Apr 28


Buffalo facing big budget deficit

COVID-19 has driven up costs and denied the city revenue; most cash reserves were drained by previous deficit spending

City Hall is facing the prospect of a COVID-19-induced budget deficit of $20 million to $31 million, with limited reserves to close the gap.

A combination of increased expenses and lost revenues will cost city government an estimated $20 million, according to a report filed by Finance Commissioner Donna Estrich. 

An additional $11 million in anticipated casino revenues is also at risk, given the closure of casinos during the pandemic and continued legal stalemate between the state and Seneca Nation.

Meanwhile, Mayor Byron Brown’s administration is preparing a budget for the new fiscal year that begins July 1, knowing that state government — facing a yawning budget deficit of its own — plans to cut aid to municipalities by as much as 20 percent. 

State aid has long been Buffalo’s largest single revenue source, accounting for about $160 million, or 30 percent, of the city’s budget. 

All this financial bad news befalls an administration that has spent down its cash reserves by more than $100 million in the past decade, in the interest of keeping real estate taxes low. 

Since 2012, year after year, the city has used cash reserves to plug operating deficits. As a result, all the city has left to contend with the fiscal impact of the COVID-19 crisis — this fiscal year and the next — is $38 million in its “rainy day” fund. That fund, created by the Common Council in 2008, comprises 30 days of emergency operating expenses. 

The $38 million could cover deficits for this budget year, but little would remain to deal with red ink next year.

In a letter filed this week with the Common Council, Estrich, the city’s finance commissioner, enumerated the costs of the COVID-19 shutdown. The $23.6 million in revenue losses Estrich describes are almost entirely due to the COVID-19 shutdown. Some of the additional expenses, which net about $2.7 million, are related to the epidemic, some are not.

Estrich Letter to Buffalo Common Council (Text)

On the expense side, Estrich wrote:

  • Personnel expenses will be up by $410,000, largely due to overtime for police, fire and public works employees.
  • Supply costs, primarily computers for remote work and cleaning supplies, will be up by $150,000 this budget year (and rising into the coming budget year).
  • Other expenses total $4.37 million, and consist largely of a payment to settle a lawsuit involving a police shooting of a man that left the victim paralyzed. 

Those extra expenses are offset by $1.2 million in savings on utility costs, plus $6.4 million in savings on fringe benefits — health insurance and retirement payments. The fringe benefits savings were coming regardless of the COVID-19 crisis.

Revenues may be down by $23.6 million, Estrich wrote, including:

  • $12.03 million lost in intergovernmental revenue — that is, money transferred from one government to another. This number includes the city’s share of the county sales tax, which Estrich predicts will be about $5 million less than the $89.8 million the city had projected. 
  • Service charges down by $5.48 million. This number includes parking meter fees, as well as towing and storage. Public parking has been essentially free in the city since March 20.
  • Fines down by $4.5 million. This number includes money from traffic and parking ticket fees, as well as other fines and penalties.
  • Real estate tax collections down by $1 million. The city has already collected most of its real estate taxes for 2019-2020; the projected loss would be due largely to a freeze on interest and penalties on those paying late.
  • $580,000 lost in license and permit fees, reflecting canceled or postponed events and construction projects, large and small.

Estrich’s projections do not mention the possible loss of $11 million in casino revenues built into the budget.

Last summer, state government saved the Brown administration from running a deficit by advancing the city $7.5 million in casino money, in anticipation of the Seneca Nation of Indians resolving its dispute with the state over their revenue sharing agreement. 

That dispute has not been resolved. Furthermore, casino business has been suspended due to the pandemic.

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The state government — facing a possible $13.3 billion budget shortfall and ballooning COVID-related expenses — may be in no position to advance the city any money this summer. Indeed, the state has warned local governments that state aid to municipalities may be reduced by as much as 20 percent in the upcoming budget year. 

In Buffalo’s case, that could mean the loss of $32 million in state aid next year.

Buffalo Comptroller Barbara Miller-Williams issued a press release today noting the city’s year-to-date spending has outpaced revenue by about $35 million. 

Comptroller Miller Williams Financial Status Report 2020 (Text)

The comptroller’s press release describes the city’s current cash flow, which will likely remain in the red until $98 million in state aid arrives in June, Miller-Williams noted.

Estrich’s letter to the Council, on the other hand, describes a structural end-of-year deficit that will have to be plugged with money from somewhere — either the city’s rainy day fund or federal relief.

The big pot of federal money currently available to help local governments will run through Albany. Cities of 500,000 or more — in this state, that’s New York City only — can appeal directly to the federal government for relief funds. Other cities, towns and villages must hope the state has enough left over to share, or that Congress approves additional relief specifically to help local governments meet current budget shortfalls and prevent service cuts in the future budgets.

The latter is important, according to a report issued by state Comptroller Thomas DiNapoli, predicting that the damage to local government finances will reverberate for years to come.

“Even amidst the difficult challenges of the current fiscal year, we must be mindful of the longer term. Tax revenues are likely to be diminished by the pandemic into the next fiscal year, and possibly beyond,” the report reads.

“The fiscal impacts of the COVID-19 pandemic will be with us for some time.”