Schroeder issues warning on proposed budget

Mayor’s spending plan built on “fuzzy math and wishful thinking,” says Buffalo comptroller

1212171323aIn a yearly report required by the City Charter, Buffalo Comptroller Mark Schroeder issued a stern warning about the mayor’s 2018-2019 recommended budget.

“While the proposed budget may be balanced on paper, in actuality, it is based on fuzzy math and wishful thinking,” Schroeder said.  “Adopting such a budget in its current form will set the city up for failure.”

While Schroeder acknowledged that there was progress on boosting structural revenues, such actions were “too little, too late,” as the city is in considerably worse financial shape than it was just a couple years ago.

“Those structural revenue increases serve only to keep pace with rising expenses, while doing nothing to close the budget gaps that led to $35 million in reserves being used last fiscal year, and another $30-plus million that will be needed in the current year,” Schroeder said.

While the proposed budget for next year only relies on $4 million in reserves to balance the budget, the primary reason for that, Schroeder said, is that because there are not enough reserves available for that purpose.

“Instead, the budget gap is closed with revenues that are drastically overestimated, similar to what we’ve seen in previous years,” Schroeder said.  “But this time, there will be very little margin for error in the proposed budget because there are not enough reserves to bail the city out of these reckless revenue estimates.”

Schroeder said the proposed budget includes more than $30 million of highly questionable revenues, including $17 million in casino revenue.  Due to the dispute between New York State and the Seneca Nation, the city did not receive any casino revenue in the current fiscal year (which ends June 30), and only $3.5 million – half of what it had been receiving – in the prior year. 

With no substantial progress in resolving the dispute between the Seneca Nation and the state, Schroeder said there are no assurances that payments to the city would resume next year, nor any indication that the City would receive the back payments in that same year. 

“Budgeting any amount for casino revenue is overly optimistic – budgeting two and a half years’ worth of revenue is extremely reckless,” Schroeder said.

Another source of revenue that is grossly overestimated, according to Schroeder, is proceeds from the sale of city-owned property, with $8 million budgeted for 2018-2019. 

“The City has only received $4 million in revenue from selling property in the past five years combined, about 12 percent of the $30.8 million that has been budgeted during that span,” said Schroeder.  “Last year, City budgeted $8 million in real estate sales and only took in $1 million.  $7 million was budgeted in the current fiscal year, and with only seven weeks left, the City has received less than $250,000.”

Revenue from traffic violations, which has been declining, is budgeted at $6 million, twice as much as the $3 million the city is projected to receive by the end of the current fiscal year.  Schroeder said he is also skeptical of the $2 million in revenue budgeted from the proposed fees on tickets to events at Key Bank Center, Coca-Cola Field, Canalside, Shea’s Performing Art Center, and Kleinhans Music Hall.

“The workgroup, which will be responsible for determining the fee amounts, implementation date, and other crucial details, has not even been created at this point,” Schroeder said.  “To assume that revenue will start coming in next year, with no legal or logistical framework currently in place, is essentially putting the cart before the horse.”

While Schroeder considers many of the revenues to be “pie in the sky,” he also thinks one major expense is equally unrealistic.

“Overtime costs are budgeted at $16 million, while the city has been spending nearly twice that amount in recent years,” said Schroeder.

Schroeder said that similar budgeting practices over the years have depleted the city’s reserves, and with approximately $35 million more needed for the current fiscal year, the amount of reserves used to close budget gaps will be about $120 million over an eight-year span.

“In addition to potential bond rating downgrades, the depletion of the City’s reserves has led to serious cash flow problems,” said Schroeder.  “As a result, the city will have to rely on short-term borrowing just to pay its bills.”

Such borrowing, in the form of a Revenue Anticipation Note, will be needed by December 2018, said Schroeder, and the amount needed could exceed $100 million. 

“Interest costs for the short-term borrowing will be more than $1 million, an expense the city would not have to incur if it hadn’t squandered its reserves,” Schroeder added.

Schroeder said that the cash flow issues show just how much things have changed for the city in just two years.

“Between 2013 and 2016, the City was so cash-rich that it loaned other municipalities $85 million to help them with their cash flow issues, yielding nearly $330,000 in interest income,” he said.  “Now the City is on the other side of that equation – so cash-poor that it will need to be the one doing the borrowing and paying interest.”

Without the adjustment of revenues to more realistic amounts, and/or the cutting of expenses, the city will have an extremely difficult time meeting the projections included in the recommended budget, Schroeder said.  He added that the consequences for a budget shortfall in the coming year, which could be higher than $30 million, are especially dire.

“In addition to the potential bond rating downgrades and cash flow problems, an operating deficit of more than one percent – approximately $5 million – could lead the Buffalo Fiscal Stability Authority to change from an advisory status to a control period,” Schroeder said.  “The return of the hard control board would send a terrible message to the City’s investors, creditors, rating agencies, and most importantly, its citizens.”