Buffalo’s beleaguered municipal finances

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The story of Buffalo’s municipal finances under Mayor Byron Brown is divided into two chapters.

Chapter One covers the five years before the Buffalo Fiscal Stability Authority — the city’s control board, formed in 2003 to keep the city from going bankrupt — relinquished its oversight power. In the beginning of Brown’s tenure, which began in 2006, the control board helped the city balance budgets and build up millions in reserves.

Chapter Two covers the decade since the control board went “soft” in 2011. It’s a very different tale.

Since 2011, Brown has proposed — and year after year the Common Council has accepted — spending plans with unrealistic revenue projections that made his budgets appear balanced on paper. 

When those revenues failed to materialize, Brown used reserves to plug the holes. Over the last decade, that practice has exhausted all the city’s discretionary savings — money that can be used to pay for special projects, reduce debt and cover unforeseen deficits.

Municipal finances are complicated, but a handful of numbers tell the larger tale:

• Costs rose 67 percent between 2007 and 2020, according to city budget documents. That’s more than double the rate of inflation, an increase driven largely by the rising cost of the police and fire departments, particularly by pension obligations for both.
• Revenues grew by 18 percent in that period, or three-quarters the inflation rate.
• The city’s tax levy — the total amount it proposes to raise from property owners — barely budged. This year it’s set at $142.3 million, which is $4 million less than it was in 2007.

Stagnant revenues have contributed to end-of-year deficits in eight of Brown’s last 11 budgets. The net cost of those deficits to the city’s reserves is $109 million, according to the city comptroller.

If Brown had increased property taxes gradually to keep pace with inflation, the city’s tax levy would have been $43 million more this year than the city actually plans to collect.

An inflation-adjusted tax levy could have:

• Prevented the Brown administration’s depletion of city savings.
• Avoided the need to borrow $25 million on Wall Street last June to close out the pandemic-ravaged 2020 budget year. 
• Provided more money for streets, sidewalks, parks and community centers, in addition to public safety.

Keeping a lid on taxes has been a signature plank in Brown’s platform, however. Brown has raised tax rates just once and has lowered the tax levy during his tenure. He credits low taxes for attracting real estate investment. He maintains his tax policy has kept the city affordable for its poorest residents. 

That affordability, Brown said recently, has made Buffalo attractive for resettling immigrants and refugees, resulting in the first increase in the city’s population since 1950. The 2020 Census numbers indicate Buffalo gained about 17,000 people in the past decade, bringing the population back to where it was in 2005, the year before Brown took office. 

In the current budget year, which ends June 2022, Brown doubled down on his tax policy: He set the city’s tax levy at $142.3 million, less than it was 15 years ago.

Meanwhile, the cost of running the city keeps on rising.

Winter is coming — again

In the short term, the financial forecast for the city might be characterized as partly sunny, thanks to federal COVID relief funds. But city finances were stormy before the federal government came to the rescue, and the same dark clouds lurk on the horizon now.

First, the sunshine:

• Whoever becomes mayor in January will benefit from $331 million in federal American Rescue Plan money. Half that money is in the city’s hands now; the second half will come next year.
• State aid, the city’s single largest revenue source, has returned to pre-pandemic levels. Further, the state paid the city money that was withheld at the height of the crisis.
• Property tax collections, the city’s second-largest source of revenue, were unaffected by the pandemic; indeed, thanks to the citywide reassessment performed in 2019, the value of the city’s taxable properties has increased.
• County sales tax receipts — the city’s third largest source of revenue — tanked early in the pandemic but have improved far more quickly than expected.

Now, the storm clouds:

As of July 2019, the city has no discretionary reserves. All that’s left is a $38 million “rainy day” fund, representing 30 days operating expenses, to be used only in the case of a true catastrophe.

There have been consequences:

• Last summer, the city had to borrow $25 million to balance the pandemic-ravaged 2019-20 budget, because it had no reserves to fall back on.
• In recent years, Wall Street has downgraded the city’s credit rating, expressing discomfort with the ongoing disparity between revenues and expenses, and the resulting drain on reserves.
• With no money in the bank to carry it through lean months, the city has relied on the school district’s healthier reserves to pay its way in months when cash-flow turns negative. 
• Stagnant revenues and growing costs for police and fire have resulted in the de facto defunding of other city departments.

Until recently, the Common Council has ratified the Brown administration’s budgets with little revision. In the last two years, however, an ersatz majority coalition of five Council members has been critical of Brown’s financial management. In June they passed a law that will require the mayor — whoever that may be next year — to replenish the city’s reserves.

