New York’s local governments are bracing for financial challenges as federal pandemic relief funds expire, potentially creating budget shortfalls that could impact essential services, according to a new report from the state comptroller’s office.
The report highlights how cities, towns, and counties relied heavily on American Rescue Plan Act (ARPA) funding, which provided nearly $4.8 billion to municipalities outside of New York City in 2021 and 2022. However, with these temporary funds running out and a return to pre-pandemic levels of state aid and sales tax revenue, many local governments are at risk of hitting a “fiscal cliff.”
Cities are particularly vulnerable, with ARPA funding making up 14.4% of their total revenue in 2019, compared to 5.3% for towns and 3.2% for villages. The City of Utica received ARPA funds equal to 33% of its 2019 revenue, while Buffalo’s aid accounted for nearly 31%. Now, both cities are facing budget shortfalls, prompting property tax increases to fill the gap.
“The loss of these federal funds could force some municipalities to make difficult decisions, including raising taxes or cutting essential services,” the report states.
Beyond the expiration of ARPA funds, other financial pressures are mounting. Sales tax revenue growth has slowed after a pandemic-era surge, while state aid has failed to keep pace with inflation. Meanwhile, property tax caps limit how much local governments can raise to offset revenue declines.
To avoid severe budget crises, the report urges municipalities to assess whether they used one-time federal funds for ongoing expenses and to adjust their financial strategies accordingly. Recommendations include multiyear financial planning, communicating with taxpayers about budget realities, and identifying alternative revenue sources.
With federal pandemic relief winding down, local officials must now navigate an uncertain financial future while ensuring they can maintain public services.
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