City

of

Department

of

Buffalo
Audit & Control

Budget Response
2018-2019 Fiscal Year
&
2019-2022 Four Year Financial Plan

Mark J.F. Schroeder
Comptroller
Anne Forti-Sciarrino, CPA
First deputy comptroller
May 10, 2018

 Charter of the City of Buffalo
§ 20-7 Comptroller's Assessment of Accuracy of Revenue and Expenditure Assessments.
[Amended 10-2-2012 by L.L. No. 1-2012, effective 10-2-2012]
“On or before the tenth day of May, the Comptroller shall submit to the council an assessment of
the accuracy of the revenue and expenditure estimates of the budget and the four-year financial
plan the mayor submits to the council. The comptroller shall opine on the sufficiency of the
financial plan and whether it contains sufficient data to support the outcomes projected.”

Introduction
Pursuant to the City Charter, and the Comptroller’s role as the City’s chief fiscal officer, I hereby
submit this assessment of the Mayor’s recommended budget for the fiscal year 2018-2019, as
well as the four-year financial plan for fiscal years ending 2019-2022.
This office has very serious concerns about the proposed budget and the fiscal road ahead
for the City of Buffalo. While there was progress on boosting structural revenues, it might
be “too little, too late,” as the city is in considerably worse financial shape than it was just a
couple years ago.
In fact, 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.
And while the proposed budget for next year only relies on $4 million in reserves (from capital
outlay) to balance the budget, the primary reason for that is because there are not any more
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. 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. Furthermore, any savings in expenses due to vacant but budgeted positions
will likely be eliminated by additional overtime expense, which was budgeted at little more than
half of the actual amounts spent in recent years.
In addition to assessing the accuracy of revenue and expense estimates, this report will address
the city’s reserve position, the four-year financial plan, and the potential consequences of
adopting the recommended budget in its current form.

2

 Revenues
The recommended budget includes revenues of $513.5 million in 2018-2019. More than $33
million of these revenues are highly questionable, often with little assurances or information
provided to corroborate the estimates.
Below is a chart showing budgeted amounts compared to prior and current year actuals, as well
as more responsible revenue estimates for each item:

Questionable Items
included in the
2018-2019 Budget
Tribal Pact Casino
Revenue
Sale of City Owned
Real Estate
Traffic Violations
Revenue
Entertainment
Ticket Fee
Gifts and Donations
Parking Tags and
Fines
Grant
Reimbursement
Total

A
2018-2019
Proposed
Budget

B
Current FY
Actual as of
4/30/2018

C
2016-2017
Actual

D
Responsible
Budgeting

E
Overestimated
Revenue (A-D)

$17,000,000

$0

$3,439,330

$0

$17,000,000

8,000,000

240,693

1,060,836

1,000,000

7,000,000

6,000,000

2,009,690

3,993,940

3,000,000

3,000,000

2,000,000

N/A

N/A

0

2,000,000

2,000,000

15,933

51,097

150,000

1,850,000

7,900,000

5,827,008

5,784,081

6,900,000

1,000,000

1,414,099

90,954

0

100,000

1,314,099
$33,164,099

Tribal Pact Casino Revenue – Prior to 2016-2017, the City had been receiving approximately
$7 million per year from the Seneca Nation (via New York State) as the host community for the
Buffalo Creek Casino. A dispute between the Seneca Nation and New York State has stopped
those payments, with only $3.4 million received in 2016-2017, and no revenue received in the
current year. Presumably, the $17 million included in the 2018-2019 recommended budget
represents the revenue that wasn’t received in 2016-2017 and the current year ($10 million), as
well as the payments due for 2018-2019 ($7 million). With no substantial progress in resolving
the dispute between the Seneca Nation and New York State, there are no assurances that
payments to the City would resume in 2018-2019, nor any indication that the City would receive
the back payments in that same year. Additionally, if an agreement is reached in 2018-2019, it is
possible that payments to the City would be for an amount different than what it had been

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 receiving previously. Budgeting any amount for casino revenue is overly optimistic – budgeting
two and a half years’ worth of revenue is extremely reckless.
Sales of City-Owned Real Estate – This is another source of revenue that is grossly
overestimated, with $8 million budgeted for 2018-2019. The City has only received $4 million
in revenue in the past five years combined, as you can see from the graph below.

