Sales tax surge offers relief as New York readies for federal funding shock

ALBANY, N.Y. (NEXSTAR) — Counties and cities saw local sales tax collections rise through September, giving municipalities a financial boost despite warnings from New York’s top fiscal officer about major deficits ahead. Comptroller Thomas DiNapoli reported on Thursday that local government sales tax collections increased 4.3% from last year.

Total sales tax collections from January through September totaled $18.2 billion, compared to $17.4 billion in 2024. After a strong start in January (5.8%), the fastest growth was during August (7.7%) and July (6.9%). Average rate of growth was slowest in March (1.4%) and September (2.4%).

Local officials rely on sales tax collections to set budgets each year, and rely on consumer spending growth to create bigger budgets. Overall, every region of the Empire State experienced year-over-year growth in sales tax.

New York City collected about $970.6 million in September, and from January to September, collections increased overall by 5.7%, totaling about $8.1 billion. Collections outside of the Five Boroughs grew slower, at a 3% average. Regional numbers varied from a low of 0.6% in the Mohawk Valley to a high of 4.3% in Western New York.

Hamilton County led the state at 12% growth, but six counties actually experienced declines. Among those, the worst sales tax collections were in Sullivan County, which decreased by 4.7%, followed by Schoharie County at 4.4%. Among the cities that impose their own sales tax, Norwich saw the largest growth at 17.2%, but Utica had the sharpest decline at 8.9%.

Still, “Federal policy actions create significant fiscal risk for municipalities amid signs of a slowing economy,” DiNapoli said. He recommended that municipalities work with his office to make sure they’re not in the red.

The comptroller’s office previously reported that the general fund, New York’s primary checking account, had ended September with a reserve of $57.6 billion—$5.2 billion above last year, $4.1 billion higher than the Division of the Budget projected, and consisting of past budget surpluses. That report revealed that tax collections had also defied predictions, with personal income tax receipts $756.5 million higher and consumption taxes $253.4 million higher than anticipated.

Still, the general fund showed a deficit earlier in the year. DiNapoli’s June Cash Basis Report said payouts increased by almost 24% for the three months before July, causing a $1.2 billion cash deficit that quarter.

And DiNapoli had also previously warned that the state faces a $34.3 billion cumulative budget deficit over the next three years. He owed that structural deficit partially to cuts in federal funds from the budget President Donald Trump signed on July 4, the One Big Beautiful Bill Act.

The comptroller estimated that the lost federal receipts could total up to $29.6 billion in the next few years. Particularly impacting healthcare and nutritional assistance, the cuts also target clean energy programs, which DiNapoli said will make the transition to clean energy slower and more expensive for consumers and small businesses.

Greater state spending helps drive the long-term deficit, too. Medicaid and school aid were the main drivers of an overall increase, growing faster than any other sector. State operating funds spending for Medicaid is projected to have grown by almost 120% between fiscal years 2016 and 2026, while school aid will have increased by 58.7%.

According to the comptroller’s office, all the money spent by the state grew by 6.7% through September, a spike mostly attributed to higher Medicaid costs. Spending on day-to-day government operations using state operating funds also grew by 8.7% over that period, underlining the inflated cost of providing state services. Total state spending reached $119.9 billion through September, almost $7.5 billion more than the same period last year.

The comptroller previously projected that state operating funds spending will grow 13.9% over the next several years, outpacing a projected 4.6% growth in revenue. And DOB previously projected that all spending would top $250 billion in fiscal year 2026. Plus, they projected that Medicaid spending alone will approach $112 billion that year, making up 44.1% of the entire budget.

To pay for major projects—like building roads and schools—New York issues bonds and takes on debt, which is ultimately backed by taxpayers. Dinapoli’s August report projected that such debt would likely spike by over 70% in the next five years, from $55.9 billion to $95.1 billion.

Heavy borrowing, particularly through public authorities like government agencies, gives the state one of the highest debt burdens in the nation. It also pushes us toward our debt limit—the maximum New York can legally owe—making it harder to finance future projects. DiNapoli said he has urged state leadership to find savings that simplify government operations so we can faced own debt and deficits without losing essential services.