MAYVILLE - The county can no longer afford to pay revenue to local municipalities from a tax it's not collecting.
Cutting the "hold harmless" payments is one of the ways in which County Executive Greg Edwards has proposed balancing the 2012 budget.
The payments go back a few years, to when the county eliminated its tax on residential energy in 2008.
The home heating tax used to total $5.3 million in revenues each year. Of that amount, the county gave its towns, villages and cities a total of $2.1 in payments.
In the legislation eliminating the tax, Assemblyman Bill Parment, D-North Harmony, included a provision which required that the local municipalities would be held harmless. As a result, the county has in recent years been paying the $2.1 million sum out of its fund balance.
The purpose of the provision was so that towns, villages and cities would not see any reduction in their revenues as a result of the tax exemption. The county, however, had to make up the entirety of the $2.1 million loss of revenue.
Now Edwards is proposing to cut that payment to local municipalities in 2012. The change makes sense for the county, but will mean a loss of revenue for the towns, villages and cities.
"Up until this next year," Edwards said, "we have found ways to absorb that money through efficiencies, cuts and eliminations of programs and expenses. My position on 2012 is that we can no longer afford to hold towns, villages and cities harmless, paying them $2.1 million that we don't have when our sales tax has once again been reduced."
Currently at 7.75 percent, the county's sales tax rate will drop to 7.5 percent on Dec. 1 - meaning a $3.25 million loss in revenue, according to Edwards.
A document detailing the breakdown of the hold harmless payments can be found online at www.post-journal.com with this article.
For the county's two cities, the payments total $676,817. For the towns and villages, the payments total $1,423,183. The payments, however, change yearly, as population and assessed valuation of property changes.
To go into effect, the proposal to eliminate the payments will have to pass both the County Legislature and the state. However, even then, the earliest the change could go into effect will be the 2012 budget - meaning the proposal will have no effect on the 2011 county budget or the budgets of the local municipalities next year.
If the county quits the payments in 2012, the city of Dunkirk will lose roughly $196,991 in revenue while the city of Jamestown will lose roughly $479,825.
Explaining the history of the hold harmless payments recently, Edwards said Parment's provision added insult to injury by taking away the county's revenue yet forcing the county to continue to pay local municipalities. Though aware that local elected officials might see the stop in payments as passing the buck, Edwards pointed out that it's not as if the county is keeping actual revenue from them.
"This isn't money that we're collecting and not giving them," Edwards said. "That's the distinction that I'm very interested in driving home. This is not money that we're keeping from them. We just simply cannot continue to give them our money any longer. I know that it's very difficult at all levels of government, but in this particular case, it is not in any way shape or form some unfunded mandate. They don't have to deliver state services. It's just that we cannot continue to take property tax dollars from people and then use that to offset tax money that we're no longer receiving."
In his budget proposal for 2011, Edwards is again taking money from the fund balance- the fund which the county has been using in recent years to make the hold harmless payments. During the recent budget review by the County Legislature, legislators spoke about the now quickly depleting fund balance and the need for cuts to be made in the coming years.
"I understand that the county simply can't continue to give away their general fund money," said North Harmony Town Supervisor Sally Carlson. "We're all in a bad place right now and we've just got to find some way to get out from under it. So if that means that they're not going to give us the money, we're going to have to find some place to cut that from somewhere else. But with having a year in advance notice, that certainly is going to help."
The municipality's 2010 budget totaled $1,670,937, with $610,900 of that amount raised through taxes.
North Harmony received a total of $539,000 in sales tax in 2010, making the hold harmless payment a 10 percent loss if cut. Just as concerning, Mrs. Carlson said, is what the decrease in the county's sales tax rate will mean to the town's revenues in the coming year.
"It makes me really nervous," she said.