City Hall puts off day of financial reckoning
The COVID pandemic has been very good for the City of Buffalo’s finances.
Pandemic relief funds from the federal American Rescue Plan have been a tremendous boon. You can see that money at work right now in city streets and parks. It’s going to help pay for water and sewer projects, as well as micro-loans to small businesses and the expansion of broadband internet access. It helped keep poor city residents in their homes.
Most important for city government has been revenue replacement money — cash the federal government sent to make up for revenue the city claims it lost due to the pandemic.
Revenue replacement money has kept the city in the black the past two years. It should keep the city in the black the next two years, too.
But on December 31, 2024, that money goes away. The years of federally subsidized budget surpluses will come to an end, leaving the city in the same boat it was in pre-pandemic: costs rising, revenues stagnant — and Mayor Byron Brown raiding the city’s savings accounts to plug the resulting deficits.
Put another way: The city’s spending plan doesn’t address the budget’s structural deficit. Instead, city officials are using federal aid to live large this fiscal year and next. After that, the red ink is almost certain to return.
Surpluses in the last two budget years have bolstered the city’s savings somewhat, but not enough to make up for more than $100 million the Brown administration has used to resolve deficits over the past decade.
With $40 million in revenue replacement funds, the city managed to close its 2020-2021 budget year with a modest surplus, about $674,000.
The 2021-2022 budget year ended last month with what is likely to be a strong surplus, somewhere in the neighborhood of $10 million, according to the Brown administration’s projections. The exact figure will not be known until the fall, when the books are closed and audited.
That surplus was made possible by $15 million in federal money.
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The current budget year looks rosy, too, thanks to $52.6 million in federal stimulus money. That’s the fourth biggest source of revenue in this year’s budget, after state aid, property taxes and county sales tax.
The city comptroller’s budget analysis, filed in May, cautioned that $52.6 million is a pretty big crutch. The comptroller also noted the mayor’s four-year financial plan doesn’t say how much federal money the city intends to use in 2023-24 or 2024-25, the last years that money will be available.
“These funds may not be available in this quantity in the out years,” Comptroller Barbara Miller-Williams wrote. “We cannot comment on what is being projected to replace this level of temporary funding, nor the adequacy of those projections.”
Indeed, replacing the replacement revenue will prove a challenge. The city’s biggest income sources aren’t keeping pace with the rising costs of police, fire, and streets and sanitation — the city’s principal expenses.
The largest share of the current $568.2 million budget is state aid. That number, $161.3 million, hasn’t changed in a decade. Brown, like other mayors across the state, has lobbied for an increase, but to no avail.
Another big slice, $104.3 million, is the city’s projected share of the Erie County sales tax. This figure has grown steadily in recent years, even through the pandemic. But a recession, or something resembling one, might alter that trajectory, as the economic crash of 2008-09 did.
Next comes $52.6 million in federal relief, allowing “for lost revenues from sales tax, parking, permits and licenses, and special events,” according to the mayor’s four-year financial plan. As noted, that money is going away. And, as pandemic shutdowns fade into memory, it will be more difficult for the city to rationalize “lost revenues” to the U.S. Treasury Department.
Then there are property taxes, the revenue source over which city government has the greatest control. The Brown administration has prided itself on keeping tax rates low, even as it has been forced to spend down city savings to make its budgets appear balanced.
Just over a quarter of city revenues, $148.6 million, will come from property taxes this year, which are rising 3.5 percent. The mayor had initially asked for a 5 percent increase, as well as hikes in the garbage fee. The Common Council, whose members run for reelection next year, lowered the tax hike by cutting proposed pay raises and eliminating a host of vacant jobs. (Governments like to keep vacant jobs on the books even if they don’t intend to hire anyone, because it provides flexibility — a cushion — in the budget.) The Council cut the increase in the garbage fee entirely.
The mayor’s four-year plan calls for additional 2 percent property tax increases in the following two budget years. That’ll help eventually; it would have been more helpful to have started raising taxes gently a decade ago, if only to keep pace with inflation.
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Inflation certainly impacts the cost of city services. Between them, police and fire consume nearly half of city spending. Between 2006, Brown’s first year in office, and 2019, police spending increased 54 percent. Fire spending increased 42 percent.
Both increases outstrip the rate of inflation, which the U.S. Bureau of Labor Statistics pegs as 31 percent for that time period.
Spending on other city services increased just 10 percent, less than one-third the rate of inflation, largely because police and fire commanded so much money.
Revenues in that period rose at just two-thirds the rate of inflation. The city’s tax levy last year was $4 million less than it was in 2007.
The budget also includes $11 million from the Seneca Nation of Indians, the first time in five years that budget line wasn’t a fiction. The Senecas were compelled to resume sharing casino revenues with the state and local governments earlier this year. They’d stopped paying in 2017, but the Brown administration kept putting the money in his budget anyway, then using savings to make up the difference when the Senecas didn’t pay.
Three years ago, the state lent the city its putative share of casino revenue so the city — which had run out of discretionary savings to turn to — wouldn’t face a budget shortfall.
This year, the casino money came: $34.8 million — the total owed, less the amount the state spotted the Brown administration in 2019.
If the Senecas hadn’t been strong-armed into paying, federal money would have plugged the gap.