COVID-19 will have a devastating effect on state, local government and school district budgets

Right off the bat, please understand that I consider the public health crisis to be the number one issue and the number one priority for this world, this nation, this state and Western New York. No one can be comfortable with the world as it is today without that focus.

But for this country, state and region to function properly, to provide the support and assistance needed by health care professionals, it is important to have governments who are well managed and in a position to be of assistance. That need, however, is far from being settled at this moment.

As we watch the effect of the closings of businesses, government offices and not-for-profit agencies we see the growing list of the at least temporarily unemployed, with record numbers of people filing for unemployment insurance. Federal legislation will help shore that up, thankfully, so that some of the worst of the financial pain can be mitigated.

But the federal government has a somewhat easier go of it. They are not required to balance their annual budgets.  The Federal Reserve can literally print money to circulate around the country.  State governments, counties, cities, towns, villages and school districts, on the other hand, face the much tougher reality of eating up reserves, to the extent they are available, and then to face cutting services and raising taxes in order to balance budgets.

The New York State budget for 2020-21 is due to be approved by March 31, four days from now. Prior to the coronavirus pandemic hitting full force, the state was already facing a huge budget deficit for the new year, amounting to about $6 billion; the state funds total budget is less than $90 billion.  Publicly, at least, we have not received a good look at what Governor Andrew Cuomo and the State Legislature could or would do about that.  But as it turns out now, that $6 billion hole may be just a drop in the bucket.

As noted in a previous post, State Comptroller Tom DiNapoli, at the request of the governor, projected that as of March 12th (less than three weeks ago) the pandemic would add another $4-7 billion to the 2020-21 budget deficit that must be closed.  Governor Andrew Cuomo’s Budget Director, Robert Mujica, more recently said the gap is more like $9-15 billion.

While it is not often acknowledged, state revenues over the years have been a major source of funding for local governments and school districts. It has been common, however, that when the state has had major financial problems it has passed them along to the locals.

The size of state aid varies depending on many factors such as need, political pull and ability of local governments and schools to fund their own needs. Some get much more than others.

The latest from the Governor and his Budget Director is that they are proposing to report the state’s revenue shortfalls on a quarterly basis and then share the shortfalls proportionately with local governments and schools. The Legislature would have to give him permission to operate in that manner, and they probably will.

Cuomo explained yesterday that “[n]o one is held harmless. No one is protected from reality. Ask any family out there…

“First, we are going to adjust downward our revenue projection from the initial budget. Then, we’re going to ask to do something that we’ve never done, which is to adjust the budget through the year to reflect actual revenue…

“We know the revenues are down – we don’t know how much. We don’t know when the economy comes back, we don’t know the rate at which the economy comes back, and we don’t know what Washington may do to address this situation in the future, if anything. So, you don’t know … but you have to do a budget with all those unknowns.”

 The Albany Times-Union reported yesterday that the Governor then “offered an example for local governments, school districts and other entities that will be affected by the updated plan: In the initial budget, an institution may be allocated $100, but the state then doesn’t have $100. Instead, it can provide $95 – but only if the state receives $95. Officials would then touch base with stakeholders periodically to let them know ‘how much I can give you of the $95, and therefore, you can plan accordingly.’”

It is going to be a very bumpy ride for at least the next year.

Then consider the dimensions of the problem for one city. Here is a summary of what the City of Buffalo and its schools receive from the state for the current fiscal year:

Combined State Aid – City and School District – 2019-2020

Total Revenues                 State Aid              % of Total Budget

City                        $508.7 million                     $161.3 million                     31.7%

Schools*              $917.4 million                     $784.4 million                     85.5%

* Excludes $10 million in Fund balance

Combined, less City Taxes used for schools: Total Revenues:  $1.355 billion.  State aid:  $945.7billion or 69.9% or total Buffalo government and school revenues.

The County of Erie annually receives about 24 percent of its total $1.555 billion in revenues from the local portion of sales tax. The 4.75 percent of the tax collected in Erie County was projected to total $829.3 million in 2020.  The County retains $457 million of that amount.  Cities, towns and school districts get $338 million.  The cities of Buffalo, Lackawanna and Tonawanda receive an added $12.5 million.  The Niagara Frontier Transportation Authority (NFTA) gets $21.9 million.

