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Nassau County Comptroller’s Report

County’s Economic Good News And Bad News

Sales tax revenue is the County’s biggest source of income, accounting for over 40 percent of total annual revenues. Sales tax is also a good barometer of the County’s economic activity and economic health. Therefore, it is gratifying that the final sales tax figures for 2013 show an increase of 6.3 percent to $1.13 billion over the prior year. This was on top of another healthy increase of 4.2 percent in 2012. 

 

These sales tax growth figures would seem to imply that Nassau County has recovered well from the recession and Superstorm Sandy, and in fact it has, with unemployment now under five percent, well below the national and state averages.

 

Yet, some worrisome signs appeared towards the end of 2013. The sales tax revenue during the holiday shopping season declined an astounding 12.4 percent when compared to the same period in 2012. This local tapering off at year end is especially concerning because nationwide retail sales were up 0.2 percent and the national economy grew by 2.4 percent. 

 

The question that arose was whether our local economy was slowing more than the national average or were there other factors at play? One factor accounting for the significant drop in sales tax receipts towards year-end may have been a shift in consumer shopping habits from brick-and-mortar stores to online, which reduced the amount of sales tax revenue. The latest U.S. Census Bureau statistics project online sales to have increased 12.5 percent for 2013 through the third quarter, tripling since 2004. Another factor
for the drop-off in holiday sales tax receipts may also be due in part to flat income growth for consumers; income grew only .25 percent in November and not at all in December.  

 

At first glance, the combination of flat income growth and the shift from brick-and-mortar stores to online appeared especially troubling to Nassau County as well as other municipalities which rely heavily on
sales tax revenues and local consumer spending to generate jobs. However, a recent federal court decision requiring online vendors such as Amazon to collect and submit sales tax now appears to have provided a huge boost to sales tax revenues, up about 9.7 percent in the January-February period. These were sales that were not taxed previous to 2014. This trend is now anticipated to provide higher sales tax revenues in 2014 than the two-percent growth projected in the County’s 2014 budget.

 

The bad news is that the accelerating shift to online sales will mean potentially lower sales going forward for brick-and-mortar stores and f
ewer local jobs at retail stores. Additionally, the absence of income growth will further dampen sales and jobs, not only in retail, but all the sectors of our economy. Our local economy may have to adjust to the new realities, and policymakers should continue to strive to create good-paying jobs in other sectors, especially in the growing technology, bio-sciences and health care industries.