35
30

Real Estate Sales
Budgeted vs. Actual

$30.8

(in millions)

25
20
15

Budgeted

10

$8.0

Actual

$8.0

$7.0

$5.0
5

$2.8

$0.1

$3.9
$1.6

$1.0

$1.0

$0.2

0
13-14

14-15

15-16

16-17

17-18

Total

Actual revenue has been 12 percent of the $30.8 million that has been budgeted during that span.
In 2016-2017, the City budgeted $8 million in real estate sales and only took in $1 million.
$7 million was budgeted in the current fiscal year, and to date, the City has received $240,693.
While pending sales could lead to the City receiving more revenue than it usually gets, the
likelihood of the City receiving $8 million seems extremely far-fetched based on previous
results. The City’s ability to realize revenue from real estate sales is also hindered by the fact
that the list of vacant residential properties for sale is not available to the public on the City’s
website.
Traffic Violations Revenue – Since the City began adjudicating its own Traffic Violations in
2015, it has regularly over budgeted this line item. For 2017-2018 the City budgeted $6.2
million for Traffic Violations revenue, yet it is only expected to receive $3 million, down from
$4 million in the previous year. Despite revenue declining for this line item, the City budgeted
$6 million, about twice as much as what we will receive for the current year.

4

 Entertainment Ticket Fee – The inclusion of revenue from the newly proposed Entertainment
Ticket Fee appears to be premature, as the specifics of such a program are yet to be defined. 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. To assume that revenue will start
coming in for this line in 2018-2019, with no legal or logistical framework currently in place, is
overly optimistic.
Gifts and Donations – This entails the creation of a “Charitable Gift Fund” which would allow
citizens to contribute to this fund and use 95% of that contribution as an offset to their real
property tax. This could be advantageous to those who will still itemize their deductions on their
federal tax return, because this “contribution” would be treated as charitable and not subject to
the State and Local Tax deduction limit within the new federal tax legislation. But this property
tax “contribution” will not bring in significant revenue to the City. The increase in revenue
would only be 5% of the “contribution” as the other 95% would go to offset the citizen’s
property tax bill. This 5% gain would most likely be offset by the administrative costs associated
with administering this fund. The City also indicated that this fund would be used to aid in
receiving donations from businesses and the general public, but at this point in time, there
appears to be only one committed donation in an amount just over $120,000, with no other
public commitments for additional donations. At this point in time, assuming $2 million for this
line item appears overly optimistic, as there is little information to back up that estimate.
Parking Tag and Fines – The City plans to roll out an amnesty program for parking tickets and
quality of life fines. The establishment of this program should bring in revenues, but the waiving
of interest and penalties will need to be considered as a partial offset to this gain. Relying on a
$2 million revenue expectation to help balance the budget, when we have no history
administering such a program, is concerning.
Grant Reimbursement – The City plans to increase revenues with the addition of two grant
writing positions, which are supposed to generate approximately $1.4 million in grant revenue.
Like the Entertainment Ticket Fee, many steps must take place in order to realize this revenue –
the hiring of candidates, and the identification, application, and awarding of grants, as well as the
fact that many grants require that the funds be spent first before reimbursement is received. It is
highly likely that any grant gain will not be realized for some time. Therefore, the reliance on
this revenue item is also overly optimistic.
Rate Increases – There are several revenue items budgeted for rate increases, such as building
permits and home inspection licenses, that are expected to bring in over $1 million of additional
revenue. These rate increases appear to go into effect July 1, 2018 and require prior Common
Council approval. The City should ensure that the approval process is accomplished timely to
guarantee full receipt of these budgeted increases.
5

 Expenses
The recommended budget includes $513.6 million in expenses for 2018-2019, an increase of 2.8
percent over the 2017-2018 adopted budget.
Personal Services – This labor-driven line item represents $200.9 million of expenses, and
includes items such as salary, overtime, duty disability pay, and longevity payments. While
budgeted positions account for $205.3 million worth of expense, savings from “attrition” reduces
this amount by $4.4 million. “Attrition” accounts for anticipated retirements and the expectation
that those positions will go either unfilled or be filled by an employee earning lower wages.
While attrition is accounted for in the recommended budget, vacant positions are not, which
could lead to savings on expenses. However, those savings could be wiped out by additional
overtime costs, which are budgeted at $16 million, despite recent trends indicating an expense of
nearly twice that amount.