But those shared amounts were developed for 2020 based on the assumption of modest growth in the sales taxes this year. That assumption is now, of course, terribly out-of-date.

Assume instead that the current shutdown of businesses, as extensive as it is, reduces total 2020 sales tax proceeds for 2020 by 10 percent. That could diminish the county’s revenues for the year by $45.7 million dollars.  The cities, towns and school districts’ revenues could be down a collective $35 million.  The NFTA could lose nearly $2 million.  There is no way of knowing what the lost revenue will amount to, but even a 10 percent fall would be devastating.  It could be much higher.

The state, of course, will also stand to lose a significant amount of sales tax revenue, further hampering its finances. The state retirement accounts have been in reasonably good shape, but the losses in the stock market will diminish the retirement account balances, and will lead to higher costs to the state, local governments and school districts, which will see required contributions increased.

The County Legislature yesterday approved a Revenue Anticipation Note (RAN) in the amount of $125 million. RANs usually occur near the end of a fiscal year and are used to compensate for cash flow issues often related to the timing of the receipt of money from the state.  Some years RANs aren’t needed.  The county had a fund balance of $102 million at the end of 2018, and it likely added $8-10 million in 2019.  For the county to sell RANs in the amount of $125 million (which might not occur until early summer) is a signal that they are anticipating a serious shortfall in state revenues, either on a permanent or short-term basis.  Whenever RANs are even sellable is another question.

The most important problem facing the states and local governments at the moment is to get the COVID-19 pandemic in their areas under control as best they can. But the consequences, when all is said and done, will extend into other government services as elected and appointed leaders struggle to manage their activities with greatly diminished resources.

Political cover and posturing in the face of a crisis

There are a lot of things going on in the local government and political community that are worth reporting on and analyzing but for at least this week I’m going to offer up for your consideration comments about how some politicians are dealing with the COVID-19 crisis.

When Donald (“I alone can fix it”) Trump told us recently that he takes no responsibility at all, he wasn’t telling us something new, but at least we now have it on tape. He has fought and belittled people who by training and education are qualified to lead and instead has surrounded himself with bootlickers who have checked their brains and morals at the door for the glory of working in the Trump White House.

Having Mike Pence and Jared Kushner in charge of fighting the pandemic is laughable. Pence only does what Fearless Leader tells him to do.  Kushner is undoubtedly building up his Rolodex with useful business contacts that he can cash in on during his post-White House days.

Last fall there were early warning signs of the growing problem in China with the virus. The Trump administration ignored that stuff.

When the pace of confirmed cases of the virus started to move past China, Trump remained in denial mode. Then Trump switched to his old stand-by, trying to deflect attention.  He blamed Democrats.  He blamed the media.  He paid no attention to whatever the scientific experts told him.  He called it a hoax.  Fox News provided talking points to the base.

After the first cases showed up in the United States his denials expanded. He told us there were only 15 cases and they soon would all be gone.  He told the world about the wonderful job he and his team were doing.

Wall Street investors were selling off quickly and Trump was losing the thing he told America was the real benchmark of his great economic achievements, a rising stock market. He addressed the nation from the Oval Office.  Investors responded with another big selloff.

Trump pressured the Federal Reserve to lower interest rates, which stood to benefit his highly leveraged properties that are likely in financial trouble and could catch a break in interest charges. The Fed has responded by twice cutting their interest rates to near zero while also using their monetary powers to buy up treasuries.  They have used up most of their weapons for fighting a financial meltdown, and investors responded by pulling out even more of their money.

The focus now is on Congress. The first two relief packages were prepared by the House.  Mitch McConnell had to tell his senators to gag but vote for them.  Thank you Nancy Pelosi for showing real leadership.

We will now observe how the Republicans who used to hate deficits will get their arms around a nearly two trillion dollar bailout package.  It also seems that the bailout that Republicans are pushing includes a government ownership stake in some businesses.  That, of course, is the basic definition of socialism.

