extends the length of time for the city to reimburse the county for various shared services agreements. The city currently owes the county $2,769,292.00, and is required to pay it off in installments over the next four years. The proposal does not change the amount the city owes, but instead allows two extra years for it to pay off the debt.

The Disconnect

The disconnect causing confusion for many people is straightforward. Why should Chemung County give additional revenue to its towns and villages - most of which the county claims are fiscally healthy - while the City of Elmira is in obvious fiscal stress and could use all the help it can get?

An example of the root of this disconnect stems from a proposal the county made last spring for a quasi-Council of Governments (qCOG). Instead of creating a body that would serve no purpose other than to foster inter-municipal cooperation, the county’s plan called for having a pot of money that towns and villages could apply for if they were in need. The catch is that towns and villages could only apply for the money if they decreased their reserves to match that of the county (15.5%) because, according to the county, most towns and villages simply have too much money in the bank.

In response to a critique I offered of the qCOG, County Treasurer Joe Sartori wrote a Your Turn piece in April, 2018, found here, where he stated:

The “catch” Mrs. Sonsire refers to is that before receiving funding, a municipality would have to be truly in need. They could not be hoarding excessive amounts of the taxpayers’ money, nor could they waste reserves in a frivolous manner. These are not unreasonable requirements when you consider that we are talking about the taxpayers’ money.

Herein lies the problem.

The level of reserves held by the towns and villages has not changed dramatically since last April, yet the county now proposes giving them 3.4% more in sales tax revenue.

As Treasurer Satori aptly pointed out, taxpayer money should never be dispensed without solid rationale. That rationale is precisely what seems to be missing here,

The Reality

The undeniable reality is that many of our towns and villages are, in fact, experiencing financial troubles.

Take a look at the Town of Elmira. From 2016 to 2017, the Town of Elmira spent 34% of its reserves on operating costs. Even so, it maintained a 41% fund balance, well over the county’s 15.5% rate that allowed the county to avoid raising taxes for the 14th straight year:

Even though a 41% fund balance may sound high, the fact is that the Town of Elmira, like many other municipalities, is facing increasing fiscal stress.

At its regular meeting this July, the Elmira Town Board confirmed it needs to move away from relying on reserves to cover operating expenses (i.e. deficit spending), and disclosed that, if nothing changes, taxes will increase in 2019:

Of note, Neil Milliken, currently serving as the 7th District Legislator, has this to say on his campaign website in defense of the way sales tax is currently distributed, found here:

“Rather than simply raise resident’s property taxes to compensate for lost sales tax revenue (the quick and easy option), the County instead instituted a creative plan which improved cooperation between local governments, increased efficiencies long term, and decreased wasteful spending. All this, with ZERO increase in your County and Town of Elmira taxes!”

Unfortunately, unless something changes, a tax increase in the Town of Elmira is exactly what will happen next year.

A second example is from the Town of Veteran. Like the Town of Elmira, the Town of Veteran shows a healthy fund balance of 55% on the graph above, also well above the County’s 15.5%.

However, shortly before Tuesday night’s presentation, the Town of Veteran Board held a budget meeting where the possibility of a tax increase for 2019 of up to 133%(!) was discussed, due in large part to the same problem facing the Town of Elmira - its revenue stream has been diminished. Minutes from the budget meeting were not kept, but this information has been confirmed Anthony Pucci, a candidate for legislator in the 1st District, who was present.

I have pointed to the fiscal stress of other municipalities in previous blog posts, but will briefly recap them here:

*In 2016, Town of Horseheads Supervisor Mike Edwards attributed the town’s new tax levy directly to the sales tax plan, as shown here.

*Southport Town Supervisor David Sheen, now a candidate for Chemung County Deputy County Executive, announced that plans for infrastructure projects and buildings are on hold, and Southport taxes will likely go up in coming years as a direct result of the way sales tax revenue is distributed, as shown here.

*The Town of Chemung laid off its entire highway department earlier this year, a move Chemung Town Supervisor George Richter stated was made necessary in part because of the lack of sales tax revenue, as shown here.

*Elmira Mayor Dan Mandell along with Elmira Manager Mike Collins has been adamant that despite offsets from shared service agreements with the county, the sales tax plan has had a significant negative impact on the city’s finances, as shown here.

The bottom line is that the the County can’t have it both ways.

If the towns and villages are not experiencing fiscal stress, then, as Treasurer Sartori said in his Your Turn last April, the county should not “give away” tax dollars:

“Win or lose, I would like to invite Mrs. Sonsire to spend a day in the Treasurer’s Office next January, prior to the foreclosure deadline, to see the human toll of excessive taxation. To see the people trying to stave off foreclosure by entering into last-minute installment agreements. She could ask these people if they are okay with municipalities holding their tax dollars in reserve. She could get their thoughts as to whether the county should give away their tax dollars without requiring reasonable restraint with regard to spending.”

If, on the other hand, the towns and villages need help - as so many people have pointed out - then the county should be commended for trying to find a solution.

But where does the City of Elmira fit in to all of this?

The one thing everyone seems to agree upon is the City of Elmira remains on the brink of a financial crisis. Even with a 17% property tax increase along with a hike in sanitation fees, major structural changes must be made to the city’s budget and revenue for it to survive, let alone thrive.

Despite this situation, the county’s proposed sales tax plan does not call for any increased revenue going to the city. It is clear that allowing two additional years to pay its debt to the county will help, but it simply doesn’t go far enough.

This aspect of the proposal leads back to the disconnect. If the towns and villages are, for the most part, fine, why help them? Instead, the entire 3.4% sales tax increase should go the city to help place it on stable footing and avert a major financial disaster.

Again, if its true the towns and villages need help, the county should just say so. At least the proposal would then make sense and we could figure out a fair way to allocate resources among all of the municipalities that need help.

Why lock the plan in for six years?

In 2013, Chemung County felt its financial future was so bleak that it needed to take money from the municipalities and the City of Elmira. This year, sales tax revenue is (thankfully) up, exceeding predictions by almost 5%.

However, as with any economic marker, sales tax revenue can be volatile, and today’s booming economy that is fueling it at least in part could take a downward turn at any time.

Entering into an agreement that lasts six years is riddled with risk. The 2013 plan was not implemented until 2015, meaning we have only been under it for two years yet changes likely need to be made. Why not agree to a shorter period such as two or three years to see how things go?

Why October 15th?

At the presentation, Santulli and Krusen were clear that their proposal is off the table if the city does not agree to it by October 15th. In the absence of an agreement, the current plan will expire, resulting in even greater harms to the city than it currently faces.

However, in the letter from Krusen attached to the January CGR report and cited above, the county had planned to simply extend the current agreement out for one or two years to gather additional data about how things were working.

Is there a reason why a deal this important needs to be rushed? Wouldn’t it be more prudent to be thorough as opposed to expedient?

Public input is the way to go

Finally, even though the legislative chambers was filled to near capacity on Tuesday night with elected officials from the city and other parts of the community, as well as most of the candidates running for local office this fall, no questions or comments from the audience were allowed. Santulli explained at the start of the presentation that it is standard practice to not allow such audience participation during committee meetings.

Under these circumstances, i.e. the coupling of an issue this important with an expectation that the legislature could be asked to vote on the proposal as early as next week, allowing questions and comments from people seeking to better understand the changes and its underpinnings would have been appreciated by those in attendance.

Nonetheless, the county can call for a public hearing on their proposal so that elected officials and people trying hard to understand what it means can have their questions answered. Anything short of that leaves the community disenfranchised on a decision that could impact all parts of our county for the next six years.

-Christina Sonsire