Grim Revenue Outlook in Sullivan County After State’s Steepest Sales Tax Drop

Sullivan County is facing the steepest first-quarter sales tax decline in New York State, a drop that county officials say is raising urgent questions about development trends, infrastructure limits and the future of the county’s largest revenue source.

County Director of Communications Dan Hust said the decline has continued to deepen since the first official figures were released.

“It’s showing the last that we had officially was 16 percent down from this time last year in sales tax revenue. I think it’s getting closer to 20 now from what I’m hearing. And we’re monitoring it of course very closely,” Hust said.

The decline stands in contrast to statewide and regional trends.

The Mid-Hudson Region posted a 5.2% increase in sales tax collections during the same period, with Dutchess, Orange, Putnam, Rockland, Ulster and Westchester counties all reporting year-over-year gains. Across New York State, local sales tax collections rose 5.1% to a total of $6.1 billion in the first quarter.

Among the 10 counties that saw first-quarter decreases, Sullivan posted the largest percentage drop, followed by Montgomery County at 8.1%, Lewis County at 6.6% and Monroe County at 5.1%, according to the State Comptroller’s report.

Hust said the legislature has asked for more answers from the state to better understand what is driving the shift.

“The legislature had me write a letter to the state office of taxation and financing. Help us out here. What is going on?” he said.

While state officials cannot release business-specific data, Hust said county leaders are focusing on broader patterns—particularly in construction-related spending.

“In industry categories, we’ve seen the biggest drop in building construction materials. So, that was discussed as you said at length at legislature yesterday. More so not necessarily shedding any huge light on the matter just saying we’re investigating and preparing everybody for what could be further declines,” he said.

County leaders have warned that the sales tax downturn is especially concerning because it has become the county’s primary revenue driver in recent years.

“This is very alarming and very disturbing for us. It’s up till recently been our primary revenue generator. It was actually outpacing since the pandemic outpacing property taxes, no longer,” Hust said.

County Manager Joshua Potosek has warned the county could fall as much as $14.5 million short of projections if the trend continues. Hust said officials are not downplaying that risk.

“I’d say [it’s] serious. I’m not going to sugarcoat it. Obviously, we hope it turns around,” he said.

He noted that the county typically sees stronger sales tax receipts in the summer, but cautioned that the downturn may continue even during peak tourism months.

“We are coming into the summer which typically sees higher sales tax generation. But that we are still seeing a decline year over year that may continue into the summer,” Hust said.

One of the biggest concerns, officials say, is the role of construction activity and where materials are being purchased. Hust said the county believes at least part of the decline may be tied to purchases happening outside Sullivan County.

“There was a time where they’re being purchased inside the county, but now apparently folks who are developers who are doing building in the county are finding cheaper materials outside Pennsylvania, Orange County,” he said.

He explained that sales tax revenue is highly sensitive to where transactions occur and how goods are delivered.

“If you purchase something at say Home Depot in Middletown and you bring it home to Sullivan County, Orange County keeps that entirety of the sales tax. Only if Home Depot were to deliver it themselves to your home here in Sullivan County, would Sullivan County get a portion of that sales tax revenue,” Hust said.

Beyond construction trends, county officials are also pointing to infrastructure constraints as a major barrier to growth, particularly water and sewer capacity.

“There are people who are looking to create warehouses and businesses and offices that would generate jobs and tax revenue, but as soon as they find out there’s no sewer or water service available where they’re going, they just like, ‘No, we’re going to go where that is,’” Hust said.

Still, Hust said the broader challenge is economic positioning. County leaders, he said, are increasingly focused on encouraging larger-scale development alongside small businesses and tourism.

“We really need to be bullish about attracting economic development, not just, you know, the mom and pop stores that are wonderful in our downtowns, but also larger scale projects,” he said.

At the same time, county officials are warning that continued revenue declines could eventually affect services, despite efforts to control costs.

“I’m afraid so. There that that could be coming down the pike,” Hust said when asked about potential service impacts.

He said departments have already been instructed to reduce spending wherever possible.

“We’re limiting overtime. We’re not filling vacant positions that may not be absolutely crucial and necessary at that time,” Hust said. “It is all hands on deck to try to avoid any kind of significant property tax increase for 2027.”

Despite the financial pressure, Hust said county leaders are trying to balance caution with optimism as they head into budget planning.

“It is looking grim but not hopeless. It is looking like we may have to make some harder decisions later this year, but we’re doing everything we can to avoid that,” he said.

Image: Building materials and supplies show the largest loss in Sullivan County’s first quarter sales tax revenue. (Freepik)