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Aug 20, 2020

The city of Buffalo’s serious financial problems has led the Control Board to request state legislation authorizing $121 million of deficit financing over the next two years

A review of City of Buffalo finances has led the Buffalo Fiscal Stability Authority (BFSA) to call for special state legislation which would authorize borrowing up to $121 million over the next two years to maintain city services. How and when that money would be paid back is not known.

The agenda for a meeting on July 20 posted on the BFSA website included a “BFSA Review and Analysis of the City of Buffalo’s 2020-21 Adopted Budget and 2021-2024 Financial Plan”. That extensive document was followed by a resolution by the Authority Board.

Here is a summary of the approved BFSA resolution:

• The BFSA determined that the City’s four year fiscal Plan “does not comply with the standards set forth in BFSA Act §3857[its enabling legislation]”
• The Plan “does not contain actions sufficient to ensure with respect to the major operating funds for each fiscal year of the Plan that annual aggregate operating expenses for such fiscal year shall not exceed annual aggregate operating revenues for such fiscal year.”
• “It does not provide that the major operating funds of the City will be balanced in accordance with generally accepted accounting principles.”
• “It fails to contain projections of revenues and expenditures that are based on reasonable and appropriate assumptions and methods of estimations.”
• “It fails to provide that operations of the City will be conducted within such cash resources available.”
• For Fiscal Year 21 the plan includes “the revenue estimate “Federal Revenue – Stimulus” in the amount of $65,082,589… It is uncertain whether that bill [the HEROES Act, which was approved by the House of Representatives in May] or a similar bill providing federal assistance to the City in that or some other substantial amount will be enacted.”
• The plan assumes that over the next four years “the State’s reduction of approximately $8 billion in aid to localities in the State’s current budget for the State’s fiscal year (April 1, 2020 to March 31, 2021) will be phased out in the following three years. The State’s own four-year plan provides that the $8 billion reduction will recur in each year of the Plan.”
• The Plan assumes $11 million in casino revenues in 2020-2021 and $35 million the next year, which suggests that in 2021-2022 the city will receive the base line $11 million plus $24 million in past due casino revenues. “There is no indication as to when such payments will recommence.”
• The city’s Plan assumes that sales tax revenues will in 2021-2022 bounce back to pre-pandemic levels and then resume regular growth. “The weight of forecasts by recognized economists indicates that full recovery of retail sales is not likely within that time.”
• “Various expenditure projections in FY22 have been reduced in response to the maturity and repayment of a $25 million deficit note issued in June 2020; it is unclear if projected expenditures for FY22 are reasonably stated and what, if any, impact would result to the provision of essential services.”

In conclusion, the BFSA resolved that “in order to avert a severe disruption of essential services that would result in a destructive long-term impact upon the economy and welfare of the City and its people, BFSA requests State legislation to authorize it to issue bonds to finance operating deficits of the City in fiscal years 2020-21 and 2021-22, in a total amount not to exceed $121 million. In the event deficit financing should be required beyond FY2 l and FY22, the BFSA would request additional authority at that time.”

How did things get to this point?

Over the past several years the city has mostly maintained a consistent level of services. Property taxes were not increased. The city’s fund balance was totally depleted except for an “Emergency Fund” of approximately $39 million. Prior to March 2020 the city was already developing serious financial issues.

To close out the 2019-2020 fiscal year the Common Council in June authorized the issuance of a $25 million Revenue Deficiency Note. Comptroller Barbara Miller-Williams said at the time that “[t]he borrowing allows the City of Buffalo to close out fiscal year 2019-2020 with a balanced budget. As Comptroller, it remains my obligation to execute conservative measures that protect the City of Buffalo’s tax payers and citizens from a financial perspective.” Borrowing $25 million to close out a year only establishes a balanced budget in a technical sense. A government where operating revenues do not match operating expenses has a structurally unbalanced budget. Issuing a $25 million Revenue Deficiency Note is not what most people would describe as a “conservative measure.”

Mayor Brown in May proposed a new city budget which was approved by the Common Council, with minor tinkering, in June. The budget included expenses and revenues totaling $519.6 million, an increase of $10.9 million over the 2019-2020 budget. There was no property tax increase. As previously noted, $65.1 million of the budget’s revenues were designated as “Federal Disaster Relief.” Another $11 million was in the form of anticipated revenues, channeled through the state, from the Seneca Buffalo Casino. Assumptions were made about the size of drops in state aid and sales tax.

Concerning the “Federal Disaster Relief” there is no more information now available about that than there was in May. A very generous amount of aid to states and local governments was included in the legislation that the House of Representatives approved in May, the bill named the HEROES Act. The total price tag was $3 trillion. That bill provided an opening offer for negotiations with the Trump administration and the Senate, but no one anticipates that the total amounts of relief included in that legislation will ultimately be approved.

Republicans in Congress are still fighting amongst themselves and Trump’s negotiating representatives are basically frozen in place until that dilemma is sorted out. Donald (“Art of the Deal”) Trump is playing no role in the talks. The Republicans’ ideas suggest $1 trillion in new spending. It seems likely that by sometime in September some agreement will be reached. What that will mean for the City of Buffalo is anybody’s guess.

Also in the highly questionable revenue category for Buffalo is that $11 million that the city is counting on from casino revenues. Casinos have re-opened but are operating in a limited fashion. How much that will produce for Buffalo over the next ten months is unknown.

The Common Council, by a vote of six to three, went along with Mayor Brown’s proposed budget, but both members voting in favor and those opposed to the new plan raised questions about the iffiness of the revenues. Meetings to update the Council were requested, but have they occurred? The Council’s next regularly scheduled meeting in on September 1.

Comptroller Miller-Williams did an analysis of the proposed budget in May, but there have been no public updates since then from her office about what is going on.

Open Book Buffalo, which is part of the Comptroller office’s website, does report on the amounts spent and revenues received to date, broken down by general categories. The information is of limited value at this time, however, with the revenue picture for the first month artificially inflated by property taxes and various fees collected last month.

That leaves the BFSA and their role in the city’s finances. The Board, incidentally, is short three members and the members who are currently serving are all holdovers whose terms in office officially ended several years ago.

The four year plan from the city administration is extremely optimistic and unrealistic. For 2020-2021 a major hole exists which is not going to be managed with whatever revenues do come along from the federal and state governments.  The city plans to pay back the $25 million borrowed to close out the 2019-2020 fiscal year during the 2021-2022 fiscal year by slashing city operating expenses by a like amount that year.  That would suggest substantially reduced city services, at least for 2021-2022.

As the calendar moves along in the city’s 2020-21 fiscal year options for action to adjust that budget start to narrow. It is harder to come up with savings of $5 million in spending in ten months rather than having a full year of budget lines to work with. (The deficit is likely much bigger than $5 million.) With federal aid, state aid, local revenues and current spending all problematic, the sooner the city acts, at least to plan for and announce contingent cuts in spending, the easier things will be.

Based on the multi-million dollar deficit in 2019-2020 as well as the budgeted operating deficits that the city is facing for 2020-2021 and later years, the legal triggers have been met which enable the BFSA to re-impose a “control” period over the city’s finances. That would give the Authority the power to freeze spending and contracts, among other things.

Perhaps the BFSA is considering such a move. At the end of the day in local governments it all comes down to how much you are spending and taking in. No amount of foot dragging can for too long postpone the hard decisions which are inevitable.

Published by Politics and Stuff

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