While all of this has been going on we have come to learn that two Republican senators, Richard Burr and Kelly Loeffler, were busy acting like Chris Collins. Acting after receiving information they obtained in secret Intelligence Committee meetings, they dumped millions of dollars of stock related to businesses that would likely take a beating when the full dimensions of the pandemic became known.  Like what Collins is going to prison for.  Mitch McConnell and his gang should call for Burr and Loeffler’s resignations.  The same should apply to any other members of Congress or people in the White House who have acted similarly.  Don’t hold your breath waiting for any of this to happen.

Not to be outdone by the Trump team in Washington, local Trumpster/County Comptroller Stefan Mychajliw jumped into the show. He suggested by Tweet that the County Legislature could find money to buy needed medical supplies by approving the proposed reorganization of his office.  That’s the plan would allow Mychajliw to raise former Legislator Lynne Dixon’s salary in the Comptroller’s office from about  $50,000 to $90,000.  The county is being provided with whatever medical supplies have become available, and the county’s surplus, which Republican legislators have tried to chip away at, is rock solid. It will be needed as these issues move along.

Finally, a question. Congressional candidate Chris Jacobs has run tons of TV commercials touting his strong support for Donald Trump.  Why is he so silent about the mess Trump has made of things when the nation’s health and safety are concerned?

A personal note

Today is the 5th anniversary of Politics and Other Stuff. This post is number 361.  The posts have contained approximately 394,000 words.

Readership started five years ago with some family members and friends whose email addresses I extracted via LinkedIn connections. Over time people have come to voluntarily subscribe directly, with an accompanying growing number of Twitter followers.  The number of clicks continues to be very good.

Along the way the posts have achieved added circulation through re-publication or links in The Public, Investigative Post, and Buffalo Rising.  I am grateful to the publishers of those websites for their assistance.

I am also very grateful to long-time friend and Politics and Other Stuff Editor Paul Fisk for his valuable insight and guidance in producing the posts.

Writing this blog has been fun, but I hope that in some small way it has helped contribute to public dialogue about a range of issues and public figures. I have offered lots of opinions, but have also provided many, many useful facts.  I am not expecting readers to agree with my opinions all the time, or maybe even some of the time, but I hope that what is offered here stimulates thought and discussion.

Thank you for reading. And please, stay safe.

The financial crisis will pose serious money problems at City Hall

The Coronavirus pandemic is taking its toll on those who are physically suffering through the infections and on the families who have already lost loved ones. The incredibly serious situation seems to get worse by the hour.

The leadership on this issue has come from state houses, county halls and city halls. Donald Trump is late to the game and it remains to be seen just what will come out of Washington to provide health care administrators with the medical personnel, facilities, supplies and equipment to flatten the virus’ curve.  The head-in-the-sand partisans in Washington don’t exactly have a good track record of producing results in situations such as the one we find our collective selves in at the moment. Continue reading

Confronting the truth is hard for Trump and Sanders; a note about Jack Cookfair

Donald Trump and Bernie Sanders are alike in some ways and different in other ways.

Both men are septuagenarians. Both were born in New York City.  Neither has much hair on their head, but at least Bernie is more honest about it.

Both men are totally convinced that their view of the world is the one, true and only way to see things.

Both men love expressing that attitude to very large crowds of adoring fans. Or at least they did until last week, when their styles and personalities came up against the hard truth, which could not be denied, that large crowds are a potential health hazard.  The CDC now recommends no gatherings larger than 50 people. Continue reading

Super Tuesday lived up to its name; New York’s primary will be a real contest

With Super Tuesday now in the rearview mirror, it’s on to … Idaho. And oh yeah, Michigan, Missouri, Mississippi, North Dakota, and Washington next Tuesday.  It’s like a mini-Super Tuesday.

Joe Biden’s wins in ten state primaries this week were stunning. The positive energy coming from voters indicates that they want Donald Trump out of office, and they will go with the candidate they view as having the best chance of defeating him. Continue reading

Baseball’s scandal seems like a political scandal

My wife Sophia and I spent a few days in Florida last week – Palm Beach County to be exact. The country’s scandal capital.

I’m not referring to Mar-O-Lago but rather to the FITTEAM Ballpark of the Palm Beaches, a few miles west of the Trump Winter White House and hangers-on clubhouse. The Ballpark is the spring training site of the American League Champion Houston Astros.  I’m not sure whether or not I should attach an asterisk to the team name but their claims on league titles seem like they should be a bit shaky at this point in time. Continue reading