May 27
2024
Buffalo’s fiscal reckoning
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Buffalo Common Council President Christopher P. Scanlon. Photo by Garrett Looker.
Buffalo’s Common Council took some of the sting out of the mayor’s proposed property tax hike last week, at least for residential homeowners.
Legislators knocked Mayor Byron Brown’s 9 percent tax increase to 7.5 percent, with most of the relief directed to residential homeowners.
But city dwellers shouldn’t rest easy. Taxes likely will continue to rise in the years to come.
“This tax increase is nothing compared to what’s going to happen in the future,” Niagara District Council Member David Rivera said last week.
“We should have been making cuts sooner. We kicked the can down the road.”
Taxes will have to go up, according to projections and analysis by the mayor’s budget office, the city comptroller, and the Buffalo Fiscal Stability Authority — the city’s state-imposed control board that oversees city finances.
Brown’s four-year financial plan — which the mayor is required to submit alongside his annual spending proposal — shows costs for basic city services continuing to rise.
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To meet those costs, Brown’s four-year plan relies on as much as $131 million in “unsupported” revenue, according to the control board, which has served as an advisory body only since 2012. That’s money the mayor’s budget office claims the city will receive in future years, even though past evidence suggests those expectations are inflated.
Some of that money is attributed to sources — such as the tax on legal cannabis sales, casino revenue, and a proposed new hotel occupancy tax — that are unpredictable, out of the city’s control, or don’t currently exist.
The mayor’s plan also raises the city’s tax levy, the total dollar amount the city collects in property taxes, each of the next four years. By 2028, the Brown administration forecasts collecting $201.8 million in property taxes, the lion’s share coming from taxes levied on residential and commercial property owners.
That’s $30 million more than the city expects to collect in the current fiscal year, which ends June 30. It’s an increase greater than 17 percent spread over four years.
The four-year hike in tax revenue is likely to be achieved in two ways: by raising the tax rate or raising the taxable value of residential and commercial properties. A citywide reassessment is currently underway.
It’s got to happen, Council members say, barring some new windfall from the state or federal governments. Otherwise, that $131 million gap — the “unsupported” revenue in the mayor’s four-year plan that concerns the control board — could grow even wider.
That, said Rivera, could lead to “draconian cuts” in jobs and city services, “where it’s going to hurt.”
Funny money
Fillmore District Council Member Mitch Nowakowski, who took over the Finance Committee from University District Councilman Rasheed Wyatt at the beginning of the year, has been a frequent critic of Brown’s budgeting since taking office in 2020.
“This is not a mystery,” Nowakowski told Investigative Post last week. “We know the cost of city services is going up and up and up. Salaries, benefits, fuel, street repairs, building maintenance — you name it.”
What the city doesn’t know, he said, is where to get the money to pay for it all.
Fillmore District Council Member Mitch Nowakowski.
Brown during his 18-year tenure has been loath to raise property taxes, which is the only major revenue stream the city controls. Brown has said keeping the tax rate low made the city more appealing to homeowners and developers alike.
He recently noted that even with his proposed 9 percent tax hike the city’s tax rate remains lower than that of Albany, Rochester and Syracuse, as well as the suburban towns of Amherst, Cheektowaga, Hamburg and Tonawanda.
The city charter requires the mayor and the Council to adopt balanced budgets. On paper, the Brown administration often has that achieved by underestimating expenses — particularly the cost of police and fire overtime — and overestimating revenues.
The control board last week took particular issue with five revenue lines in the mayor’s spending plan which they considered dubious:
- State aid to municipalities: The state is giving the city an extra $5 million this year and next year, the first increase in more than decade. But the mayor is counting on the state giving $43.9 million more over the next four years.
- Hotel occupancy tax: The Brown administration expects to make $20.1 million of this new tax, which does not currently exist and has not formally been proposed.
- Casino revenue: The state and the Seneca Nation of Indians have not yet reached a new casino revenue sharing pact, but the mayor assumes the city’s share will remain about $11 million per year.
- Parking meter fees: The mayor claims his administration can more than double this revenue line, from $1.9 million to $3.9 million per year.
- Traffic violation fees: Here, too, the mayor’s budget assumes it can collect far more than it has in the past. The result, according to the control board, is a potential $10.1 million gap between budget and reality over four years.
In the coming year, according to the board’s analysis, those lines could fall short by between $11.5 million and $19 million.
Over the course of the mayor’s four-year financial plan, those five budget lines alone could underperform by as much as $131 million.
The hotel occupancy tax, for example, doesn’t exist now. To levy such a tax this year, the city would need permission from the state lawmakers, which is only in session for another week.
“It hasn’t even been introduced in the state legislature,” the Niagara District’s Rivera said last week.
Breaking the piggy bank
Before the Covid crisis, when it was time to balance the books at the end of the year, the city turned to its savings. In the decade prior to the pandemic, the Brown administration used $109 million in reserves for this purpose, according to the city comptroller.
By July 2019, the reserves available for plugging budget holes had been depleted completely. When Covid shutdowns starved the city of parking revenue and other vital streams of money, the city was forced to take a short-term $25 million loan to close out the budget year.
