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.

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.

Priority one is certainly to get the virus under some reasonable management. Control for now is another matter.

Then there are the financial issues, stretching from the kitchen tables of most Americans to those with macro-management responsibilities in DC and on Wall Street. People will be rapidly losing their jobs.  Government will be expected to help but will be stretched thin.

In New York State we have seen this movie before, after 911 and after the 2008 fiscal meltdown, but this time it is playing in 3-D on an IMAX screen (if we could only get into a theater). The depth and breadth of this financial crisis is likely to be far greater than the vast majority of those living have ever experienced.

Wall Street income is heading for an awful year, and that will cost state budget coffers greatly. More on that in a moment.

Sales tax revenues are going to plunge for an extended period of time, which will damage the finances of states and local governments. In counties such as Erie that share a substantial portion of their sales tax revenues with cities, towns, school districts and the Transportation Authority, the difficulties will be shared from Tonawanda to Springville.  People out of work will have problems paying their city, school district, town and county property taxes and fees.  The amount of these lost revenues is impossible to project at this time, but the numbers are going to be very big.

State Comptroller Tom DiNapoli issued a report yesterday about the state’s finances. Here is part of what he said:

“[T]he Office of the State Comptroller has analyzed the economic and revenue outlook for the remainder of the current fiscal year and for the next fiscal year. Based on information as of March 13, 2020, the most optimistic revenue scenario is that All Funds tax revenues in State Fiscal Year 2020-21 will be at least $4 billion below projections of $87.9 billion in the Executive Budget. However, given deteriorating conditions and the potential likelihood of a deep recession in the coming fiscal year, one alternative scenario suggests that tax revenues in SFY 2020-21 could be more than $7 billion below the Executive Budget forecast…

“Congress is considering legislation that would bolster unemployment insurance, make paid sick leave and family leave more widely available, and temporarily increase the federal share of states’ Medicaid costs under certain circumstances. Such provisions would be expected to have a positive economic impact that is not yet possible to quantify with specificity. Additional federal funding for Medicaid would benefit the State Financial Plan…

“The federal government is also considering delaying tax filing deadlines, which could result in billions of dollars of New York tax payments being delayed as well. This raises concern regarding the State’s cash flow in the coming fiscal year.

“In addition to the tax revenue impacts discussed above, the State faces other risks. State gaming receipts from video-lottery facilities and commercial casinos will be depressed by recent events including actions taken to limit public gatherings, although any specific estimate currently is not possible. The Executive Budget Financial Plan projects receipts from VLTs and casinos to total $1.1 billion in SFY 2020-21. Other non-tax revenue sources could be at risk as well.

“The Legislature has authorized $40 million to address costs related to COVID-19, including personal services, equipment, supplies or training. Other costs not currently expected, and difficult to estimate, may arise due to a variety of factors related to the outbreak and its economic impact.”

The State Comptroller’s Office regularly reviews localities that the Office has found to be under financial stress. The most recent list, which evaluated municipalities for their 2018 fiscal years, includes the City of Niagara Falls, which is considered to be under significant stress.

The State Legislature is due to approve the 2020-21 state budget in less than two weeks. How that is going to work out is anybody’s guess.

The State, in situations like these, has often been inclined to pass part of the financial burden on to local governments and school districts. Governor Andrew Cuomo’s proposed budget, which was filed before the coronavirus issue rose to its current level, was already looking to solve a portion of its multi-billion dollar deficit by having counties and New York City pick up some additional Medicaid costs.  That effort may have now been stymied by federal legislation, leaving the big budget hole to fill on top of what is now on the horizon.

It seems probable that the State will either now, when the budget is adopted, and/or later in this year, when the full dimensions of the problem are better known, look to cut local financial assistance to counties, cities, towns, villages and school districts. The pain could be great and distributed from Montauk Point to Niagara Falls.  It has been that way with lesser financial meltdowns.

So the question will be which among the local governments and school districts and SUNY/CUNY colleges are best prepared to deal with the pain? We will soon find out.  Reserves will be helpful if available, but higher local taxes and budget cuts will need to be part of the package.

