We wish we had 39 million dollars. Hot dog!

There is scene in the holiday classic, It’s a Wonderful Life, played twice in the film, where the movie’s main character, George Bailey, goes into Mr. Gower’s drugstore, squeezes the handle on a box, which lights a flame.  George then says, “I wish I had a million dollars. Hot dog!”

George is beloved in the little town of Bedford Falls, where things are okay but many of its citizens are just getting by. He is honest, hardworking and caring.  He helps as many people as he can by loaning the Bailey Building and Loan’s money to people who are buying homes.  But George never gets his million dollars.

George’s dreamy wish comes to mind while observing some recent stories about the financial situation in the City of Buffalo. Instead of one million dollars, some Buffalo leaders are wishing for 39 million dollars. Hot dog!

The matter arises because the city government has in recent years depleted its unrestricted financial reserve – the one that is designated to help balance yearly budgets when operating expenses outrun operating revenues. Financial planners refer to that situation as a structurally unbalanced budget, which is not a good thing.

Eight years ago the City was in better financial shape. It had undesignated reserves – money not committed to any particular purpose – of $107million.  It also had established a “rainy day” fund, technically known as the Emergency Stabilization Fund, which amounts to approximately $39 million.  That Fund was established for a “break glass” emergency when other operating funds would not be available.

But all of the undesignated reserves have been spent, including a total of $57 million in 2016-17 and 2017-18 –all used to plug holes in the annual budgets that turned out to be structurally unbalanced. The rainy day fund remains in place.

It should be noted that the Buffalo Fiscal Stability Authority (aka, the control board) in 2012 converted from a “hard” board with substantial management authority to a “soft” board which plays just an advisory role. That step paralleled the timeframe over which the fund balance was depleted.

Losing the availability of the undesignated reserves leaves the City financially vulnerable. It’s like a household living paycheck to paycheck with no emergency money available to replace the furnace or to pay for an uninsured medical expense if those problems arise.

A review of recent city budgets shows city managers pretty much living within the spending parameters set out in annual budgets. That is an important mark in their favor.  Costs of things that the city purchases, however, continue to rise and union contract expenses increase apace.  The police contract, which is a large part of annual spending, has expired, but the city has no reserves set aside to pay for any increased costs.

On the revenue side city leaders have played a risky game. Beyond normal property taxes and fees, recent budgets have included a variety of questionable revenue sources, or inflated estimates of more traditional revenues including such items as:

  • Tribal pact casino revenues. The 2018-19 budget included $17 million in this account, which did not arrive before the fiscal year ended. The state advanced $7.5 million last September, but the city is still waiting for the remainder and included $11 million of casino revenues in the current 2019-20 fiscal year.
  • Entertainment ticket fee. This was to be a surcharge on tickets sold for events at major entertainment venues in the city. Lawsuits have been suggested and the fee is in a holding pattern. Two million dollars was budgeted as revenue in 2018-19 and $755,000 was budgeted in 2019-20. It’s never going to happen.
  • Overestimated proceeds from the sale of city owned real estate. The city anticipated $8 million in 2018-19 but collected only about $1 million. The 2019-2020 budget includes $6.9 million in that revenue line.
  • Overestimated traffic violation revenues. This regular revenue source was budgeted at $6 million last year but produced just $2.2 million. The 2019-2020 budget projects that $3.3 million will come in.

Mayor Byron Brown and the Common Council pride themselves on their record on property taxes. The tax rate for homeowners and businesses has been fairly level for the past ten years.  No one likes to pay property taxes, so that makes people happy.  But that happiness has come at the price of precarious budgeting and lowered bond ratings from three credit agencies – Fitch, Moody’s, and Standard & Poor’s, which can lead to increased costs of borrowing money through bonds for capital projects.

Unrealistic revenue estimates leave the city vulnerable to things out of their control. The city is highly reliant on state revenues, receiving nearly 32 percent of its operating revenues from Albany.  We are soon about to find out how the state intends to handle a $6.1 billion projected deficit in Medicaid.  Cities could be part of the state’s solution, but not in a positive way.

The Comptroller’s Office, first under Mark Schroeder and now with Barbara Miller-Williams in the office, has repeatedly raised issues concerning the city’s revenue projections and the threat that the lack of undesignated fund balance poses to management of city government. The million-dollar control board has mostly stood by, wringing their hands.

The Comptroller’s office has suggested that the Council and mayor approve a formal policy concerning the use and replenishment of the fund balance. The suggestion has been to accumulate sixty days’ worth of operating budget money, including the existing rainy day fund.  So that would mean adding another $39 million to reserves, and more importantly, keeping it that way.

The Comptrollers’ suggestions have languished in the Common Council for months, but the Council is now showing signs of taking up the matter. The Mayor’s office sees no apparent reason to expand the reserve.

In order to start rebuilding the reserves the city government will need to do three things: (1) continue to keep a tight lid on spending; (2) develop revenue estimates that are realistic and achievable rather than pie-in-the-sky; and (3) raise city property taxes and set user fees that actually pay for the cost of providing services and hopefully build a reserve.  The city’s tax levy has only increased by $14 million over the past ten years.  That averages out to $1.4 million per year.

Some Council members have raised the argument that the city can only increase its property taxes by the approximately two percent limit that state law allows.   That would annually produce less than $3 million extra.  But state law permits the two percent limit to be breeched by a vote approved by 60 percent of the legislative body.  That would mean six of the nine Council members voting in the affirmative to raise taxes more than two percent.

This is where the George Bailey analogy comes in. Squeezing a lever to light a flame and saying “I wish I had a million dollars. Hot dog” is pretty much like the Common Council amending the City Charter and saying “We wish we had 39 million dollars. Hot dog!”  Wishing doesn’t make it so.

Plans are the easy part. Having a plan to raise the reserve another 39 million dollars over the next several years is only meaningful if there is a commitment in terms of Council votes to increasing taxes and fees to make the plan a reality.  It’s going to take a whole lot more than wishing, or passing a Charter amendment about a fund balance goal, to restore financial stability to Buffalo city government.