Things have a way of catching up with you. You ignore the need for an oil change for your car until the red light goes on. You delay purchasing paper products, or laundry detergent, or some other essential that you only remember when there is nothing left. Those sorts of things can get resolved.
If you are the City of Buffalo, however, the results of neglecting to properly manage the finances have serious consequences for the city, its residents, and businesses. With no intent to exaggerate, Buffalo is in dire financial straits.
The problem did not happen overnight. For twenty years city government has lived off a depleting piggy bank while continuing to spend as if there was no problem.
The city has three main sources of operational revenue: state aid; a share of the County of Erie’s sales tax; and the city’s property tax. State aid has not grown much; the sales tax proceeds ride on the economy; and the one major revenue element that city government has control over, property taxes, remained the same, or was even reduced, for most of the past twenty years. The costs of doing business – salaries and wages, fringe benefits, utilities, fuel, maintenance equipment, and the like – have all continued to increase.
The city used reserves and one-time money to fill the gap. When the city’s control board, aka the Buffalo Fiscal Stability Authority (BFSA), transitioned from a control period to an advisory role in 2012, the city had $110 million in unassigned reserves available. By 2018 it was all gone.
Not everyone ignored that mismanagement. City Comptroller Mark Schroeder raised objections to the way in which the city’s finances were handled. I wrote a post about the city’s problems in the spring of 2018, featuring an analysis from Schroeder. Here is a sample of what he reported:
Revenues overestimated: $33.1 million
Use of Fund Balance: $6.5 million; totally depleted at the end of the 2017-2018 fiscal year.
Overtime expenses and judgments and claims expenses underbudgeted by $14.7 million
Overestimated revenues and underestimated expenses for the fiscal year: $49 million. Total city budget that year: $521 million.
Sound familiar?
The city was struggling at that point, muddling through for a couple of years. Then came the pandemic, and with it $330 million from the federal government. The city’s original plan for that money was to use $110 million for “revenue replacement.” When all was said and done, the city used almost double that amount from the federal funds for “revenue replacement.”
Then that money ran out.
In the past two years property taxes were bumped up somewhat, but nowhere near what was needed to balance revenues with expenses. The sale of four city-owned parking ramps was offered as the latest example of one-time revenue budgeting.
So here we are now. Mayor Sean Ryan ran his campaign for mayor telling city voters the hard facts which include the need for a significant increase in the property tax with no more phony revenue projections or underestimated expenses.
No one, of course, wants to pay higher taxes. Try to find another way.
Governor Kathy Hochul has offered some significant relief in the form of $40 million in state aid to the city. The money helps a lot, but it is one-time money. It will go mostly to pay off the funding deficit which the previous administration created in the current fiscal year, which ends on June 30.
Ryan is moving away from the sale of the parking ramps. The one-shot revenue would have a limited impact. That’s where the need for deficit bonding comes in.
There is $11 million projected as casino-generated revenue this year and next, but no one really knows how that will play out.
Millions of dollars in underbudgeted overtime expenses and pension costs need to be addressed.
Mayor Ryan has suggested that a property tax increase of up to 25 percent might be needed.
Some people are looking around for other options. That would include cutting expenses. A dose of reality is needed. Consider this:
The city adopted current budget is $622.1 million (if it were accurately presented it is actually tens of millions of dollars higher). It includes several large line items that are officially or for all intents and purposes untouchable, including:Funds for the Buffalo School System: $70.8 million
Debt service on city borrowings: $36.2 million
Police and Fire Pension System payments: $49.2 million
Other city employees’ pension system payments: $12.1 million
Medical coverage for city retirees: $49.2 million
Medical insurance, current employees: $52.1 million
The Police Department: $106.2 million
The Fire Department: $72.7 million
These expenses in the current budget add up to $448.5 million, which is 72 percent of the adopted budget.
That means that for the most part, any cut in expenses must come from the remainder of the budget. The largest part of the remaining expenses are personnel costs. So that would mean significant layoffs in departments such as parks and recreation, streets and sanitation, and community services. Cutting multiple tens of millions of dollars from the remaining $170 million or so will damage already-strained services. That may not be politically or legally acceptable and most certainly won’t be a long-term solution.
Another alternative to property taxes is sales taxes, attempting to get the city a larger share of the county’s sales tax proceeds.
The sales tax distribution formula as it currently exists was created by an agreement entered into among the Erie County Legislature and the City Councils of Buffalo, Lackawanna, and Tonawanda in 1977. Those legislative bodies would need to agree to a change in the formula. The county’s other municipalities and the school districts are unlikely to accept a reduction of their shares. The majority of the members of the County Legislature represent those suburban and rural areas.
The Buffalo City Council could choose to end their participation in the 1977 agreement and impose their own sales tax, but that requires a one-year notice. Sales tax revenues are based on business transactions, and those transactions rely heavily on sales at such businesses as car dealerships and appliance stores which have mostly left the city.
So minus some more permanent increase in state aid; and given the unlikely possibility that the city could receive an increase in sales tax; and noting the limited options for making substantial cuts in city expenditures, you are left primarily with the property tax levy as the means of bringing the city’s budget into balance with operating revenues matching operating expenses while maintaining city services. At that point, which will take three or four years, the city can have its finances stabilized and get on with the future.
The fundamental problems that lead to such limited options are not new or unique to Buffalo. Decades ago New York State acknowledged the problem of limiting cities to revenue sources that mostly did not grow with inflation while the State had a near-monopoly on the growth revenue that is the income tax. Nothing much has been done to revisit that approach.
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