Jul 31
2023
City earning millions on unspent federal relief funds
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Mayor Byron Brown’s slow rollout of federal Covid relief funds has infuriated social welfare organizations and Common Council members, who have been waiting two years for the money to start flowing into the community.
But the delay has a silver lining, if only for the mayor’s bean-counters: millions of dollars in unexpected interest income.
For the budget year that ended June 30, the Brown administration had forecast $100,000 in interest income.
The city’s actual interest earnings, as of July 1: $13.8 million.
Delano Dowell, the city’s finance commissioner, confirmed that the windfall is primarily the result of more than $215 million in unspent funds, just sitting in the bank. As of July 31, that’s what was left of the $331 million that the city received two years ago through the federal American Rescue Plan Act.
“The increase in interest revenue is due to the amount of cash the city has in its account due to the receipt of ARPA funds,” Dowell told Investigative Post in an email.
Hikes in interest rates, implemented by the U.S. Federal Reserve Bank to slow inflation, helped too, according to Gregg Szymanski, investment and debt management officer for the city comptroller.
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The interest income goes into the city’s general fund. That means the Brown administration can spend the money as it sees fit — free and clear of federal regulations governing ARPA and the mayor’s own spending plan for the money.
That’s good for the city’s shaky finances, but it frustrates Council members, who have been pushing the Brown administration to get the ARPA money out the door and into the hands of residents, nonprofits and struggling small businesses.
“This money was not meant for the municipality to sit on, to collect dust or interest,” Fillmore District Council Member Mitch Nowakowski said last week. “We need this money out on the streets.”
Last Thursday, the Council authorized the Brown administration to reallocate an additional $50 million in ARPA money to fix projected budget shortfalls over the next two years. That $50 million, plus $9.9 million to be split equally among the nine Council districts for street and sidewalk repairs, comes at the expense of ARPA program areas the Brown administration touted as transformative two years ago, but has been slow to fund.
Back in 2021, the federal government allocated $331 million to Buffalo under ARPA. In August of that year, the Common Council adopted the mayor’s spending plan for the money, intended to address the “systemic roots of racial and economic disparities” as well as “the immediate symptoms of these issues which are having an impact on the livability of our neighborhoods right now.”
The plan initially earmarked $100 million for “revenue replacement,” which the city could use to balance budgets disrupted by the pandemic. Covid shutdowns in 2020 and 2021 diminished the city’s parking revenue, for example, as well as work permit fees.
A little more than $100 million was committed to infrastructure — improvements to parks and community centers, street and sidewalk repairs — as well as various purchases for fire, police and other city departments.
The plan also included $125 million for a long wish list of social welfare and community improvement projects: debt relief for renters, health equity and restorative justice programs, support for arts organizations and workforce training, a neighborhood cleanup corps, and much more.
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Some of the infrastructure money started flowing right away. Budget shortfalls quickly ate up the “revenue replacement” money. For those social welfare and community improvement programs, however, the rollout has been slow.
The city is using ARPA funds to balance its books because the mayor proposed, and the Council approved, budgets where expenses outstripped revenues for each of the past two fiscal years. Brown’s four-year spending plan submitted to the state-imposed financial control board anticipates using ARPA funds for two additional budget years beyond this one.
That diverts $150 million of the $331 million the city has received.
As of July 31, the city had managed to spend just $116.3 million of its ARPA money. Most of that — $87 million — was “revenue replacement” used to balance the city’s budgets.
Meanwhile, the city hadn’t managed to spend any of the money it committed to paying overdue water and sewer bills and garbage user fees for the city’s poorest residents. It had spent just $30,150 out of $9 million committed to the creation of a health clinic on the city’s East Side.
In all, more than $215 million — nearly 65 percent of the city’s ARPA money — remained unspent at the end of July, according to the city’s quarterly progress report to the U.S. Treasury. Three months ago, at the end of March, the figure was almost $264 million, or about 80 percent.
That’s the pot of money that helped the city earn $13.8 million in interest last year.
