Cities, towns and other local governments in the tri-state region of New York, New Jersey and Connecticut will undergo revenue squeezes because of new federal tax law changes, according to a Moody's Investors Service report.
The impact will vary depending on the state and city. But the three states are expected to be among the hardest-hit in the country because of the lower federal limit of $10,000 for state and local tax (SALT) deductions and a reduced cap on mortgage deductions, Moody's said.
The lowered limits will dampen growth of housing prices, which in turn will curb assessed values and thereby diminish local property tax revenue growth.
That means some cities in the region - especially those with already high fixed costs or narrow reserves - will have an even harder time budgeting, a struggle that could soon become apparent for those whose next fiscal years begin on July 1, said Moody's analyst Valentina Gomez.
"It's another headwind that they have to face in budgeting," Gomez, who authored the report, told Reuters in a phone interview. "What are you cutting in order to make your budget balance?"
Those hardest-hit cities could seek tax hikes to make up the difference, she said.
Twenty-one of the 25 counties across the United States where home price growth is expected to slow the most because of the federal legislation are in the tri-state region, she found.
Many high-tax states that are expected to suffer the most under January's federal tax changes are enacting measures to try to offset the damage.
In New York, for instance, where Governor Andrew Cuomo has likened the federal changes to a missile attack on the state, lawmakers have included SALT payments as charitable contributions and implemented an employer payroll tax to replace state income tax.
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