Buffalo’s new budget digs a fiscal hole; where is the control board?

It seems like Ground Hog Day for Buffalo budgets.  The proposed 2024-2025 budget is once again creating a fiscal hole that could turn into a crisis in the not-too-distant future.

While City of Buffalo fiscal crises of various sorts date back at least 50 years, the upcoming one has its’ roots from 12 years ago.  The city’s money problems of the early 21st century led to the state’s creation of the Buffalo Fiscal Stability Authority (BFSA) in 2003.  Over the following nine years the Authority (aka the Control Board) took a strong hold of the city’s finances, freezing union contracts and managing all contracts valued at $50,000 or more.  In 2012 the BFSA considered the city’s finances stabilized and changed its’ role to an advisory status.  In doing so the Authority left the city a reserve fund of about $100 million.

Following the BFSA’s actions the city administration and Council once again had full control of budget.  Over the next eight years services were maintained or enhanced, property taxes remained fairly steady, and the fund balance was totally depleted.

In August of 2020 I published a post about where things were heading with the city’s finances.  I pointed to the dilemma that steady services/slight tax increases/draining the fund balance creates.  I suggested that the BFSA needed to convert back to a control board.

The 2020-2021 city budget included $65 million in wishful-thinking federal funds.  Such things were being discussed in the still early days of the pandemic.  But then in March 2021 Congress approved President Joe Biden’s relief funding plan, known as the American Rescue Plan or ARP, that sent cash to families, businesses, and governments.  Buffalo’s allotment from that funding was $331 million.  Part of the money could be directed to municipal budgets which lost revenues due to a slowdown in residential and commercial tax and fee paying activity and the furloughing of employees.

In August of 2021 the Common Council approved Mayor Brown’s plans for the use of the $331 million in ARP money.  Various infrastructure projects and community organizations were included in the plan.  The largest portion of the funding, $100 million, was set aside for replacement of the city’s lost revenue. 

As things turned out the city government used $162,970,308 in ARP money for revenue replacement between 2020 and 2024.  The negative pandemic effects on city finances, as seen in the budgets of those years, did not match the use of the federal funds.

So here we are in May 2024 with the Buffalo Common Council getting ready to amend and approve Mayor Brown’s 2024-2025 budget.  Included in that budget is an additional $25.8 million in ARP funds, which will deplete the accounts.  That will bring the total of city budget use of ARP money over five years to $188.7 million.

Geoff Kelly of Investigative Post last week did a deep dive (Buffalo budget raises taxes, raids reserves : Investigative Post) into the city’s proposed new budget.  He notes the use of the ARP money and also points out that the budget will use $14.9 million in fund balance.  The ARP and fund balance cash totaling $40.7 million is what is classified in public finances as “one-time revenues,” meaning that they won’t be there next year.

Kelly also noted several other revenue and expense items in the proposed city budget that are “iffy”:

Parking meter revenues, which could turn out to be about $2 million short

Parking ticket revenues are potentially off by $1 million

Traffic fines might be off by about $1 million

Sales tax revenues are projected to increase by $2 million, but sales tax revenues have recently been falling, perhaps adding $5 million to the fiscal hole

Budgets for the Police and Fire Departments are climbing as is Public Works

The city in the new year will start repaying a five-year bond that was sold to finance a $43 million settlement of the lawsuit relating to the tragic accident involving a police officer

All of that, of course, is on top of the proposed 9 percent increase in property taxes.

So you might ask, what is the BFSA going to do about all this?  Good question!

The law that created the BFSA, among other things, requires that:

“the mayor shall prepare and submit to the authority a four-year financial plan, and the mayor’s proposed city budget, not later than the date required for submission of such budget to the council pursuant to the city charter. Such financial plan shall …contain actions sufficient to ensure with respect to the major operating funds for each fiscal year of the plan that annual aggregate operating expenses for such fiscal year shall not exceed annual aggregate operating revenue for such fiscal year.”

The city’s proposed new budget includes $40.7 million in “one-time revenues,” which means that the budget does not have “aggregate operating expenses” that match “aggregate operating revenue.” One-time revenues are not operating revenue.

The Four-Year Financial Plan included with the new budget notes that “Buffalo is at a critical point… This is not the time to cut.  We must continue to invest.”  The Plan projects that over the next four years total city spending will increase by just 2.3 percent ($14.6 million).  Combined Police and Fire Departments expenditures are expected to go up 5.4 percent.  Growth in employee fringe benefit costs will be 2.5 percent.   Debt service costs will remain steady at $88,000 per year, which seems to make no allowance for the cost of the massive bond repayment required by the $43 million settlement.  Following the nine percent increase in property taxes this year that revenue is projected to increase by an additional 7 percent through 2028.

The enabling legislation of the BFSA also provides that :

“A control period … may be reimposed during an advisory period if the authority determines at any time that a fiscal crisis is imminent or that any of the following events has occurred or that there is a substantial likelihood and imminence of such occurrence: (a) the city shall have failed to adopt a balanced  budget, financial  plan  or budget modification as required by sections thirty-eight  hundred  fifty-six and thirty-eight hundred fifty-seven of this title…   (c) the city shall have incurred an operating deficit of one percent or more in the aggregate results of operations of any major fund of the city or a covered organization during its fiscal year assuming all revenues and expenditures are reported in accordance with generally accepted accounting principles, subject to the provisions of this title… or (e) the city shall have violated any provision of this title.”

It can be argued that “a fiscal crisis is imminent.”  It can also be argued, assuming the Common Council approves the 2024-2025 budget in substantially the same form as proposed by the mayor, that “the city shall have failed to adopt a balanced budget, financial plan or budget modification.” 

It will be a while before the city’s books are closed for 2023-2024.  That budget will spend about $32.2 million in ARP funds to balance the budget.  Technically that means the budget had “an operating deficit of one percent or more in the aggregate results of operations of any major fund of the city.”  That trigger along with the unbalanced 2024-2025 budget could warrant a decision by the BFSA Board that a control period should be re-imposed.

But then there is this.  By law the BFSA has nine members including the Mayor and the Erie County Executive as ex-officio members.  The other seven members are appointed by the governor, with three of those appointees to be recommended by the State Comptroller, the Speaker of the Assembly, and the Majority Leader of the State Senate.

At this time, however, there are only five members of that Board, including the mayor and county executive.  The other three members are serving under expired terms – two that ended in 2017 and the third that ended in 2023.  There are four vacancies on the Board, including the chair.

The Board requires five members for a quorum to conduct business.  The five at the moment include the mayor.  It does not seem likely that the mayor will want to take any action that would impose a control period even if the other four members wanted to act.

There are many players in this dilemma:  the Mayor, Councilmembers, the Governor, the State Comptroller, and the City Comptroller.  The options for corrective action are not pleasant.  Doing mainly nothing at the moment is also a possibility.

There is no magic like the ARP on the horizon so putting things off can only go on for a short while.  It should be very interesting.

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