Inflation is hurting Long Islanders as prices are rising faster than wages. The Consumer Price Index hit 8.3% in April. This spike, among the highest in 40 years, caused in part by high energy prices, supply chain disruptions, and the federal government giving money away to help the economy during COVID has left residents with less money to pay for today’s more expensive goods and services. Unfortunately, just as these issues negatively affect individuals, they are also about to unleash the perfect budget-wrecking scenario on local governments, for the foreseeable future.

New York State has a mandatory 2% property tax cap on school districts and local governments. This means every Long Island school district, special district, village, city, town and county, is not allowed to increase tax levies, year over year, by more than 2%. As such, collectively bargained agreements are often forced to limit annual raises by that same 2%. With 8% inflation, municipal workers will lose roughly 6% this year on their real wages. You can bet any new contract negotiations will insist on an increase in wages to keep up with inflation.

Employer contributions to the New York state pension retirement system are also going to put pressure on future local government budgets. Contractually obligated pension fund contributions are based on a rolling average of the last five years of New York state pension fund returns. The stock market is having a miserable year and this will bring down the five-year average. Local government NYS pension contributions are going to have to spike to keep pensions fully funded.

Let’s not forget COVID has blown health care costs sky high. Expect increases to health care premiums to local governments to be up well over 10%. Energy prices are dramatically higher, too. Everything from electricity to heat and gasoline will be substantially higher than what was budgeted in 2022.

Assuming not much changes until the next budget cycle, we can expect either massive cuts to services and municipal employee staff, or attempts to override the tax cap that will need a mandatory 60% vote from constituents. Since every elected official prefers to brag about not raising taxes, piercing the tax cap is the less likely alternative.

Those who will be most affected will be financially struggling communities which have a rough go even when times are good. Long Island’s 124 school districts will become a tale of two cities. Struggling districts will have to make draconian cuts, while wealthy districts with well-funded parent groups will be able to create foundations to make sure their children continue to receive a quality public education.

The COVID-induced supply chain disruption, inflation and spike in health care costs will wreak havoc on future local government budgets. I’ve said it before, I’ll say it again: Creative ways to generate revenue and find efficiencies in operations should be embraced. The best time for change is during a crisis and there’s no time like the present. Local governments that adapt quickly have the best chance of weathering the impending storm.