Sep 30
2019
Buffalo’s budget woes get real
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A Wall Street bond-rating agency recently delivered bad, if unsurprising, financial news to the City of Buffalo: The agency had downgraded the city’s credit rating.
The reasons for the downgrade: a consistent pattern of inflating projected revenues in budget proposals, then raiding reserve funds to balance budgets when those revenue projections proved false.
That is to say, exactly the problems — what the agency, Fitch Ratings, described as “the city’s weak operating performance in recent years” — that we’ve been reporting for the past six months: here, here, here, and here.
Meet and mingle with Geoff Kelly and our other reporters Oct. 10
The results of the downgrade: It’ll cost the city nominally more to borrow money for capital projects, such as maintenance and construction of roads, buildings, and parks. Not much more, mind you — it’s a single step down in bond rating, from AA- to A+. The city’s bonds are still rated a sound investment.
But Fitch’s letter explaining last week’s downgrade put the city on notice that it must get its finances in order this year or face further downgrades:
Fitch believes the city will continue to face various pressures to align revenues with expenditures and maintain its strong gap-closing capacity. Further draws on general fund reserves in fiscal 2020 would likely lead to additional negative rating action.
The news of Fitch’s downgrade, combined with a deficit projected for the 2018-19 budget year that ended in June — the city’s sixth budget deficit in the past seven years — sent the city scrambling last week. The Brown administration quickly made a formal request to the state Division of Budget, asking for an advance on casino revenues. The city had refrained from asking the state for relief before August 31, which was the deadline for incoming money to be booked to the 2018-2019 budget year.
The state agreed a week ago Friday to advance the city $7.5 million of the $17 million the Brown administration had forecasted it would receive. (The state also advanced casino proceeds to the cities of Salamanca and Niagara Falls.) The Brown administration can’t book that money to the 2018-19 budget year, but it’s at least a thumb in the dike.
That might not be enough. Everything has to go exactly right for the city in this current budget year, and the odds of that happening seem poor. The city has budgeted $11 million of casino revenue in its 2019-2020 budget, along with another $10 million that the city comptroller has deemed “risky.”
On the expenditure side, the city just signed a new contract with its white-collar workers that will cost the city an extra $2 million this year and $15.6 million over the next five years. Contract negotiations with police, a huge expense for the city, are currently in mediation. When that contract is resolved, it’ll result in increased costs to the city — an increase not reckoned into the mayor’s adopted 2019-20 budget.
One step down in the city’s bond rating might not cost taxpayers very much — a couple one hundredths of 1 percent in interest. Another step down, however, and we might be talking real money.
That’s especially true as the Brown administration plans to increase its debt burden in coming years. The mayor will seek to borrow $80 million to purchase the city’s streetlights system from National Grid, for example, and to work with the new comptroller to expand its capital project borrowing.
The other two big bond-rating agencies, Moody’s and Standard & Poor’s, warned the city last spring that those two intertwined issues — costs outstripping revenues year after year, and the resulting drain on the city’s once robust savings — might result in a downgrade. We’ll learn soon if they follow Fitch’s lead, most likely when the city issues an audited account of the 2018-19 budget year that ended June 30.
That could be next month, it could be delayed until November or December. The Brown administration has demonstrated a penchant for sitting on bad news.
