Photo caption: Comptroller Mark C. Poloncarz’s report echoes concerns raised by the state.

Erie County has become too dependent on sales tax revenues, which are now the largest revenue source in its annual budget, Comptroller Mark C. Poloncarz warned Tuesday.

An economic downturn leading to a drop in consumer spending and thus lower sales tax income could spell trouble for the county, which might be unable to balance the budget, he said in a report on the sales tax.

A recession also could prove troublesome to municipalities, school districts and other public entities with which the county shares 46 percent of sales tax revenues, because they are equally reliant on the income stream, Poloncarz added.

His comments at a Rath County Office Building news conference echoed State Comptroller Thomas P. DiNapoli’s observation in a July report that relying more heavily on sales taxes than property taxes is a dangerous game for counties and local governments.

“If the economy turns downward, counties won’t generate the sales tax revenues they’re counting on,” DiNapoli concluded.

Since 1997, when property and sales tax revenues each accounted for about 19 percent of Erie County’s annual budget, sales tax proceeds have grown to nearly a third of the county budget, while property tax collections have dwindled to about 15 percent, Poloncarz said.

The sales tax, which is expected to bring in $624.3 million this year, “exceeds the county property tax, federal aid and state aid as the primary revenue supporting county operations,” the comptroller’s report said.

Of the total, $255.1 million will be distributed to cities, towns, villages and school districts — including about $100 million to the City of Buffalo and its school system. An additional $30.3 million will be directed to municipalities, the Niagara Frontier Transportation Authority and the county control board, the report said.

“In fact, the county shares more sales tax revenue with local government entities than the county receives from the county property tax,” it went on.

Though the county is “consistently criticized for having one of the highest sales tax rates in the state,” the report said, the county “could easily reduce its rate if it did not share nearly 46 percent of its sales tax revenues with others.”

The report urged that a 1977 sales tax revenue-sharing agreement between the county and the various recipients be reviewed to see whether the formula should be changed and that the 2003 state law that created the Buffalo control board be re-examined because it forces the county to pay sales tax revenues to the city to secure bonds issued by the board.

The state law “quite possibly precludes the county from terminating the 1977 agreement and discussing reducing the local sales tax,” the report said. Poloncarz also confirmed that his office will audit Erie County Medical Center Corp., partly in response to reports of conflicts of interest concerning the hospital’s business dealings.

The compliance audit will examine:

• How the agreement that changed ECMC from a countycontrolled hospital to a public benefit corporation was followed between Jan. 1, 2005, and June 30 this year to see if the county and ECMC management “have met their obligations.”
• The costs “of all advertising and informational reports to the public” incurred by ECMC during that period.
• “Certain professional services and ‘consulting’ contracts entered into by ECMC or its related entities . . .with any member of ECMC’s senior staff or its board of directors” or “any entity that is owned or controlled by” them.
• How operating and capital subsidies provided by the county were spent.
• The impact of ECMC’s sale on the county.

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