Overtime Expense
(in millions)
$35.0
$30.0
$25.0
$20.0
$15.0

$29.8
$26.3

$29.4

$29.8

$10.0

$16.0
$5.0
$14-15 actual

15-16 actual

16-17 actual

17-18 projected

18-19 Budgeted

While the City has hired hundreds of employees in recent years, any overtime savings from the
recent hires has been mitigated by corresponding retirements.

6

 Judgments and Claims – This expense is regularly underestimated, and with $2 million
budgeted in the 2018-2019 recommended budget, is most likely underestimated once again. The
average annual expenditure for Judgments and Claims has been approximately $4 million over
the past six years, and exceeded $8 million just last year.
2014-2015
Actual

2015-2016
Actual

2016-2017
Actual

2017-2018
as of 4/30/2018

2017-2018
Budgeted

$2,900,927

$3,624,789

$8,113,841

$3,949,205

$2,000,000

2018-2019
Recommended
Budget
$2,000,000

Since the City is self-insured, this is an expense that can result in significant exposure based on
claims made against the City. Due to the projected poor financial performance on the 2017-2018
year, the City is expected to completely deplete its unassigned fund balance. Without an amount
within the unassigned fund balance, the City will be unable to set aside any additional funds for
potential exposure within the assigned fund balance, and in fact will need to eliminate the $13
million that is currently designated in assigned fund balance for Judgments and Claims.
Therefore, it is likely that the current budgeted amount of $2 million is understated, likely by
millions of dollars.

Fund Balance
The City’s reserves, known as Fund Balance, acts as a savings account for the City.
Unfortunately, in recent years it has instead been used to shore up budgets that are not
structurally balanced. $85 million in reserves have been squandered in the past seven years, and
with approximately $35 million needed for the current fiscal year, the amount of reserves used to
close budget gaps will be about $120 million.
Most of the City’s Fund Balance is set aside for specific purposes. The only category of Fund
Balance that can be used to fill budget gaps is Unassigned Fund Balance, which was $41.9
million just two years ago. Today, Unassigned Fund Balance sits at $6.5 million, and by the end
of the current fiscal year, it will either be $0 or a negative amount.
The depletion of the City’s Fund Balance (and the cause of that depletion – structurally
imbalanced budgets) has led both Moody’s and Standard & Poor’s to revise the City’s bond
ratings from “Positive Outlook” to “Stable Outlook.” Such actions are precursors to rating
downgrades from those rating agencies, as well as Fitch Ratings, the third of the “Big Three”
rating agencies. Downgrades lead to increased interest costs for capital borrowing.

7

 Fund Balance

Total

$180

Unassigned

$165.8
$160
$146.4

$142.7
$140

$151.2

$149.5

$130.0

$120
In millions

$113.6
$114.9

$100
$80

$82.4

$63.9
$60

$50.0
$43.4

$40

$41.9

$30.7

$20

$5.7

$6.5

$12.2

$0.0

$0
2009-10
actual

2010-11
actual

2011-12
actual

2012-13
actual

2013-14
actual

2014-15
actual

2015-16
actual

2016-17 2017-18
actual estimate

In addition to potential bond rating downgrades, the depletion of the City’s reserves will
undoubtedly lead to serious cash flow problems in 2018-2019. 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 (RAN), will be needed by December 2018, and the amount needed could
exceed $100 million. Interest costs for a RAN of that amount will be more than $1 million, an
expense the city would not have to incur if it hadn’t squandered its reserves. Judgment and
claims in excess of what is anticipated could lead to the need for additional short term
borrowing.
To put that into perspective, between 2013-2016, 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. 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.
8

 Four-year Financial Plan
The four-year financial plan inexplicably keeps expenses flat in the out years, despite a clear
trend of growing expenditures. The four-year plan does not contain sufficient data to support the
outcomes projected. Also absent from the plan is an effort to gradually replenish the City’s Fund
Balance, as the lack of available reserves is a problem that needs to be addressed immediately
and consistently.

Conclusion
While the 2018-2019 recommended budget may be balanced on paper, in actuality, it is based on
fuzzy math and wishful thinking. Adopting such a budget in its current form will set the City up
for failure. 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.
While Budget Responses from this office in previous years had issued similar warnings, the
consequences for coming up short on revenues in 2018-2019 – potentially by more than $30
million – are especially dire. Aside from the potential bond rating downgrades and cash flow
problems addressed in the previous section, 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. In addition to taking control of the City out of the hands of
the officials that were elected to govern, 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.

9