While Buffalo continues reduce its debt burden and has a healthy fund balance, decreasing revenue and the yearly use of reserves to plug budget gaps could cause problems down the road, said Buffalo Comptroller Mark J.F. Schroeder upon releasing the city’s Comprehensive Annual Financial Report for the fiscal year spanning July 1, 2011 to June 30, 2012.
General fund revenues totaled $438.4 million, down from $439.1 million the previous year, while expenditures climbed $2.9 million to $428.9 million. Transfers out exceeded transfers in by $25.9 million, creating a $16.3 million budget gap that was filled by the use of existing fund balance. Schroeder said the city’s general fund balance remains strong at $113 million, despite the use of reserves to balance the budget.
“Buffalo’s fiscal health is evident in our bond ratings, which is in the ‘A’ category with all three major credit rating agencies,” said Schroeder, referring to Moody’s Investor Services, Fitch Ratings, and Standard & Poor’s. “However, those same rating agencies warned against continuing to use reserves to balance the budget, which we have done for three consecutive years.”
In an April rating report, Moody’s warned that “continued use of reserves beyond what is expected” could make the city’s rating go down. The 2012-2013 budget that was released a month later called for the use of $11.5 million of fund balance to fill the budget deficit.
“Not only could our rating go down as a result of this practice, but it also unsustainable for the long term, since only the unassigned fund balance – currently at $12.2 million – can be used to balance the budget,” said Schroeder. He said that the remaining fund balance is set aside for other uses, including the $35.7 million in the “rainy day fund” that can be used only for emergencies.
Schroeder said that the root cause of the budget deficit is that revenues – which have dropped three years in a row – aren’t keeping pace with expenditures. A $1.5 million decrease in gross utility tax offset an increase in sales tax revenues of the same amount. Meanwhile, pension costs increased $5.9 million, and health care costs were up $5.6 million. These and other increases exceeded decreases in other expenditures – including $1.4 million in personal services, $1.5 million in utility costs, $2.1 in equipment and capital expenditures, and $2.8 million for claims. Total expenditures increased $2.9 million over the prior year, $1.3 million more than was budgeted.
The overall budget shortfall was a result $19 million in expenditures for unsettled union contracts that were not anticipated in the city budget. While that amount is consistent with prior years’ expenditures, this was the first year that saving from other lines in the budget did not make up the difference. The comptroller said the budgetary impact of any future union contracts would need to be considered before any deal is reached.
Schroeder said he is also concerned with the city’s overreliance on general purpose state aid, which accounted for 36.8 percent of general fund revenues.
However, there were many positive trends in the yearly report, Schroeder said, including the $1.4 increase in sales tax revenue, which was $3.5 million more than the budgeted amount.
“Not only are Canadian shoppers and travelers boosting our economy, they are also helping the city’s bottom line,” said Schroeder.
Other major budget categories had positive variances, including $7.9 million for personnel services, $3.1 million for pension, $1.1 million for utilities, and $2.5 million for service contracts.
Schroeder also said the city is making great progress in reducing its debt burden.
“Our policy of paying off more debt than we incur every year is really paying off,” said Schroeder. “Capital indebtedness has been reduced from $415.6 million eight years ago to $328.6 million today.”