The COVID-19 crisis has laid bare the city’s fragile finances. But it hasn’t changed the Brown administration’s proclivity for budgets constructed on risky revenue assumptions and optimistic expense projections, according to a report issued Tuesday by the city comptroller’s office.
In her report, Comptroller Barbara Miller-Williams expressed “substantial concerns” about the 2020-21 budget proposals Buffalo Mayor Byron Brown released May 1.
The charter-mandated response to Brown’s budget identified a host of what Miller-Williams characterized as risky assumptions, including more than $80 million in uncertain revenues and nearly $15 million in expense savings that might not materialize.
Brown’s budget relies heavily on $65.1 million in federal disaster relief funds that have not been approved by Congress. Democrats in the House of Representatives have proposed an aid package that would deliver just over $1 billion over two years to the City of Buffalo. However, that bill has been rejected in advance by Senate Republicans, who evince no willingness to extend a financial lifeline to cities.
Brown also counts on $11 million in casino revenue, despite the fact that neither the state nor city has received a share of casino revenue from the Seneca Nation of Indians since 2017.
Brown overstates potential revenue from traffic violation fines, as well, including those generated by the new school zone cameras, according to the comptroller’s analysis. The mayor’s number for those budget lines is about $5 million too high, the report said.
Kelly discusses the city budget on WBFO
The comptroller noted Brown’s budget proposal does account for two painful reductions in revenue. His proposal forecasts a 20 percent reduction in state aid, as recommended by the governor’s budget office. That’s a $32.3 million hit. Brown’s budget also projects a 21.6 percent reduction in the city’s share of the county sales tax, as a result of the pandemic’s impact on economic activity. That’s a $19.4 million hit.
State aid has been the city’s single largest source of revenue in recent years, followed by property taxes. County sales tax is third.
The mayor’s proposed budget holds the line once again on the city’s property tax levy — the total dollar amount the city collects — at about $148 million. Because of the citywide reassessment completed last year, the tax rate has been cut nearly in half but the total tax levy has remained about the same. If Brown had raised the tax levy by the maximum 2 percent margin allowed annually by state law, the city could have pulled in nearly $3 million more this coming fiscal year.
The mayor’s office relies on federal relief and casino money to make up for reduced revenues without major cuts in jobs and services. If those revenues don’t materialize, Brown has said, the city will borrow to cover the deficit that results from anticipated losses in revenue the budget does account for.
That has raised concerns with the city’s state-imposed control board. In a letter sent to Brown Monday, the chair of the Buffalo Fiscal Stability Authority asked the mayor to submit a revised four-year plan detailing how the administration would make ends meet if those questionable revenue sources don’t pan out. How much would the city borrow, for how long, and under what terms?
And during Tuesday’s Common Council meeting, University District Councilman Rasheed Wyatt, chairman of the Finance Committee, renewed his requests that the administration regularly and fully share details of the city’s accounts — for example, which budget lines are over- or under-performing — so the Council can better exercise its financial oversight duty.
Sharing information is more important now than ever before, Wyatt told Investigative Post last week, because the pandemic has exposed the city’s already fragile finances.
“We’ve had financial difficulties for the last couple of years, and now the coronavirus has really caught us,” Wyatt said.
City reserves depleted
Risky revenue assumptions have dogged Brown’s budgets for the past decade, resulting in budget shortfalls six of the past seven years. To plug those shortfalls, the administration has drained $109 million from the city’s reserves. That includes $57 million in the 2017 and 2018 fiscal years.
“Those reserves would have been very useful in the current situation,” Miller-Williams noted in her budget response.
Brown has argued that the use of reserves to resolve budget imbalances has allowed his administration to keep property taxes low, which he says made the city more friendly to investment. That position has been ratified by the control board and the Council, which has approved Brown’s budgets every year with little revision.
Meanwhile, the COVID-19 shutdown has pulled the rug from beneath the already unstable fiscal year that ends June 30. The Brown administration predicts the current year will close $15.6 million in the red, due largely to lost sales tax and parking revenue.
That estimate assumes the city will receive $11 million in casino revenue in the next six weeks. If that doesn’t happen, the current year’s deficit will be that much redder.
The comptroller noted that the city has $13 million in reserves, albeit already earmarked for future projects, which the administration can use to plug the deficit that looms this summer.
When that’s gone, the city will start tapping the rainy day fund, which stands at $38 million. When the rainy day fund is exhausted, the city will have to start cutting jobs and services, Wyatt told Investigative Post.
Wyatt and three other Council members have been pushing for the adoption of a formal policy governing the use and replenishment of the city’s reserves. The bond rating agencies that determine the city’s credit rating have repeatedly recommended that the city adopt such a policy.
The mayor has resisted the Council’s efforts. The administration has rebuffed meetings to discuss the matter with the Council and the comptroller’s office since December of last year
Wyatt expressed concern that the city’s bond rating might be downgraded again, as it was last summer, if the city doesn’t reform its budgeting practices and demonstrate its intention to bolster reserves..
“Our responsibility as fiduciaries is to have a city that can meet its obligations,” Wyatt told Investigative Post. “We certainly don’t want to go back to a hard control board.”
In his May 11 letter to the mayor, R. Nils Olsen, Jr., the control board’s chair, asked the Brown administration to submit a revised four-year financial plan “to address how the budget gap will be closed in the event federal stimulus is not approved and casino revenues are not received.”
Olsen noted that federal aid had not yet been approved and “casino revenue and various other revenues” in the mayor’s budget were likely to be “negatively impacted by extenuating circumstances related to the pandemic.”
In the event those revenues failed to materialize, and the city pursued borrowing money to cover the resulting deficit, Olsen wrote, the control board wanted to know details: how much and under what terms, as governed by existing municipal finance law.
Ordinarily, local governments can only borrow to pay for capital projects — road work, building repair, and the like. However, in extraordinary circumstances, a local government with cash flow problems can seek approval from the state comptroller to borrow money to cover an operating deficit.
The amount a local government can borrow for that purpose is limited to 20 percent of the revenue it collects annually in taxes and fees. State and federal aid and county sales tax don’t count. For Buffalo, that’d be in the neighborhood of $50 million.
In response to the COVID-19 crisis, the Federal Reserve has committed to purchasing up to $500 billion in municipal bonds from governments facing COVID-related cash flow problems. The same cap — 20 percent of annual revenue — applies, and the term on the bonds is three years.
State finance law likewise dictates deficit finance bonds be short-term loans. The Brown administration, along with other local governments in New York State, is reportedly lobbying for exceptions that would raise the cap and extend the payback period for deficit borrowing.
But Olsen, in his letter, cautioned against any speculative budgeting.
“Proposed legislation increasing limits and/or extending repayment terms should not be considered at this time,” Olsen wrote.
In other words, Olsen asked the mayor to submit a new, four-year financial plan that reflects things as they are, not as his administration hopes they will be. He closed the letter by expressing confidence in the mayor’s ability to lead the city through the current fiscal crisis.
Meanwhile, Wyatt told Investigative Post the Council’s Finance Committee will continue to push for a fund balance policy and a greater role in overseeing city finances. He acknowledged the Council’s share in the blame for the city’s precarious situation. But he added the Council was unlikely to “go along to get along” with the mayor’s office during the current budget process.
“I’m not trying to say, ‘You did something wrong,’” Wyatt said. “The citizens of the City of Buffalo don’t want to hear all that. They want to hear what is the action we’re going to take to make sure our city stays solvent. Not the political stuff.”