Research conducted by Long Island Life and Politics has concluded that Suffolk has banked over $700 million in reserve funds – much of it due to federal COVID grants – and few people, even legislators, know about it.
Usually, a major catastrophe such as the September 11, 2001 terrorist attacks or the real estate collapse of 2007 can have a devastating impact on state and local budgets. But an analysis of the aftermath of the 2020 coronavirus pandemic shows that Suffolk County was able to amass a record amount of unanticipated revenues flowing into its coffers over a three year period.
It is counterintuitive to think that a county would benefit financially from a pandemic, but, at least financially, that’s what’s happened in the Suffolk budget.
A detailed analysis of the county budget since March 2020 shows that the county has amassed almost $1 billion in revenues that would not have been amassed without the massive federal grants or charged economy due to the federal COVID stimulus policies. Equally astonishing is that over $700 million is still at this point parked in various reserve and contingency funds sprinkled throughout the budget. The county is now flush with more money than it has ever been before.
How did this happen?
We go back to 2020 when various states throughout the nation shut down their businesses and their economies. Schools were shuttered and most retail outlets were as well, except for various specifically exempted businesses.
This led to an initial cratering of the economy. The stock market dropped precipitously. Millions of people lost their jobs. Many businesses closed down never to reopen.
But fearing the possibility of the depression, the federal government swept in and passed bills that transferred trillions of dollars to local governments and local economies. It started in late 2020 when the Trump administration, with the assistance of Congress, passed the Cares Act.
Those who were told to stay home collected unemployment insurance, not only from the state, but they also received additional bonus checks from the federal budget. Businesses received billions of dollars in the PPP loan programs, much of which was forgiven. Low interest and no interest loans were provided for various businesses as well. Huge child tax credits were handed out to families in the form of checks that amounted to up to $3000 per child.
As the economy started to revive in early 2021, after the vaccine became prevalent, the incoming Biden administration teamed with the newly elected Congress to place the economy on steroids with yet another massive infusion of $1.8 trillion in additional money to businesses and residents. This was done despite the fact that the economy was already recovering.
This led to record spending on retail products. That in turn led to an enormous influx of cash that came from taxing these retail sales. Suffolk experienced an unprecedented and monstrous 23% increase in its total sales tax revenues in 2021, according to the Suffolk Legislature’s Budget Review Office (BRO).
The county’s General Fund was bringing in well over $1 billion annually from sales tax revenues. A 23% increase on that base led to hundreds of millions additional unanticipated dollars flowing into the county budget that was not returned to the taxpayers. These extra sales tax dollars from 2021-2023 coupled with the direct COVID grants from the state and federal government, amounted to almost $1.5 billion cumulatively over and above what the county brought in for a normal year.
Below is a chart from the BRO report of sales tax collections over the last decade:
p9. 10/28/2022 (first column is actual year over year growth, second column is cumulative growth from the 2012 base.)
So where did the money go?
A deep dive into the details of Suffolk County budgets from 2020 to the present shows with greater clarity how reserve funds jumped from under $100 million prior to the pandemic to well over $700 million today.
As hundreds of millions of dollars funneled into the county as a result of direct federal grants and sales tax collections, county budgeters began sprinkling the money into up to ten different reserves so that they could be used at a later date.
The lion’s share of the new found revenue was deposited into the five biggest reserve funds: capital, tax stabilization, retirement, debt service, and insurance,
- Fund 401, capital reserve – had $6,508,334 in actual funding in 2020. That amount soared to $30,051,661 on hand today.
- Fund 403, tax stabilization – its $49,918,019 in 2020 increased to $254,209,444 in the reserve today.
- Fund 420, retirement reserve – had $44,400,971 in 2020, yet today has $210 million.
- Fund 428, debt service – had no money in the account in 2020, but is now at $166,281,959.
- Fund 438, insurance reserve – had approximately $1 million in 2020 and now has $16,200,000.
The total reserves the county had in 2020 (before the pandemic) was $98,827,324. That number skyrocketed to $720,743,060 in these accounts today.
There has been almost no commentary by county legislators about these reserves or even an acknowledgement that they are even aware of the enormity of the unanticipated funds.
Furthermore, there appears to be no strategic policy options that have been discussed as to how to best deal with this unprecedented amount of money circulating within the county budget.
The exposure of the huge reserve funds have profound fiscal implications. For instance, there is currently a movement afoot to increase the county sales tax by an eighth of a cent to help fund environmental projects. One might ask why would that even be entertained if all of this money is presently available?
Then there is the question of how much the county’s unions might be seeking in pay raises knowing that there’s all this money out there. While individual legislators might not be aware of the scope of these figures, it is unthinkable that union leadership is not aware since they maintain former budget analysts on the payroll.
So the question must be asked as to how much of this money should be used for tax relief or retiring debt. How much should be used for environmental purposes or enhancing county health care? What about the county‘s transportation or public safety needs?
How much of the reserves should be kept in place to mitigate future tax increases, since the federal money will not be recurring?
These are important policy matters that must be discussed as soon as possible. The county executive will present the 2024 operating budget in September. Without an adequate analysis by the legislature regarding these reserve funds within the next several months, they will be reacting to a budget presented in the fall that gives them very little time to provide for a cogent policy perspective of their own.
Will the legislature move forward with a permanent increase in the sales tax while ignoring these reserves? Time will tell.