Sep 16
2019
City Hall stuck on budget bailout
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For the fourth straight year, the City of Buffalo must tap reserves to balance its budget.
The question is: What reserves? Where will the money come from this time?
The books are just about closed on the financial year that ended June 30. The bottom line: The city finished around $10 million in the red, according to preliminary numbers published at Open Book Buffalo, an online portal that publishes city financial data and is updated weekly.
Those numbers are unaudited and likely to shift somewhat over the next month or so. However, sources at the Buffalo Fiscal Stability Authority and in the city comptroller’s office agreed with Investigative Post’s math.
Unbalanced budgets are nothing new at City Hall. That $10 million deficit generated in 2018-19 joins $107 million in reserves the city has blown through in the past decade, largely to plug deficits.
The difference is that, this time, the city has no unrestricted reserves available to plug the deficit. The last of that money was exhausted to plug the $23 million hole in the city’s 2017-18 budget.
To balance the deficit this time around, the city may have to tap the city’s “rainy day fund.” The Common Council created the Emergency Stabilization Fund, as it is formally called, in 2008. It currently holds $38.7 million — one month’s operating costs for the city, to be used only in the event of a crisis.
The City Charter forbids using the rainy day fund to address budget shortfalls.
Nonetheless, in a May 20 meeting with the Buffalo Fiscal Stability Authority — more commonly called the “Control Board” — the Brown administration indicated the city could use the rainy day fund should it run a deficit in 2018-19. Specifically, it could do so if there were a deficit caused by the failure to receive $17 million from the Seneca casino as part of a revenue-sharing agreement the nation has been challenging since 2016.
The Control Board agreed that would be “reasonable,” if not a preferred outcome.
And the casino money didn’t come.
To use the rainy day fund for any purpose other than that for which it was committed, the Brown administration must have the assent of the Council.
“I want to be clear, you know, the Council is in no way thrilled,” Council President Darius Pridgen said of the need to tap reserves once again this year. “And you can hear it in discussions during budget time from a probably unified Council, that it does not want there to be a use of fund balance.”
Robbing Peter, then robbing Paul
In order both to pay current obligations and to plug the deficit, without violating the City Charter, the Brown administration and the Council will have to engage in something of a two-step.
Here’s how it will likely unfold, according to sources in City Hall.
What’s left in the reserves, or “fund balance” in the parlance of municipal accountants, falls into two categories:
- “Committed fund balance,” i.e. the rainy day fund, which holds $38.7 million.
- “Assigned fund balance,” which holds $13.4 million already earmarked for specific expenses and projects.
Assigned fund balance is the pot of money the city must use first to balance the 2018-19 budget, according to an opinion solicited by Investigative Post from the city comptroller’s office.
The problem is that many of the uses for which assigned fund balance is earmarked can’t be canceled or postponed: for example, judgments and claims against the city (a line that is already under-budgeted), vehicle self-insurance, and certain recurring, unavoidable purchases. That money is essentially spent. The bill hasn’t come due yet, but it’s coming, and it must be paid.
So, if the city uses assigned fund balance to plug its budget shortfall, it’ll have to find another way to pay those bills when they come due.
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All that’s left is the rainy day fund. But tapping rainy day funds for anything short of an emergency — imagine a hurricane or a terrorist attack that interrupts state aid — has potential repercussions.
“That’s not the thing to use,” Lovejoy District Councilman Rich Fontana, who chairs the Council’s Finance Committee. “You start messing with the program there, change the rules so that you might be able to use it, that’s going to affect your bond rating.”
The city’s bond rating determines how much it will cost the city to borrow for capital expenditures: road repair, for example, as well as maintenance of buildings and parks.
The big three bond rating agencies — Fitch, Moody’s, and Standard & Poor’s — have all expressed concern with the city’s dwindling reserves. In a letter this spring, Moody’s warned the city that its continued depletion of reserves could lead to a downgrade in its bond rating.
But the city keeps doing it anyway.
“Every year we’re in the red,” Fontana said. “You’re always using fund balance. You’re always going to the piggybank to take more money out to pay for your contracts.”
Why does this keep happening?
Since the city’s control board went into “soft,” or advisory mode, in 2012, the city has been steadily emptying its savings accounts in order to keep up with ballooning costs, largely associated with personnel salaries and benefits.
Revenues have remained relatively static, meanwhile, in part because the Brown administration and the Council have held property tax rates steady.
