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State lawmakers are looking at a salvation plan for Buffalo that drives more sales tax revenue collected by Erie County to the city and creates a financial control board with sweeping powers over the city's finances.

In return for the loss of the sales tax revenue, state officials believe Erie County may want to intensify the push for a merger between the county Sheriff's Department and Buffalo Police Department.

City officials, though, say they have heard nothing of the resurrection of a proposed merger between the police agencies and reiterated earlier claims that such a consolidation would face legal hurdles and wouldn't save the money the city needs. The Masiello administration continues to push its own Police Department restructuring plan, a move that would eliminate 200 officers through attrition, introduce one-officer cars and implement more flexible scheduling.

State lawmakers, speaking on condition of anonymity, said one idea being discussed would require the county to share with the city more of the sales tax revenue it now keeps for itself. The city for years has pressed for an increase in its share of sales tax revenue, arguing that the county take is overly generous.

It is unclear how this would occur, or if it would be negotiated.

County Executive Joel A. Giambra said in a news conference today that if the county gives up the additional 1 percent sales tax, it will be forced to raise property taxes.

"It is the worst thing we can do," he said, "just like raising taxes in Buffalo is a prescription for disaster."

With the county bearing the heavy burden of Medicaid costs, it is not in a position to give up any sales tax money, Giambra said, adding that shifting tax money around from one government to another does nothing to change the city's underlying structural problems.

He reaffirmed his desire for a state control board with the ability to make a merger of city and county police services and water authorities a priority, along with his overall plans for city-county consolidation as outlined in his 1997 "No Handout, No Bailout" plan.

"Now is the time to restore fiscal stability to the city government," he said. "I believe we can best protect the quality of life for city residents through structural reform, and I will recommend to any state control board that now is the time to create a long-term solution."

Meanwhile, Mayor Anthony M. Masiello said Wednesday that if a control board is created, it should have the power to alter contract provisions that have saddled the city with exorbitant health insurance and pension costs. Any oversight board should also have the ability to impose a new revenue stream for the city, with the most likely source being a larger share of the county sales tax, Masiello said.

The whole situation is still very much in flux, as all sides await the results of an examination of the city's finances by State Comptroller Alan Hevesi. That report, which will guide what course of action is taken, is due any day.

The city's tab for health benefits has ballooned by nearly 250 percent since the mid-1990s, Masiello said. In the coming year alone, Buffalo will pay an extra $6.6 million for employee health coverage. Pension costs will be up about $8 million. "We need to re-engineer our fringe benefits," said Masiello. "I don't care what type of control board you put in, it won't solve the problem unless it has the power to deal with health care costs and pension costs."

In a letter to state lawmakers, Masiello said any control board that is created should have the authority to impose higher employee contributions for health coverage and pensions. "Unless we get a handle on these escalating costs, we will never address our structural budget gap," he said.

Mayor presses his plan

The mayor stressed Wednesday that he continues to view a control board as the least effective option for solving the city's fiscal crisis. He also admitted that the likelihood of the State Legislature giving an oversight panel the power to nullify labor contracts is slim.

Masiello continues to push for state assistance to help restructure the Police and Fire departments, efforts he believes will go a long way toward improving the city's long-term finances. He said the restructurings will alter "horrible work rules" that impede efficiency and drive up costs.

For the past several weeks, Masiello has said if the state blocks the restructurings by failing to approve aid and loans, the only other options would be massive layoffs or the imposition of a control board.

"We could make this budget structurally balanced tomorrow by laying off several hundred people, but that's not going to improve things," he said. "If we end up with a control board, it better have the power to abrogate contracts."

Some state lawmakers grumbled privately about Masiello's letter, dismissing his demand for a certain kind of control board and his threat that he would recommend cuts to the city's budget before he accepts a control board without adequate powers. They noted he is in no position to make demands right now. The mayor responded that it's not his intention to be adversarial.

