A sales tax increase for New York’s Westchester County should provide new recurring revenue to restore structural balance after years of weak reserve levels, according to S&P Global Ratings.
The suburban county on New York City’s northern border will raise its sale tax rate one percentage point to 8.375% on Aug. 1. The move follows a bill signed by New York Gov. Andrew Cuomo on June 30 that provides Westchester and other municipalities across the state statutory authority to raise their local sales taxes.
S&P credit analyst Jeff Sexton wrote in a report Monday that the higher sales tax rate will bring Westchester an estimated $47 million of additional revenue for the 2019 fiscal year. A full year of the sales tax is projected to generate around $90 million in net recurring revenue, which comprises about 4.6% of the county’s 2019 budgeted expenditures.
S&P and Fitch Ratings both downgraded Westchester’s general obligation debt one notch to AA-plus from AAA last November citing narrow fund balance levels. The S&P rating action also kept the county’s outlook at negative a year after revising it from stable due largely to concerns about a lack of permanent revenue measures. Moody’s rates Westchester GO bonds Aa1 with a negative outlook.
Sexton noted that the new revenue can help Westchester build reserves and provide flexibility for the county to meet growing expenses needed for recently settled labor contracts along with rising contributions for pensions and healthcare benefits.
“The rating agencies will see that there is a consistent commitment now to restore our fund balance and we believe that is the fastest way for us to restore our credit rating,” Westchester County Executive George Latimer said during a July 1 press conference. “We look forward to not needing one-shots in the future to balance the budget.”
Latimer announced Monday that the county is moving $5 million into its reserve fund in anticipation of receiving the new sales tax revenues. He also pledged to keep county property taxes flat in his next two budget proposals.
School districts and local governments within Westchester could also stand to benefit because of increased operating revenue that will result from a county sales tax sharing agreement, according to Sexton. Localities under this agreement have historically received around $120 million in distributions and may receive as much as $40 million in additional revenue following implementation of the rate hike, Sexton said.