“We were in bad shape before the pandemic. And we could be right back there tomorrow,” Niagara District Council Member David Rivera said at a recent meeting of the Council’s Finance Committee. 

What the bond traders say

Fitch Ratings — one of three agencies that determine the city’s creditworthiness for the purpose of borrowing to pay for capital projects — downgraded the city’s credit in 2019. Fitch’s principal concerns were the Brown administration’s unrealistic revenue projections and the subsequent depletion of reserves.

The agency followed up last year by dropping the city’s financial outlook from “stable” to “negative.” 

That move, made before federal relief to municipal governments was approved by Congress, largely had to do with the financial uncertainties facing cities and towns everywhere. In September, Fitch returned the city’s financial outlook to “stable,” acknowledging the worst was over: The federal aid package came through, sales tax revenues increased, and state aid was restored.

Still, the report expressed concerns: City revenue would likely remain “relatively flat,” according to Fitch, while expenses would continue to rise. Fitch warned against further depletion of reserves, as it has done in every assessment of the city’s finances it has issued over the past several years.

Fitch described the city’s financial performance over the past decade as “somewhat uneven.”

University District Council Member Rasheed Wyatt, who chairs the Finance Committee, worries that unevenness will persist unless the Council and whoever is elected mayor in November break the bad budgeting habits of the past 10 years.

Wyatt said he is pleased that Fitch has revised the city’s outlook, but noted the agency didn’t actually restore the city’s credit rating to its pre-2019 downgrade level.

“When you peel back the onion, we’re not stable,” Wyatt said. 

Actual expenses keep outpacing actual revenues, Wyatt said, and that cannot be sustained. 

Nor can the disparity be solved with federal relief money, which may not be used to plug deficits or pay down debt, and which will be gone by 2023.

Brown’s fiscal record

In his first five years as mayor, Brown’s management of the city’s finances appeared steady and conservative — a welcome change to the fiscal chaos he inherited from his predecessor, Anthony Masiello.

The city’s reserves — what municipal accountants call “fund balance” — grew. Bond rating agencies responded by raising the city’s credit rating, which in the 1990s and early 2000s hovered just a few short steps above rock bottom.

Of course, in those first five years, Brown had the state-imposed control board looking over his shoulder. 

The control board, created in 2003 — three years before Brown took office — exercised strict oversight on spending, usurping the powers of the city’s elected officials. It inserted itself into labor negotiations, purchasing decisions, and capital borrowing. Most critically, it froze hiring and wages, in defiance of union contracts.

It was, as the control board’s chair, Nils Olsen, told Investigative Post in 2019, “profoundly undemocratic.” 

It was also effective: Under budgets monitored by the “hard” control board, the city socked millions in cash reserves, much of it accruing from savings on personnel costs. 

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When the control board voted to go “soft” in May 2011, it relinquished much of its oversight powers and adopted a strictly advisory role. That year the city’s total fund balance stood at $130 million. 

Since then, Brown’s budgets have leaned on one-shot revenues, such as the sale of city-owned property. He raised fees and fines for traffic and vehicle violations, and instituted new ones, and started a program of traffic checkpoints that increased the number of tickets issued. He tried unsuccessfully to tax ticket sales at city-owned entertainment venues. He hiked garbage, water and sewer rates. 

He continued to count casino revenue as forthcoming, even though the Seneca Nation of Indians stopped paying state and local governments their share of the take in 2017.

The Brown administration’s most recent attempt to generate new revenue, the school zone speed cameras, initially promised to reap millions for the city. But it turned out to be ill conceived, poorly implemented, and possibly illegal. An ongoing lawsuit seeks to compel the city to return every dollar it collected in the short time the cameras were active. In response to public dissatisfaction, the Common Council earlier this year ended the program, over the mayor’s objections.

When these on-paper revenues failed to materialize or proved insufficient, Brown turned to the city’s savings.

Some years were worse than others. In 2016, the Brown administration needed only $1.7 million from reserves to “balance” the budget. 

The following year, however, the Brown administration chalked up a whopping $34.6 million shortfall. The year after that, the shortfall was $23 million.

All told, Brown’s budget deficits have consumed $109 million since the control board went soft in 2011, according to the city comptroller.

“Every year we’re in the red,” former Lovejoy District Council Member Rich Fontana told Investigative Post in 2019, as the city faced another budget gap.

“You’re always using fund balance. You’re always going to the piggy bank to take more money out to pay for your contracts.”