Then came the federal American Rescue Plan, which provided the city $331 million for a variety of purposes: to make up for revenue lost because of the shutdowns, to help defray new costs incurred by the pandemic, to invest in infrastructure, and to fund programs to improve the lives of vulnerable residents who suffered the most.
After first adopting an ambitious plan to fund various community programs, the Brown administration switched gears and began dedicating more and more money to revenue replacement — in effect, to plugging budget holes. So far, the city has committed close to $160 million — nearly half its ARP money — to that purpose, while cutting back on funding for those community programs.
At last week’s control board meeting, Brown’s finance commissioner, Delano Dowell, acknowledged that the city is likely to revise its ARP spending plan for a fourth time in late summer or early fall — once the books are closed on the current financial year that ends June 30. A likely outcome of that revision is yet more ARP money diverted from community programs to operating expenses.
Dowell said Buffalo had about $115 million in ARP money left to obligate, as of May 6.
Meanwhile, the Brown administration has turned back to the city’s reserves to make ends meet.
The budget the Council adopted last week is balanced with $14.9 million from the city’s savings, which have been replenished with indirect help from the ARP money. Neither the mayor nor the Council have put forth a plan to restore those reserves, despite have adopted a policy in 2020 requiring it.
The amended budget also relies on $25 million in ARP money. With the raid on fund balance, that brings the one-shot, non-recurring revenue in the budget to nearly $40 million.
“That hole is going to be there next year,” Rivera said, when the Council and the mayor — whose term expires at the end of 2025 — negotiate the city’s next budget.
The $14.9 million used to balance the budget represents all the savings the city has available for plugging budget holes in future years. The city still has a $43.3 million “rainy day fund,” but that’s for emergencies — natural disasters and the like.
Tax relief but no solutions
The Council last Wednesday adopted an amended version of Brown’s proposed budget, modestly trimming expenses and adjusting some revenue projections in order to cut the mayor’s 9 percent tax increase to 7.5 percent.
Residential homeowners will see their tax bills increase by 4.2 percent instead of 7.3 percent. So the owners of a $100,000 house, who paid $1,073 in taxes last year, will pay about $45 more.
The increase for commercial properties remains 12.4 percent, the same as Brown’s proposal. The owners of a $500,000 commercial building, who paid $9,360 in taxes last year, will see their bill rise $1,160.
“This was a tough budget,” Scanlon, the Council president, said. “We as a city are at a point where a lack of revenues is really in the immediate future going to drastically impact the operations of this city.”
If the city doesn’t find new sources of money, the city will soon face “some sort of financial crisis,” he said.
In all, the Council shaved nearly $2.4 million from the mayor’s proposed $14 million increase in the tax levy.
To achieve that, the Council indulged in some “unsupported” revenue speculation of its own, adding $2 million in revenue for fines and penalties to be imposed on unlicensed cannabis shops in the city. This potential new revenue source is untested.
The Council also struck a number of jobs from the budget that are currently vacant. There are 2,770 budgeted jobs in the city budget and more than 300 are vacant. Some of those vacancies will get filled in the course of the financial year. Others will stay vacant. The money budgeted for them gives the city some financial cushion and flexibility. The money can be used to address needs that arise during the year. Budgeted but unspent salaries also help to balance the city’s books.
In recent years, Council members have pushed the Brown administration to be transparent about which vacancies it intends to fill and which the Council can cut. Two years ago they identified and cut vacancies from the mayor’s proposed budget in order to trim expenditures.
This year they found some more to cut.
They did not find solutions to the chronic imbalance between the city’s costs and its revenues.
The Council gaveled in at 2 p.m. last Wednesday and immediately recessed, concerned that a technical error by the mayor’s office might have invalidated the Council’s April 30 override of the state tax cap, which limits how much a municipality can raise its tax levy each year to 2 percent.
While that was sorted out, some Council members kept pushing for more spending cuts. Some members asked the mayor to sign a promise that he would not raise the tax levy by more than 5 percent in upcoming budgets. He refused. The Council reconvened about 7:45 p.m. to adopt the same amendments they’d started the day with.
The members who spoke at the end of last Wednesday’s marathon session acknowledged that they’d punted — at least for now.
Nowakowski, the finance chair, said reducing the tax burden on residents “is the only good thing to come out of this chamber tonight.”
“This budget could be a lead balloon,” he said.
Wyatt, the former finance chair, noted the Council’s amendments only cut expenditures by about a half million dollars.
“That’s not really a big decrease,” he said. “We need deep cuts — and we refuse to make these cuts.”
University District Council Member Rasheed Wyatt.
Majority Leader Leah Halton-Pope noted that she and Masten District Council Member Zeneta Everhart are new to the Council, while other members share responsibility with the Brown administration for the city’s long walk toward a looming fiscal cliff.
“We didn’t get into this situation overnight,” she said. “My colleague and I just got here. We didn’t create this scenario. This was a long time coming.”
Everhart faulted the Council for having “rubber-stamped” the mayor’s budgets “year after year after year.”
“What has happened in these chambers is nonsense,” she said.
“I hope this Council is awake now. I hope we can work together in the next couple years to get this under control, because our residents should be mad. And we should be mad with them.”
The charter demands that a budget be adopted by next Friday. The mayor can sign the Council’s amended budget, in which case it is adopted, or he can object to its provisions. The Council can override the mayor’s objections by a two-thirds vote.
