After facing criticism for cutting state aid to towns and villages in his proposed 2019-20 budget, Gov. Andrew Cuomo now proposes to have counties pay for it using new revenue from a proposed internet sales tax.

The cutting of Aid and Incentives for Municipalities funding was fiercely opposed by town and village officials around the state. Franklin and Essex counties would see 28 of their 37 towns and five of their seven villages lose AIM funding.

Cuomo’s updated budget proposes to use new internet sales tax revenue to “keep towns and villages whole,” but not the state’s 4 percent sales tax.

This was announced as one of Cuomo’s budget adjustments as New York faces an unexpected $2.3 billion deficit.

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AIM background

In January the governor proposed to save almost $60 million this coming fiscal year by cutting towns’ AIM from $47.9 million to $5.2 million and villages’ from $19.7 million to $3.3 million — a total reduction of $59.2 million.

AIM helps towns, villages and cities other than New York City. It has remained flat in recent years, but Cuomo’s budget would zero it out for any municipality where AIM made up less than 2 percent of its 2017 total expenditures, leaving those that rely on it most with the same amount as last year.

That means cities, which get the majority of AIM, would all be safe from the cut, but 846 of the state’s 932 towns and 480 of the state’s 516 villages would lose all their AIM.

Though the state budget office initially said these towns and villages could afford the cut, a rapid statewide response from local leaders has led to the updated budget seeking additional sources for AIM funding.

“The original proposal only impacted localities receiving a relatively small amount of money, but I have been contacted by mayors and local officials who say in these tough times it would still be a challenge for them,” Cuomo said.

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AIM redux

The addition of an internet sales tax is meant to keep state retailers competitive with out-of-state online sellers. In New York the state charges a 4 percent sales tax and each county charges a different amount. Franklin and Essex counties charge a 4 percent sales tax, resulting in an 8 percent total.

“New York’s brick and mortar retailers are currently at a disadvantage because many online retail competitors are not collecting sales tax,” Cuomo said.

State Division of Budget Spokesman Morris Peters said this new move is expected to bring in $390 million for counties across the state in sales taxes that were not collected previously, and around $220 million in revenue for counties outside New York City, the ones impacted by the AIM cut.

Peters said most counties already have sales tax sharing agreements set up with villages and towns. Essex County has such an agreement with its towns, but not villages. Franklin County has no such agreement.

Because local municipalities will need the resources soon, the budget proposes to start the internet sales tax in June instead of September.

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Not good enough

Municipal associations issued press releases saying this plan would only cause more problems by not directly addressing the funding problem.

New York State Conference of Mayors and Municipal Officials Executive Director Peter Baynes called it a “shell game.”

“While we appreciate the fact that the Governor has acknowledged that the elimination of AIM funding would have serious implications for the state’s villages and towns, his ‘restoration’ of this $59 million is in reality a robbing of one property taxpayer to pay another,” Baynes wrote in a press release.

Baynes clarified in a phone interview that the taxpayer being robbed and the taxpayer being paid are actually the same taxpayer, paying more village and local taxes and having that replaced through higher county taxes.

Peters explained why the counties should put internet sales tax money toward AIM and not the state.

“The state is continuing to absorb costs on behalf of counties,” Peters said, “An example is the Medicaid growth takeover. It used to be that every year as Medicaid costs continued to go up, counties would absorb some of that cost increase and the state would absorb some of that cost increase. What we did several years ago was say that the state is going to absorb all of the local cost increases, so the counties are never going to go up again. This is an enormous expense to the state budget, the value of that this year alone is $3.7 billion.”

New York is one of the only states that requires counties to pay part of Medicaid, which takes up a large portion of county budgets. Baynes said the state should manage its shortfalls the same way it asks smaller municipalities to.

“It’s ironic that the $2.3 billion shortfall … it’s what they would deem ‘not significant,” Baynes said.

The cut in AIM funding would eliminate the funding totally for any municipality where AIM made up less than 2 percent of its 2017 total expenditures. The state’s total budget is $175 billion and the $2.3 billion deficit takes up 1.3 percent of that.

“(Counties) would like to use it for property tax relief,” Baynes said of the internet sales tax revenue. “They shouldn’t have to be mandated to use it to make up for the state elimination aid to local governments.”

“Sharing sales tax should be on top of proper state funding,” New York Association of Towns Executive Director Gerry Geist wrote in a press release. “This proposal does nothing to reduce property taxes, and takes money out of one hand to pay the other.”

“We are still bringing new revenue into the state through the elimination of the internet tax advantage,” Peters said. “When you take $59 million out of that, it’s still a lot of new revenue that we’re providing them.”

The state’s increased revenue from the internet sales tax will go into its general fund.

Earlier this week, Cuomo spoke with President Donald Trump in Washington, telling Trump that his Tax Cuts and Jobs Act, which passed last year and put a $10,000 cap on the federal deduction for state and local taxes — known as SALT — was causing a sharp decline in New York’s personal income tax collections in recent months.

Cuomo blames the SALT cap for New York’s current budget deficit.

“The federal government’s politically motivated changes to state and local tax deductibility have already cost New York $2.6 billion,” Cuomo said. “As Washington continues their economic civil war by restructuring the economy to benefit red states, we are taking action to maintain a strong Financial Plan and safeguard New York’s fiscal integrity.”