Fontana was chair of the Council’s Finance Committee at the time. He said the Council shared blame with the Brown administration for the depletion of the city’s reserves.

“When the fund balance was larger, it was pretty much a situation where you said, ‘Do you want to raise taxes or do you want to use the money in the bank?’ ” Fontana said. 

“So they used the money in the bank.”

Holding down property taxes

For all his administration’s efforts to find new revenues, Brown has resisted using the one tool over which he exercises come control: property taxes. In fact, Brown has decreased the city’s tax levy, even as operating expenses have risen.

The tax levy is the total dollar amount the city aims to collect from property owners. Basically, the city decides how much it needs, then calculates a tax rate that will yield that amount. 

Brown set the tax levy for the 2006-2007 budget year — the first budget he wrote — at $146.3 million. 

In the current budget year, the city’s tax levy is set at $142.3 million. 

Property tax levy 2007-22

Source: City of Buffalo budget documents.

If property taxes had kept pace with the rate of inflation, the levy would be $196.9 million this year.

In eight of the 16 budgets he’s submitted, Brown lowered the tax levy. He raised it four times. He’s kept it the same as the previous year four times. 

In her review of the mayor’s proposed 2021-22 budget, Comptroller Barbara Miller-Williams observed that the property tax levy has “only increased by $4.6 million” since 2012. 

“During that same time, total expenditures and ‘transfers out’ increased $26.3 million,” Miller-Williams wrote.

Brown has claimed often — at campaign events, at the Sep. 9 mayoral debate, and in campaign advertisements — that India Walton will raise property taxes.

The Walton campaign does not dispute this is a possibility. Her campaign does dispute the mayor’s claim that Walton intends to raise taxes by 3 percent. She has never offered a precise figure, according to campaign spokesperson Jesse Myerson. 

Further, Myerson noted that the mayor’s claim — repeated in a Buffalo News editorial — that a 3 percent tax hike would cost the owner of a $100,000 house an extra $300 a year is false. The actual cost to that homeowner would be about $30 a year.

Walton has criticized Brown’s attempt to raise revenue by means of traffic and vehicle fines, arguing those policies disproportionately affect poor people of color. A civil rights lawsuit brought against by activist groups making the same argument has been wending its way through federal court since 2018.

Walton has said the city can fund current operations and her new policy initiatives by raising taxes modestly and curbing tax abatements for real estate developers.

She also believes there are savings to be had in the police budget.

Police, fire, and everything else

Between 2007 and 2020, the city’s revenues rose $74.1 million. 

All that money and more was eaten up by the rising cost of public safety.

Investigative Post analyzed city budget documents from 2006 to the present. During that period:

• The city’s allocations for the police department — including pension payments — rose $50.2 million, or 54 percent. 
• The cost of the fire department rose $32.6 million, or 42 percent.
• Funding for other city services rose $24.4 million, or 10 percent. 

The federal Bureau of Labor Statistics pegs inflation since 2006 at 31 percent. 

So police and fire have grown faster than inflation, while the rest of the city’s budget has lagged behind, increasing at just one-third the inflation rate.

In other words, the city’s spending on police and fire has effectively defunded other city services. The city’s financial contribution to city schools has effectively diminished, too, accounting for inflation. 

Since 2006, Brown has increased the city’s share of the schools budget by just $500,000, to $70.8 million. If the city’s share had kept pace with inflation, it would have increased by $25.1 million.

Some departments have fared better than others. Spending has increased dramatically for the Common Council and information technology, for example, as well as for the mayor’s and comptroller’s offices.

But those increases are dwarfed by the budgets for police and fire, which together eat up more than 45 percent of city spending in the current budget year. 

Walton has cited a report by Partnership for the Public Good as a blueprint for reducing the cost of police by $7.5 million — or about 5 percent. The report recommends reducing the number of uniformed officers through attrition — that is, retirements and resignations, not layoffs of the newest hires — to 700. That was the number of officers in 2016. There are currently 729 officers on the force, with money budgeted to hire 70 more.

Again citing the PPG study, Walton has proposed shifting some responsibilities currently handled by armed, uniformed police — mental health crises, for example — to social workers and other professionals. That means shifting money out of the police budget.

Wyatt, the Finance Committee chair, told Investigative Post last fall that budget cuts were inevitable. The police budget demands scrutiny, he said, because it’s the biggest slice of the pie.

“Right now, where we are financially, we have to look at the police budget,” Wyatt said. 

“Everything should be on the table.”

Geoff Kelly