Erie County government has built up reserves to the tune of about $102 million that will come in mighty handy. Last Sunday County Executive Mark Poloncarz announced that he would ask the County Legislature to set aside $5 million out of the anticipated $8-10 million surplus from 2019 for the purpose of additional potential expenses related to dealing with coronavirus issues.

And then there is the City of Buffalo. All of the city’s reserves were used up in 2019.  There remains a “rainy day fund” of about $39 million, which is intended for a “Break Glass” situation.  The axe is being readied to do just that.

But if that happens, as seems likely, diminished State and city revenues could quickly require Buffalo to use up much of the $39 million or leave the city with no reserves at all.

For several years The City Comptroller’s office, beginning with Mark Schroeder’s tenure, has advocated re-building the city’s reserves beyond just the rainy day fund. That would have made things that are coming a little easier to handle, but Mayor Byron Brown has resisted such an effort.  The Common Council has only paid lip service to re-building the reserves.  The million-dollar Buffalo Control Board has sat on its hands and done nothing.

The national fiscal crisis is coming to a state and locality near you.  It’s not going to be pretty.

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.

But, of course, Trump and Sanders are different in many important ways. Trump is all in for helping the rich to get richer and in convincing his true followers that he is with them all the way, without mentioning that he is working to reduce the availability of health care and social services, things many of them desperately need.  His tough talk about how he is guarding them against demographic developments and economic challenges belies the fact that his policies are most directly aimed at hurting them and their families.  Fake Fox News provides the talking points to keep the flock in line.

Sanders tells his supporters that he will attract millions and millions of previously uninvolved followers who will bring about a revolution that will provide free government health care, free college tuition and student debt cancellation, and higher wages. That hasn’t happened, but it sounds pretty good to a lot of people – more specifically about one-quarter of the Democratic primary electorate.

For Donald Trump the truth about the seriousness of the coronavirus pandemic is a pretty hard pill to swallow. So reluctantly he decided to speak to the nation, to calm things down.  That didn’t work out like he planned.  A friend of mine reports hearing a co-worker saying “I didn’t think much of the coronavirus, but last night Trump read off of a teleprompter. That never happens.  This is real.”

Well, about as real as it ever gets for Trump.

He imposed restrictions on travel from Europe. In his address to the nation Trump said “these prohibitions will not only apply to the tremendous amount of trade and cargo but various other things as we get approval.”

 But then, “Trade will in no way be affected.   The restriction stops people not goods,” Trump tweeted, contradicting himself moments after he completed the speech.  That overlooked the fact that European nationals would be onboard the ships delivering that cargo to the US.

After the speech Ken Cuccinelli, the acting deputy secretary of the Department of Homeland Security, tweeted that the travel restrictions from Europe do not actually apply “to American citizens or legal permanent residents or their families.” For those keeping score at home, from what we know about the coronavirus infections thus far in this country, many of the confirmed cases have resulted from Americans traveling home from other countries.

Trump went on to declare that health insurance companies “have agreed to waive all co-payments for coronavirus treatments.”  The industry begged to differ.  They only promised to cover testing (whenever that becomes available), not the much more expensive costs of treatment of those who are found to be infected.

Trump also tried to calm the country’s economy by announcing a series of half-baked ideas for stimulating the economy, which Congress received with a bi-partisan collective yawn. Fortunately House Speaker Nancy Pelosi stepped in as the adult in the room to get some things done legislatively.

On the day after his speech the stock market, which Trump has used as a barometer of the country’s economic health, sent a more direct message with another record-breaking day of tanking. It seemed like the unofficial beginning of a recession.  And then, over the past weekend, the Federal Reserve announced they were cutting interest rates to near zero.  They also took other substantial actions to keep the economy moving along, perhaps eliminating any further action that they can take.  Trump responded: “I think that people in the market should be very thrilled.” Apparently not. The day after that tweet the market experienced its biggest drop in history.

