It’s budget time in New York, and local governments may face increased budget challenges this year due to factors like the expiration of federal pandemic-era aid, state aid not keeping up with the pace of inflation and slower growth in local revenue, according to a report released Tuesday by state Comptroller Tom DiNapoli.

According to DiNapoli, federal stimulus during the COVID-19 pandemic from the CARES Act of 2020, American Rescue Plan of 2021 provided the fastest growing source of revenue for local governments during that time, and they were required to obligate by the end of 2024 and spend by the end of 2026. The report said outside of New York City, counties received the most federal stimulus funds in terms of overall dollars, while American Rescue Plan funds represented 14.4% of total 2019 (pre-pandemic) revenues for cities, 5.3% for towns, 4.5% for counties and 3.2% for villages.

Regarding state aid, the Aid and Incentives for Municipalities (AIM) program represents the largest amount of unrestricted state aid to local governments, and is used by cities to pay for things like supplies and wages for police officers and firefighters. After a major push from mayors and local officials, state lawmakers earlier this year in their state budget provided a bump of $50 million to the AIM program, the first increase in 15 years. DiNapoli said when adjusting for inflation, AIM funding has declined nearly 30% over that time, and is now worth less to local governments than what they received in fiscal year 2004-05, the year before the AIM program started.

Another factor the report found is local sales tax. For most of 2021 and in part of 2022, local governments outside of New York City saw double-digit year-over-year percentage increases in local sales tax collections after experiencing a 19% decline during the height of the pandemic. Earlier this month, the comptroller’s office reported that sales tax collections in New York state increased by 1.6% in 2024, the slowest annual growth since 2020.

DiNapoli said local property taxes continue to be one of the largest and most reliable sources of revenue.

Although the rate of inflation has been decreasing, it remains over 2%, setting the property tax cap at 2% for municipality fiscal years beginning in 2025, though under the property tax cap, local governments are generally required to limit the growth of property tax levies to the lesser of 2% or the rate of inflation. Although the rate of inflation has been decreasing, it remains over 2%, setting the property tax cap at 2% for municipality fiscal years beginning in 2025.

“With pandemic aid coming to an end and uncertainty coming out of Washington, local governments need to shore up their fiscal foundations,” DiNapoli said in a statement. “By focusing on ensuring structural budget balance, using realistic revenue projections and multiyear planning, local governments will be better positioned to weather whatever financial challenges lay ahead. My office continues to support local governments by offering resources to help with financial planning and management.”

DiNapoli recommends local governments ensure any American Rescue Plan funds are spent before the 2026 deadline; communicate with taxpayers regarding the use of additional aid over the past few years; and engage in multi-year planning to better understand the implications of current revenue and expenditure actions for out-year budgets, among other things.