Orange County moves closer to restoring lost sales-tax revenue

Orange County’s cities, towns and villages moved closer to getting back sales-tax money they say was never supposed to be withheld in the first place, with Middletown alone facing a first-quarter hit of about $721,000 and Wallkill losing more than $300,000.

The State Senate approved S10188 on May 28, sending the bill to the Assembly Ways and Means Committee after it advanced to third reading on May 14. Sponsored by Sen. James Skoufis and Assemblyman Chris Eachus, the measure would let Orange County distribute all of its sales and compensating use taxes to municipalities and would repeal part of the 2025 law governing how the county uses those funds. If the Assembly approves it and Gov. Kathy Hochul signs it, municipalities would be reimbursed retroactively to Jan. 1, 2026.

For local budgets, the issue is already real. Orange County officials say the county’s total 2026 sales-tax receipts were projected at $412,339,869, with $109,459,969 set aside for cities, towns and villages and $302,879,900 for county operations. But the corrected interpretation flagged by the State Comptroller’s Office would cut local-government sharing by about $19.8 million a year, and the county said about $5 million had already been withheld in the first quarter alone.

That has put pressure on municipal budgets across the county, from Middletown and Newburgh to Port Jervis, Walden, Cornwall, New Windsor and Chester. Local officials warned that if the money is not restored, they could face hiring freezes, service reductions or other stopgap measures to close gaps that were built into 2026 budgets. Skoufis said the bill matters because families cannot absorb more property-tax pressure on top of higher gas and grocery costs, and he said he hoped it could be signed into law by July.

The dispute grew out of a decades-old accounting problem tied to Orange County’s sales-tax structure. The county’s current rate is 8.125%, including 4% to the state, 3.75% to the county and 0.375% to the Metropolitan Transportation Authority. Orange County says the 3.75% county rate has been in place since June 2004, but the comptroller’s office said the special legislation enacted that year explicitly barred the county from sharing the extra 0.75% with municipalities. County officials said they learned of the problem in early April after the comptroller’s office notified them, and the Orange County Legislature adopted a home-rule request on May 8.

The fight has also exposed a political split over who bears responsibility for the error. County Attorney Rick Golden and Deputy County Executive Harry Porr have said the problem stems from a defect in state law, while the comptroller’s office has said counties need special legislation to exceed the 3% ceiling. For Orange County’s municipalities, though, the stakes are immediate: either Albany restores the money and backfills the year, or local governments will spend 2026 trying to absorb a shortfall that arrived mid-budget.