Nov 25
2019
Buffalo’s complacent Control Board
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The Buffalo Fiscal Stability Authority, better known as the control board, costs city and state taxpayers more than $1 million a year. Its job, since it was imposed by the state in 2003, has been to keep an eye on Buffalo’s finances.
But during the past eight years it has done nothing to stop Mayor Byron Brown and the Common Council as they’ve drained the city of more than $100 million in reserves, leaving City Hall with nothing in the bank to close budget gaps.
In six of the last eight budget cycles, the Brown administration has depleted its reserves to cover deficits caused by consistently overestimating revenues and frequently underestimating expenses.
Any of those deficits might have prompted the control board to crack down on City Hall’s budgeting practices. It has chosen to remain in “soft,” or advisory mode.
Indeed, in the past eight years the control board has become a shadow of its former self.
Three of the nine seats on the control board are vacant. The remaining six directors, all volunteers, are serving well past the expiration of their terms.
Still, the control board employs a staff of five — an executive director, a comptroller, two analysts, and an administrative assistant — at a budgeted cost of $579,000 in salaries and benefits this year.
Their offices in the Market Arcade cost $45,000 per year. They spend another $45,000 on meetings, communications, and office expenses.
This year’s budget also includes doling out $270,000 in contracts to outside lawyers and accountants.
All this prompts the question: What benefit, exactly, are taxpayers deriving from their million-dollar-a-year control board?
Hard versus soft
“We get the financial plan, we get their budget. We look at it, we give them a reaction,” R. Nils Olsen, Jr., the control board’s chairman, told Investigative Post in a September interview.
Three days prior to the interview, Fitch Ratings — one of the three bond rating agencies that determine the city’s creditworthiness — had dropped the city’s bond rating, citing persistent budget imbalances and the depletion of reserves to plug the resulting deficits. It was the first time the city’s bond rating since the control board was imposed in 2003.
“We’re not naive about what’s going on,” said Olsen, formerly dean of UB’s Law School, now retired.
Lovejoy Councilman Richard Fontana, chairman of the Council’s Finance Committee, told Investigative Post it’s no coincidence that the city’s slide toward fiscal instability coincides with the control board giving up its oversight powers in 2012.
Since the control board went soft, Fontana said, “Every year we’re in the red. We’re always depleting fund balance, always going to the piggy bank to pay for our contracts.”
Those are exactly the conditions that led to the state imposing a control board in the first place.
The control board was created in 2003 in response to a fiscal crisis. Facing a huge budget shortfall, exacerbated by an expensive new labor contract with city police and other looming budget strains, then Mayor Anthony Masiello begged the state for a bailout.
The state agreed to backstop city finances, but the cost was a state-imposed control board that had the power to approve or disapprove budget proposals, borrowing plans, and labor contracts. It reviewed every expense over $50,000.
For elected officials, ceding their authority to run city government created an opportunity: The appointed control board enjoyed political immunity Masiello and the Common Council lacked. With its broad statutory powers, the control board could take drastic, unpopular measures without answering for them on election day.
One of the control board’s first acts was to freeze wages for city workers, which essentially nullified that expensive new police contract and saved the city millions, as workers missed raises.
The control board saved the city in other ways, too — for example, by contracting with private companies to take over city services. Between 2003 and 2012 — three years under Masiello, six years under Brown — the control board helped the city to build its cash reserves to $196 million.
“The only way we earned a huge fund balance was with the wage freeze under the hard control board,” Fontana said. “We were able to control costs for many years in a row, creating a multimillion dollar surplus.”
“Of course, that was on the backs of the workers,” he added.
In the early years, a former control board member told Investigative Post, there was a sense of urgency to the meetings, and a sense of history. The late Robert Wilmers, of M&T Bank, lent his considerable gravitas and influence to its proceedings. The mayor and the country executive didn’t send underlings to represent them at control board meetings; they attended themselves.
The meetings were often attended by members of the public, and always by representatives of the public employees unions, who considered the control board an existential threat to their members’ livelihoods.
It’s not like that now.
Advise, then consent
Olsen’s term on the control board expired in 2015. So did the term of former Common Council president George Arthur.
The terms of the other two appointed directors — Buffalo State economics professor Fred Floss and former Medaille College president Jeannette Jurasek — expired in 2017.
All four are still serving.
The mayor and the Erie County executive are control board directors, ex officio. Neither attends meetings; they send surrogates.
“Of course I wish [the governor] would send us some new directors. And it would be nice if the public paid more attention to what we do here,” Olsen said. “But we have a professional staff here who work very closely with city staff.”
In fact, Gov. Andrew Cuomo, who appoints seven of the nine seats, has demonstrated zero interest in filling the vacancies. Cuomo’s last appointment to the board was Dottie Gallagher-Cohen, president and CEO of the Buffalo Niagara Partnership, in 2017. Gallagher-Cohen’s term expired in September and, unlike her fellow directors, she didn’t stick around.
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In recent meetings, when city budget proposals were on the table, a pattern has asserted itself:
The members of the control board question the Brown administration’s revenue and expense assumptions, and admonish the administration to be more conservative.
The mayor’s representative — Donna Estrich, the city’s commissioner for finance and administration — agrees the city will be more prudent.