Meanwhile…

The Democratic presidential primary has in the past two-and-a-half weeks moved in the most incredible of ways. Starting with the South Carolina primary on February 29th, Joe Biden’s campaign has developed big momentum which is overwhelmingly directed to one purpose – replacing Donald Trump.

Biden’s primary wins have moved on a parallel track with a steady stream of endorsements by former rivals. Former candidate and New York City Mayor Bill de Blasio is still supporting Bernie.

Unlike what Bernie Sanders has suggested, it hasn’t been some unknown gang of Democratic elites or the Party “establishment” that have moved Biden forward. Rather, it’s been the power of the ever growing collection of Democratic voters.

As this post is being published Arizona, Florida, Illinois and Ohio are voting and it is likely that those four contests will go strongly for Biden. The following weeks don’t hold out much hope for Sanders except in small states that will hold caucuses.

Last week, after his shellacking in five primaries, Sanders remained quiet. Then he issued a statement saying “last [Tuesday] night was not a good night for our campaign from a delegate point of view. We lost the largest state of the night, Michigan, but we won in North Dakota…

“But what has become more and more apparent, with each passing primary, is that while we are currently trailing in the delegate count, we are strongly winning the debate about the future of our country. But while we are winning — very clearly — the ideological debate, we are losing, right now, the electability debate.”

Well Bernie, here’s a news flash – the way you tell how a candidate is really winning is by knowing how many votes the candidate has received.

I’m all for Bernie having his say and taking things a little further, but at some point he needs to bring his ship that is circling at sea into port and take a realistic count of the votes he has received.

The Biden-Sanders one-on-one debate held on Sunday broke no new policy ground. Sanders may think the debate gave his campaign a lifeline, but the event will not give him any bounce.  Biden’s announcement that he would choose a woman as the candidate for Vice President stole the news cycle.

Stubbornness seems to be Sanders’ middle name. He doesn’t take criticism well because his attitude is generally I’m right, you’re wrong.  It’s my way or the highway.  Sort of like the guy in the White House.  Not exactly what we need at this time.

Jack Cookfair

Bob McCarthy’s Buffalo News obituary for political consultant Jack Cookfair provided a good summary of Jack’s life and times.  He was many things – a politician, a baseball enthusiast, but most of all, a talented and successful consultant in the rough-and-tumble world of politics in New York State.

I first became acquainted with Jack in the mid-70’s when we were both on the staff of the Erie County Legislature. Jack wasn’t much interested in the governing part of things then, but he certainly had a talent for crafting hard-hitting campaign materials.  There were some rough spots along the way as the two parties went at it.

And those were the days when not only did the parties compete feistily in the campaigns, but then on election night needed to face one another directly after the votes were counted because the parties occupied the opposite ballrooms of the Statler Hotel. Talk about awkward.

Time passes, and even at relatively young ages we all gained some perspective on what is important in life. Many nights I shared many a drink or two at Mother’s Bakery with Jack and other politicos from both parties.  As the song goes, “those were the days, my friend, we thought they’d never end…” Rest in peace, Jack.

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

Looking at the Democratic presidential primary now and where it might leave the New York primary

We have arrived at the first rest stop on the road to the presidential election 2020. With Iowa* and New Hampshire in the rearview mirror, we can all catch a collective breath before the next event, the Nevada caucuses on February 22nd.  (BTW, don’t look for a footnote at the bottom of the page connected to that asterisk after Iowa*.  It just seems fitting that Iowa*’s 2020 Democratic caucuses deserve a permanent asterisk, like the one given to Roger Maris when he hit 61 home runs in 1961, beating Babe Ruth’s record.  But I digress.) Continue reading

Some facts, observations and heard-on-the-streets

We are finally getting into the real part of the presidential campaign where people actually get to cast a vote, as opposed to standing in a corner of a gymnasium raising their hands. Were they really voting for Sanders or did they just need to use the restroom?

Anyway, speaking as a long-term political junkie, I’m still wondering, why, oh why do campaigns have to go on so long? Here are some facts, observations and heard-on-the-streets: Continue reading