“When fund balance was larger, it was pretty much a situation where you said, ‘Do you want to raise taxes or do you want to use the money in the bank?’ ” Fontana said. “So they used the money in the bank.”
In six of the last seven budget cycles, actual revenues have fallen far short of the Brown administration’s projections, and have been outstripped by rising costs. In the previous two budget cycles alone, the city has used about $57 million — $23 million last year, $34 million the year before that — to plug the resulting deficits.
In order to present a balanced budget proposal to the Council, as required by the City Charter, the Brown administration has routinely exaggerated revenue projections. In its 2018-19 budget, the Brown administration projected — and the Council signed off on — about $513 million in revenues.
According to the latest entry in Open Book Buffalo, dated Sept. 13, actual revenues were $470 million. The books officially closed on the 2018-19 financial year on Aug. 30.
A big chunk of that gap is $17 million in Seneca casino revenues, which continue to be the subject of a legal dispute between New York State and the Seneca Nation of Indians. Because the Senecas continue to fight the continuation of the casino revenue-sharing agreement, the state advised the casino host cities of Buffalo, Niagara Falls, and Salamanca not to include casino money in their budget projections last year. Buffalo included it anyway.
Niagara Falls, often in dire financial straits, was advanced $5 million by the state this year, as a loan against future casino payments. At the end of its budget year, the Brown administration did not make a formal request for relief from the state, according to a spokesman for the state Division of Budget.
It could have been worse
Buffalo’s budget deficit could have been far bigger. However, expenditures also came in way under budget, too, at $481.4 million.
“The administration was very good this year. It was able to save quite a bit by the end of the year,” Fontana said.
For example, Brown’s team negotiated a new deal on prescription insurance that could save $8 million a year. That’s praiseworthy, Fontana said. But he also wonders where else the Brown administration managed to shave so much from the budget.
“What wasn’t done? What wasn’t bought?” he said. “Do we have toilet paper at the senior centers? Do we have no paper towels in the community centers? Did we not buy the kids any footballs to play with last year?”
Pridgen said the city is already on a lean budget. Like Fontana, he singled out the prescription insurance deal as an example of responsible cost-cutting.
“We’re not complaining as long as it does not in any way affect services,” Pridgen said of the Brown administration’s expenditure cuts. “We’re still picking up the trash, we’re still having big trash day. We’re still fixing the potholes, still repairing streets, and all those things.”
This year, a lot like last year
Investigative Post asked to speak with the mayor, or with someone in his administration, about budget policy, the $10 million deficit for the 2018-19 fiscal year, the savings the administration achieved toward the end of that fiscal year, and the administration’s plans, if it has any, to replenish the city’s depleted reserves.
The mayor declined an interview request from Investigative Post to discuss a range of budget issues. Instead, his spokesperson emailed this statement:
“The Brown administration has implemented efficiencies that the mayor outlined when the budget was announced. This has enabled city government to realize savings in every city department. Mayor Brown continues to operate from a strategic fiscal plan and is confident that its budgetary projections will be realized. The mayor’s innovative and fiscally conservative approach over the last 14 years has resulted in lower taxes for residents and businesses while also improving city services.”
Of course, the mayor’s 2018-19 budget projections cannot “be realized.” That ship has sailed.
Saving $8 million per year on prescription insurance — if that number holds up — is not sufficient to stabilize city finances because the coming year poses the same challenges as previous years. It relies on revenue projections that the city comptroller has characterized as imprudent, including $11 million in casino payments — on top of the $17 million budgeted last year and never received — that the Senecas show no sign of ever parting with.
New expenses loom, too: The police contract, which expired June 30, has entered mediation. The next step is arbitration. Any deal with police will likely incur increased costs to the city. Financially stable municipalities sock away money to pay for new contracts. City Hall has instead depleted its reserves.
Going forward, Pridgen says, Brown’s team will need to level with the Council about financial matters, particularly about its revenue projections.
“This Council is not a rubber-stamp for the administration, nor do we walk hand in hand when it comes to these budgetary items,” Pridgen said. “This can’t just be about trust — I trust that you’re doing the right thing. We’re going to go through these projections now with a fine-tooth comb.”
This spring, Moody’s — one of the three agencies that establish the city’s credit rating — specifically recommended the city adopt a formal policy governing the use and replenishment of fund balance.
Such a policy proposal, drafted by the comptroller’s office, has been languishing in the Finance Committee since February. Pridgen told Investigative Post he expects the Council will take a new look at that proposal this year.