And then the city continues to do exactly as it has been doing since 2012.
For example, in April 2018, control board members quizzed Estrich about the city’s practice of assuming revenue from the sale of city properties before they are actually sold. For the past several years, the failure of those sales to be consummated has contributed millions of dollars to the city’s end-of-year deficits.
Estrich — who, as the mayor’s surrogate, is charged with both defending and questioning city budgets she prepares — admitted the city had “prematurely” included real estate sales in previous budgets. She assured her fellow control board members the mayor’s upcoming budget proposal for 2018-2019 would not make the same imprudent assumptions.
Just a month later, however, Estrich was answering the control board’s questions about the mayor’s 2018-2019 budget proposal, which made exactly the same revenue assumptions.
The control board’s response: a warning to “monitor closely” those revenue assumptions.
Those assumptions were off by more than half in 2018-2019: The city budgeted $8 million in revenue from the sale of properties and brought in less than $4 million.
Revenue shortfalls such as that one have contributed to deficits in six of eight city budgets since the control board went soft:
- $14.1 million in 2012
- $15.6 million in 2013
- $19.4 million in 2014
- $1.7 million in 2016
- $34.5 million in 2017
- $22.9 million in 2018
That’s according to the city’s Comprehensive Annual Financial Reports.
In 2015, a budget surplus added $4.9 million to the city’s reserves. This year the city reports a surplus of $948,715, thanks to a last-minute lifeline from state government: an advance of $7.5 million in casino revenues received in September but booked backward to the budget year that closed June 30.
The net total drain: $102.1 million in eight years.
Any of those deficits could have spurred the control board to return to hard status: Under the statute that created the control board, a failure to adopt a balanced budget or a one percent operating deficit in any major city fund are reason enough.
Economics and politics
The Brown administration, Olsen told Investigative Post, portrays its use of reserves as an economic choice: an alternative to raising property taxes, which, Olsen said, risks slowing the commercial and residential real-estate boom in well-to-do neighborhoods. Higher property taxes might also strain the city’s substantial poor population, both homeowners and renters.
“I think we’re pretty attuned to the difficulty of encouraging commercial and residential development, on the one hand, while having a stable property tax and, on the other hand, being able to fund continuing fixed costs that go up,” Olsen said.
It’s a political choice, too. By burning up the city’s savings, the mayor and the Common Council have avoided the political consequences of raising property taxes — or reducing tax exemptions for developers. Those tax exemptions amounted to nearly $20 million in the last two budget cycles, according to the city’s annual financial reports.
Olsen told Investigative Post that he believes the Brown administration must consider raising property taxes. He agreed, in fact, that the city probably should have done so several years ago, before reserves were brought so low.
“That’s the most important fundamental political decision that needs to be made,” Olsen said. “And nobody elected me to make it.”
Fillmore District Councilman David Franczyk told Investigative Post that politics are a big reason that the control board remains in advisory mode.
Politically, a hard control board is a black eye for a mayor and a governor who like to hang their hats on the city’s revitalization. The return of a hard control board could put a significant dent in the Buffalo renaissance narrative.
“The governor, the Assembly and the Senate: Will they allow a Democratic city mayor of the second-largest city in the state to go down the tubes?” Franczyk said. “I don’t think so.”
Investigative Post made multiple requests for an interview with Mayor Byron Brown about city finances and the control board in late October. The only reply from the mayor’s spokesman was a text: “Ok. thanks.”
The years ahead
The control board has the power to borrow on behalf of the city, too, and it did so when it was still in hard mode. Because the control board enjoys a solid gold-credit rating, its borrowing saved millions in interest for the city, which in 2003 was rated one step above “lend at your own risk.”
In addition to raising property taxes, Olsen told Investigative Post, the city ought to consider allowing the control board to do some of its borrowing again.
Franczyk told Investigative Post he saw little value in the control board issuing more debt and thus extending its existence. The debts the control board assumed on behalf of the city while it was hard won’t be paid off for at least another seven years. By statute, the control board will remain in place until 20137. Until then, Franczyk said, we’re stuck with them.
“It just seems to be another layer of bureaucracy that’s allegedly supposed to prevent a municipality from crashing and burning,” he said.
Vanessa Glushefski served four months as interim city comptroller at the beginning of this year, before being replaced by Barabara Miller-Williams, a close political ally of the mayor.
Glushefski told Investigative Post that, in her brief tenure, the control board lobbied the comptroller’s office to do some of the city’s annual borrowing.
“They pushed that idea hard,” Glushefski said. “But when we analyzed the costs and the savings, it didn’t make any sense.”
The control board’s slightly better credit rating might save the city a little money in interest payments, she said. But those savings would be wiped out by having to pay a second set of professional fees associated with issuing and closing the loans.
In any case, Glushefki added, increasing the ability of the city to incur debt — “raising the city’s credit card limit,” she called it — is not the answer to its budget imbalances.
The answer is to be honest about revenues and make difficult choices about costs, Fontana told Investigative Post. He has no interest in seeing the control board go hard again. But in its current advisory mode, Fontana said, the control board only duplicates the work that the mayor, the comptroller, and the Common Council should be doing.
“I’d like to see that million dollars a year spent on programs that directly affect the taxpayers,” he said.