"I'm not trying to be a cruel, nasty jerk about this stuff. But you have to tell the truth, even if it ruffles some feathers," he said.

One state legislator with close ties to Masiello agreed with the mayor's demands that any control board have the power to make the necessary changes. Sen. William Stachowski, D-Buffalo, said Hevesi's report will determine whether a full oversight panel is needed. "But if so, it better have some funding and some teeth. If you're going to make structural changes, you've got to be able to make structural changes," Stachowski said.

Another lawmaker said the matter is still developing.

"The tone of the mayor's letter is obviously desperate. But we are still waiting for the state comptroller to give us a more detailed understanding of the city's fiscal condition, and we will reserve judgment and potential solutions until we have those numbers," said Assembly Majority Leader Paul Tokasz, D-Cheektowaga.

Gov. George E. Pataki, who would have to approve a control board for Buffalo, declined to take a stand on the issue Wednesday.

Sales tax a long dispute

For years, the sales tax dispute has been simmering between the city and county. The mayor cited figures showing that Rochester receives 34 percent of the sales tax proceeds in Monroe County, while it makes up 30 percent of the population. By contrast, he said Buffalo represents 31 percent of Erie County's population but receives 19 percent of the county's overall sales tax revenue.

The county keeps 100 percent of revenue derived from the extra one cent that was tacked on to the sales tax during the county's deficit crisis in 1985. It distributes two-thirds of the remaining revenue to municipalities and school districts, using a complex formula that considers each community's population and assessed value.

In the past, there has been talk of raising the local sales tax rate to some undetermined level and letting the city keep the proceeds. But Tokasz on Wednesday shot down any such notion that would be part of the city bailout plan. "I would fight it tooth and nail," he said.

There is also growing concern that giving the city a greater share of the sales tax revenue will not be enough to solve its financial problems. There is talk of updating the sales tax revenue-sharing formula, which is based on old, outdated population numbers; if that happens, the amount the city would reap, given its population decline, would not be as much as Masiello thinks, lawmakers say.

Some lawmakers raised concern that county taxpayers will be on the hook if the county is forced to give up some of its sales tax proceeds. The percentage point the county keeps is worth about $100 million, state officials say.

Masiello administration officials and some Common Council members have been hitting hard on the need for a new revenue stream. Most of the attention has focused on trying to get additional sales tax revenue.

"Buffalo has more immediate financial problems than any of our peer cities in the state for one simple reason: We do not share equally in sales tax proceeds," Masiello told state legislators.

City Finance Commissioner James B. Milroy said he is heartened to hear that state lawmakers are at least discussing a possible increase in the city's sales tax revenue. But he said that based on information from Albany insiders, it's difficult to gauge how seriously they are considering the plan.

"We've been saying for a long time that Buffalo and other cities are living on an antiquated revenue source -- property taxes," said Milroy. "There needs to be some recognition of that, especially in light of the fact that no one can count on seeing any increases in state aid."

Council Majority Leader Rosemarie LoTempio, who has been pushing for years for a larger share of the sales tax, said she raised the issue this month with state auditors reviewing city finances. She said they seemed "genuinely interested" in her arguments. "I'm thrilled if (state legislators) are looking at the sales tax," she said. "It's a no-brainer. We need a revenue source, and the sales tax is really the only thing that's out there."

Masiello stressed that if Buffalo is going to be put under a control board, it should be one that "fixes the problem" by creating a new revenue source and taking steps to reduce pension and health care costs.

Mayor demands strong board

"I will not accept a wishy-washy control board -- something that gives the impression of control while in reality it controls nothing," Masiello told state lawmakers. "Before I accept such a mechanism, I will recommend cuts to bring the city's structural budget into balance."

The alternative budget proposed by Masiello earlier this month -- absent state aid to restructure police and fire services -- would cut 130 officers and 120 firefighters from the payroll. It would also close six fire companies, eliminate 20 building inspectors and cut $2.9 million in school aid.

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