Years of experience in government and budgeting usually produce a healthy cynicism about big numbers.
That’s a lesson I admit I overlooked when the City of Buffalo’s 2023-2024 budget was presented by Mayor Byron Brown and approved by the Common Council. I saw the first-in-many-years property tax increase and the increase in garbage fees as positive signs of fiscal reality. They were. But left unexplored were some serious issues, mostly on the revenue side. The issues are reminiscent of similar budget actions in years gone-by.
The big number that should have stood out in May was the line on page 23 of the budget, titled “Federal Revenue – Stimulus.” The line reported a total of $98,552,438 actually spent in 2020-2021 and 2021-2022 plus money spent from that account up to June 9, 2023. That total approximates the $100 million number that the city administration said it would use from the federal American Rescue Program (ARP) funds to replace revenues lost during the pandemic.
The budget number for ARP funds in the 2023-2024 fiscal year is $30,585,235. That money had not been committed to pandemic revenue replacement originally, meaning that the adopted budget had a big hole in it. The Common Council reallocated it last week to revenue relief, filling the hole.
Buffalo has for 20 years had the state-created Buffalo Fiscal Stability Authority (BFSA) looking over its shoulders. The Authority last week issued a report about the new budget and its accompanying four-year plan. Here are the highlights:
- Cannabis revenue projections are high, very high. So high that the Council felt the need to cut the Mayor’s proposed cannabis revenue numbers by $5 million for a new total of a little over $3 million.
- The licensed cannabis business in Buffalo is just getting underway. Even with that cut the new proposed revenue estimate is still too high. In order to achieve the budgeted number the BFSA estimates that there will need to be more than $102 million is sales in the city before June 30, 2024.
- In the city’s four-year plan the city is expecting total annual cannabis sales in 2026-2027 to grow to $425.76 million.
- The Authority notes that using the city’s projections means that between 33 and 40 percent of the weed sold statewide would be sold in Buffalo. Buffalo’s population is less than 1.5 percent of the state total.
- The city’s four-year plan projects $8 million in additional state Aid and Incentive of Municipalities (AIM) beginning next year. The state hasn’t increased that aid since 2012.
- The four-year plan also projects $4 million increases in annual casino revenues under a new state-Senecas compact starting in 2025-2026. The Compact hasn’t been written yet.
- As noted above, the city plans to use additional ARP money to balance the 2023-2024 budget, leaving $19.4 million for 2024-2025.
- The budget cuts $2 million in Police Department overtime and $1.5 million in Fire Department overtime. Those budget lines have traditionally been overspent.
Taken all together, what you have here is the likelihood of serious budget shortfalls over the next four years.
Pulling the rug out from underneath the numerous public service agencies that were planning over the past two years to receive the federal funds has left those groups justifiably angry. Their recourse options are limited since the city’s late shift might nonetheless prove to be legal under ARP regulations.
ARP allows cities and counties to use the federal funds to fill in for revenues that were diminished because of the pandemic. The money threw the city a lifeline but the money is a classic and very substantial “one-shot” revenue that should be used in a balanced way to ease back to more normal budgeting. That is not the way it is playing out.
So what does the BFSA have to say about all this?
- [I]n the event speculative and unsupported revenues are not received to the extent projected over the Financial Plan, the shortfall would be able to be funded through fund balance and/or property tax increases in excess of the State tax cap as excess capacity is available. [Publisher note: The fund balance is limited. Property tax increases “in excess of the State tax cap” could be substantial. A one percent increase in the property tax produces less than $1.6 million.]
- Director [Andrew] SanFilippo asked what the City’s fund balance totaled at June 30, 2023. Principal Analyst Link stated total fund balance as of June 30, 2022 was approximately $124M, of which, $24M was Unassigned fund balance. The year-end estimate based on third quarter results is $90.4M for Unrestricted fund balance as compared to $82.0M for fiscal year-end (FYE) 2022.
- In order for appropriate and responsible financial planning, the BFSA strongly makes the following recommendations: — The Mayor should eliminate State AIM increases over the Financial Plan. — The Mayor should eliminate casino revenue increases over the Financial Plan. — The Mayor should further reduce cannabis tax revenues in the last two years of the Financial Plan while closely monitoring receipts in the current fiscal year to assist in future projections. — Adjustments/decreases to staff levels and delivery of services should be developed to offset the decrease in projected revenue. This allows for careful consideration and the development of a contingency plan before a crisis needs to be addressed.
- After consideration of the aforementioned mitigating risk factors, the BFSA finds the final Financial Plan to be compliant with the provisions of the BFSA Act.
Buffalo Comptroller Barbara Miller-Williams analysis of the budget and four-year plan notes:
The Four-Year Plan as presented lacks sufficient detail to conduct a thorough and meaningful review, and as such we are unable to opine on the validity of the adequacy of the Plan… Intergovernmental Revenue is being budgeted as $330.9 million in fiscal 2024, and projected to be $331.2 million, $323.6 million, and $334.5 million in fiscal 2025, 2026 and 2027 respectively. As previously noted, this line includes $30.2 million of ARPA revenue in fiscal 2024, which is a revenue source that is not available in the out years. We do not know what is being contemplated to replace this significant source of revenue going forward… While the City of Buffalo has received unprecedented levels of funding from the American Rescue Plan Act, it must again be emphasized that this funding in the form of replacement revenue ends on December 31, 2024. It is highly recommended that the Administration and Common Council in conjunction with the Buffalo Fiscal Stability Authority develop a comprehensive plan to address the City’s fiscal sustainability beyond the useful life of these funds.
The BFSA seems willing to give the city some gentle nudges. That is not really the role they were created for. There is an iceberg still ahead but the band still keeps playing a happy tune.
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