Both sides said they supported lower taxes, but the devil was in the details at a recent meeting of the Dutchess County Legislature.
The Legislators voted to impose an increase in the mortgage tax of one-quarter of 1 percent (for a level of 1.25 percent) by a vote of 13-12 that split along party lines. Legislators also extended the 3.75 percent sales tax by a 15-10 vote at their Sept. 10 meeting. Democrats Alison MacAvery (East Fishkill/Fishkill/City of Beacon) and Ronald Ray (City of Beacon) joined the Legislature’s 13 Republicans in support of the sales tax vote.
Republicans said the county was depending on revenues the taxes would generate. Those funds were accounted for in the 2007 budget and are now required to keep the budget on track, they said. Not imposing the sales and mortgage taxes would have result in a shortfall and a rise in the total tax levy next year, according to majority leader Noreen Reilly (R-Hyde Park). Moving forward with the taxes planned was necessary for a balanced budget and stable property taxes, Reilly said.
But Democrats rejected the notion that not supporting the sales and mortgage taxes amounted to a property tax hike for 2008. Democrats said they did not want to see the county move forward with sales and mortgage taxes on top of a double-digit property tax levy increase that they had rejected during the budget vote in January.
“Everything doesn’t translate into property taxes,” said Diane Nash (D-Hyde Park). “How about cutting some unnecessary spending,” she said. Fred Knapp (D-City of Poughkeepsie) said the sales tax was “coming out of the pockets of our residents” just like the property tax.
This month’s vote marks the second time the sales tax has been extended at the 3.75 percent level after a three-quarter of one percent increase was approved in 2003. Democrats said that increase was supposed to sunset; Republicans countered that the sunset clause was added in response to state requirements.
Tapping the fund balance
Republicans criticized legislators on the other side of the aisle for suggesting the county’s fund balance – the amount in reserve at the end of the budget year – could be tapped to avoid a sales tax extension and mortgage tax increase.
“Is the answer always to diminish the reserve?” asked Reilly, referring to previous suggestions from Democrats to tap the balance.
Budget director Valerie Sommerville cautioned strongly against relying on the fund balance as a source of revenue or an alternative to imposing taxes. The balance should be held in reserve for unpredictable costs, such as settlement agreements with unions, she said.
Democrats had inquired about alternative revenue streams and money in the county’s fund balance. At the end of 2006, $21.8 million was available. Sommerville declined to estimate the current level, which irked Democratic legislators. Fred Bunnell (D-Town of Poughkeepsie) said he wanted Sommerville to respond to repeated inquiries on “what the devil the fund balance really is.”
Sommerville said she wanted to dispel the misconception that the balance was “big pot of money” – the fund balance was “not cash sitting in a reserve,” she said. Moody’s credit rating service and other authorities recommended keeping a minimum fund balance of 5.7 percent of the total budget, but Dutchess County had dipped below that and was now in danger of losing its highly favorable credit rating, according to Sommerville.
The two taxes – sales tax and the mortgage tax – were the subject of similar debate in Legislature chambers in April. The Legislature narrowly passed resolutions to advance the taxes by approving a “home rule” request to the New York State Legislature – a housekeeping measure required to levy the taxes. With approvals from Albany, the next step was the one taken this week – voting to impose the taxes.