In July, Dowell, the finance commissioner, informed the Council that the administration intended to significantly decrease the budget lines for those social welfare and community improvement programs. In order to balance the current year’s budget, Dowell said, the city would need $30 million more for “revenue replacement.” It would need another $20 million to balance future budgets.
In order to win votes for the change to the spending plan, the Brown administration promised $1.1 million in ARPA money for street and sidewalk repair to each Council member.
In all, the Brown administration proposed to strip $59.9 million from nine of the city’s 27 ARPA program funds.
The programs targeted for cuts were those same social welfare and community improvement initiatives that the administration has been slow to get off the ground. A neighborhood cleanup program was slashed from $9 million to $1 million. Money for small arts programs that serve poor and minority neighborhoods was cut by more than three-quarters. A fund for anti-violence programs was cut by more than half.
The $9 million allocation to a public health equity fund was reduced to less than $2 million, imperiling its principal objective: the creation of a community health clinic on the city’s East Side.
The move provoked outrage from community organizations that applied for funding from those program lines last December. Many complained they’d heard nothing from the Brown administration since submitting their applications. Others described “inappropriate” and “insulting” remarks made by city employees during interviews this spring.
Last Monday, the Partnership for the Public Good — many of whose members applied to the city for ARPA funding — sent a letter to the U.S. Treasury Inspector General, asking for an investigation into Brown’s administration of ARPA funds.
In a subsequent letter, PPG begged Council members not to approve the mayor’s defunding of programs PPG’s member organizations sought to provide.
“[W]e believe strongly that the Mayor’s administration should provide a public accounting of the specific budget gaps that require an additional $50 million of ARP funding be moved to revenue replacement,” the letter stated.
The letter urged Council members to keep the money in project funds, rather than revenue replacement, “so that it is still subject to and complying with federal ARP guidelines and procurement rules.”
PPG’s objections drew a response from U.S. Rep. Brian Higgins, who was copied on the complaint to the Treasury. Higgins said in a statement emailed to Investigative Post that he’d “worked very hard to ensure state and local aid was included in the American Rescue Plan.”
“The City’s process for determining how to use these funds, which has taken more than two years, has been understandably frustrating for stakeholders, but the law provided the flexibility for each city and town to decide how to use the funding to best meet its own unique needs within very broad parameters,” Higgins said in his statement.
“Municipalities must follow the letter of the law and the Department of the Treasury’s regulations, and their compliance will be subject to Treasury’s scrutiny.”
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The Council voted unanimously last Thursday to approve the mayor’s changes. Many of them expressed mixed feelings about the choice before them.
Niagara District Council Member David Rivera argued that the vote would ensure that ARPA money would start flowing to the programs it was slated to fund — albeit in lesser amounts. He feared that, if the Council waited, even more money would be gobbled up to balance budgets rather than to fund “transformative” programs.
“Every quarter that goes by, every year that goes by, there seems to be less money for these organizations,” Rivera said.
Over the past three months, the city managed to spend about $49 million in ARPA money. Of that, $36 million was for revenue replacement and $11 million was for “premium pay” — bonuses two city employees who worked through the pandemic.
Unspent ARPA money will continue to generate interest income for the city’s general fund.
In the current budget year, which began July 1, the Brown administration forecasts $5 million in interest income — more than three times what it earned the year before the pandemic and the influx of federal relief funds.
For the fiscal year starting next July, the city expects to earn $3.25 million in interest.
In the years that follow — after all the city’s ARPA money must be spent or returned to the federal government — the city expects $1.75 million in interest income. A return to normalcy.
Not that normalcy is necessarily a good thing, according to Nowakowski, the Fillmore District Council member.
The Brown administration used more than $100 million from the city’s reserves to balance eight of 11 budgets prior to the pandemic. The reliance on ARPA funds — and the interest they generate — to balance budgets now indicates a financial reckoning to come, Nowakowski said. ARPA money must be contracted by the end of 2024 and spent by 2026. That gives the mayor and the Council just two budget cycles to reconcile the city’s rising costs with its largely static revenues.
“How do you make up $50 million, $30 million shortfalls in one calendar year?” Nowakowski said. “You don’t.”
