In Nassau, sales tax revenue is running less than 0.9 percent ahead of 2006 figures, about a quarter of the county's original projected growth of 3.6 percent for 2007. Suffolk, which began the year with a more conservative sales tax projection, also will fall short of its initial target, according to budget officials.

A pending 'tsunami'?

"The counties are just sitting there waiting for this tsunami coming at them of declining tax revenues," said Martin Cantor, director of the Long Island Economic and Social Policy Institute at Dowling College. "There's no new revenues coming in and it's going to get worse."

The Nassau Interim Finance Authority, a state board that started monitoring the county's finances after the 1999 fiscal crisis, is concerned enough about the potential shortfalls that it has directed Nassau to provide a contingency budget on Jan. 15 indicating what the county will do if revenue doesn't come in as expected.

"We're concerned about declining tax numbers not just in Nassau County but in Suffolk and around the region," NIFA member Richard Kessel said last week.

"The trend right now is a significant slowdown in sales tax revenues to state and local governments," Kessel said.

The Long Island counties so far have been insulated from the fallout from the subprime mortgage crisis, according to officials, because they are less reliant than many other municipal governments on property and mortgage transfer taxes.



Reason for concern

But Nassau and Suffolk are heavily reliant on sales taxes, which make up about 40 percent of their budgets; Suffolk's budget for next year is $2.8 billion while Nassau's proposed budget is $2.5 billion. With indications of a slowdown in retail spending and little optimism for relief from holiday spending on the horizon, experts are concerned.

Suffolk had projected an increase in sales tax receipts of 2.75 percent over 2006, but collections are running only 2.5 percent ahead. The difference amounts to nearly $3 million, officials said.

"There is no question that the tanking of the subprime market does have a deleterious impact on county government because people don't have the disposable income as they once did and they're not investing in home expansion or new homes that filters out through the economy," Levy said.

Falling home values and tightened loan requirements mean residents are less able to draw equity out of their homes, which they then could devote to retail spending that generates sales tax revenue.

Levy said that if such revenue figures "trend downward, we will need to further control" spending by "perhaps filling fewer approved positions and tightening supplies and materials across the board.

"It would all depend upon if a shortfall is identified and how much it is determined to be," Levy said.

Legis. Ricardo Montano (D-Central Islip), chairman of the Budget and Finance Committee, agreed that if sales tax collections come in short of projections, the legislature and Levy would have to do some belt-tightening.

"If we have a shortfall, the likely areas we'd look at are a hiring freeze, cutting back on purchases and imposing cuts," Montano said.

Nonetheless, Montano, Levy and others said it's unlikely Suffolk will end the year with a deficit. Not only do spending trims remain a possibility, but Suffolk is expected to end the year with a surplus of more than $100 million, Montano said.

Suffolk is in a better state than Nassau," Cantor, of Dowling, said. "It has a surplus. It wasn't in a mess in the first place," he said, referring to Nassau's 1999 financial crisis.

For 2008, Nassau is projecting sales tax growth of under 2.5 percent, while Suffolk's calculations predict a rise of 2.25 percent.

Legis. Lisanne Altmann (D-Great Neck), chairwoman of the Nassau Legislature's budget review committee, said Nassau officials will have no choice but to raise taxes.

"I don't know where there is to cut," Altmann said. "There is no way that Nassau County can get away without raising property taxes if the sales tax keeps falling."

Nassau County deputy county executive for budget and finance Tom Stokes said it was "much too early" to discuss whether a property tax increase will be needed.

Stokes said the county first would seek ways to increase government efficiencies before increasing taxes.

"Property taxes are the number-one concern of the constituents of Nassau County and the county executive understands that," Stokes said. "In terms of going forward next year, the approach is to aggressively go after these smart government initiatives."

Stokes said next year's budget includes a $10-million contingency fund to cover revenue shortfalls. Savings initiatives include inventory management and efforts to draw more state and federal money to pay for eligible programs. Also, about 200 vacant nonpublic safety positions are in the budget and could be trimmed if necessary, Stokes said.

In Suffolk, some officials also are eyeing a recent drop-off in property tax receipts - typically one of local government's most reliable income streams - as ominous. Suffolk legislators received a report earlier this month that the county will fall at least $5.5 million short of its $42.5-million property tax target for the year.

Loren Houghton, finance director for the Suffolk treasurer's office, blamed the shortfall on the general economic slowdown that's followed the subprime mortgage crisis.

"It's the economy," Houghton said. "It's definitely going to have an impact this year and next year."

Nassau County is on pace to meet its property tax collection target, treasurer Steven Conkling said.

As they look toward 2008, several officials note that low initial interest rates on many mortgages are set to rise.

If foreclosures rise, banks will continue to make it more difficult to qualify for home loans, which could discourage new buyers and depress the market, said Pearl Kamer, chief economist for the Long Island Association.

That could mean less sales tax revenue in county coffers, which would likely force either spending cuts or a property tax hike, neither a terribly popular option with voters, Kamer said.

"We should know certainly by the spring of next year how bad it's going to get," Kamer said. "I suspect it's going to be well into 2009 or 2010 before it unwinds or stabilizes.

"We haven't seen that many problems yet," Kamer said. "But the future looks pretty dismal."