Schroeder’s analysis points to a return to a hard control board for Buffalo

Over many years, going back nearly 50, the finances of the City of Buffalo have had a whole lot of ups and downs. Years with major deficits, years with comfortable surpluses. Sometimes, though, years of surpluses can lull a municipal government into a sense of complacency.

In the most recent version of financial roller coastering, the Buffalo Fiscal Stability Authority, aka the Control Board, was created by the state in 2003 following budget difficulties magnified by the financial turmoil that followed the terrorist attacks on the country in 2001. The board was put in place in a “control” or “hard board” status right from the get-go, and immediately set about imposing serious budget controls on the City government as well as the Buffalo Board of Education, including a wage freeze that extended for several years.

The strong medicine worked. With the benefit of having the Control Board at their backs, the city administration, the Common Council and the Board of Education all in one form or another were able to take advantage of the wage freeze to control their budgets. Additional state aid that has often flowed to the City and to the school system over past decades also helped build surpluses and reserves.

Successive positive budgets led to improved credit ratings and the eventual change in the Control Board’s status to an advisory role. The City administration, the Council, the Comptroller and the Control Board all played a role in that success. But things have been changing.

City Comptroller Mark Schroeder early in May published a report on the mayor’s proposed $513.6 million 2018-19 budget, and the picture wasn’t pretty. The report documents a series of important budget revenues that he suggests are considerably overestimated. (Please note:  because of the size of the following table, which is taken from Schroeder’s report, and the value of including the information in order to understand the issue, the table is best viewed on a desktop, laptop, or tablet.)  The list includes:

 

Questionable Items included in the 2018-2019 Budget
 
2018-2019
Proposed Budget
 
Current FY Actual as of 4/30/2018
 
2016-2017
Actual
 
Responsible
Budgeting,  per Schroeder
 
Over
estimated
Revenue
Tribal Pact Casino Revenue
$17,000,000
$0
$3,439,330
$0
$17,000,000
Sale of City Owned Real Estate
8,000,000
240,693
1,060,836
1,000,000
7,000,000
Traffic Violations Revenue
6,000,000
2,009,690
3,993,940
3,000,000
3,000,000
Entertainment Ticket Fee
2,000,000
N/A
N/A
0
2,000,000
Gifts and Donations
2,000,000
15,933
51,097
150,000
1,850,000
Parking Tags and Fines
7,900,000
5,827,008
5,784,081
6,900,000
1,000,000
Grant Reimburse.
1,414,099
90,954
0
100,000
1,314,099
Total                                                          $33,164,099
 

 

Unassigned Fund Balance, which is used as a budget revenue item and is essentially the City’s savings account, had $41.6 million available in 2015-16. At the start of the current fiscal year only $6.5 million was left, and that, according to Schroeder, may be all gone by June 30th.

He also documents expenses that are substantially underestimated, including:

  • Overtime expenses. The actuals for 2016-17 were $29.4 million, and OT is projected for $29.8 million in the current year. The 2018-19 budget only provides $16 million.
  • Judgments and Claims expenses are budgeted at $2 million for 2018-19. The actual for the current year, through April 30th was $3.9 million, and the actual for 2016-17 was $8.1 million.

Add up all the possible overestimated revenues and underestimated expenses brings you to a total of perhaps $49 million, a number approaching 10 percent of the total annual city budget of $521 million. Assume Schroeder is only half right (I don’t think that) and you still have a budget gap of nearly $25 million. These numbers are not something that you make up by cutting office supplies and such during the fiscal year. The majority of city spending is in the personnel area, and looking to make up millions of dollars of shortfall could cost lots of people their jobs.

As a budget fanatic I reviewed Schroeder’s documentation carefully and I find it very convincing. The City budget exaggerations seem very similar to the Erie County budgets of the early 2000s, which followed the same inaccurate game plan. Those budgets led to the county’s financial meltdown in 2004 and 2005, which led to the creation of the Erie County Fiscal Stability Authority.

The City of Buffalo, of course, already has a control board in place, but it is operating in a dormant monitoring state at the moment. The state law that created the City’s control board sets out the reasons why the board can again revert to a “hard” board status. A board can take upon itself to go into control status if it determines that the city budget has crossed one or more red lines that require more than just monitoring, moving into direct control of the management of the City’s finances. One of those red lines requires structurally balanced budgets where operating expenses and operating revenues are in balance.

The budget presented by the mayor on May 1 required review and approval by the Common Council. It appears from a look at the Council’s budget actions that they just nibbled around the edges of the mayor’s plan.

The Council’s departmental amendments to the budget cut a net of $621,548 from the mayor’s proposed budget; that’s a cut of a little more than 0.01 percent. The cuts were spread over a number of departments. It wasn’t much.

The Council’s budget amendments also cut $1,000,000 from a proposed $1,500,000 appropriation for short term budget borrowing, known as a Revenue Anticipation Note (RAN). The Comptroller says that the City may need to borrow up to $100 million and he projects the interest charges at $1,000,000. The size of the note and the interest that it will cost remain to be determined, but the amount is pretty big – almost 20 percent of the City’s total annual budget. Schroeder suggests that the borrowing may have to occur in December 2018, just five months into the fiscal year. That should also be cause for alarm.

The City of Buffalo has had a pretty good ride financially for several years, but such things always come to an end at some point. The trick is, and it is a very difficult trick, to bring things in gradually for a soft landing so that recovery and rebuilding surpluses can be a planned out rather than be a panicky event.

It looks like panicky may be where things are heading. Maybe the State Comptroller should come in for a look. At the least the City Control Board needs to step up its act, because it appears that the current budget might breach the one percent of operating budget deficit that triggers a return to a hard control board; and/or, in the alternative, the 2018-19 budget could be determined to be structurally unbalanced, another trigger. The control board’s website doesn’t include an analysis of the 2018-19 city budget as yet, but perhaps that will be addressed at the Authority’s meeting on June 18th.

These things don’t cure themselves. Reality needs to be faced and a plan for filling in the gaps before things really hits the fan seems like a very good idea at this point in time.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s