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Buffalo would hand over control of its troubled finances -- more than $900 million in city and school spending -- to a seven-member state board as part of a landmark recovery plan the state comptroller announced today.

The financial control board, the first in Buffalo's history, would have broad powers over everything from spending to borrowing to how much the city taxes its property owners.

Under the plan Comptroller Alan G. Hevesi unveiled at a morning news conference, the board would be made up of seven state and local government officials with the authority to freeze employee wages, veto new spending and pursue new sources of revenue.

Those revenue sources could include Erie County's giving the city a larger share of its sales tax revenue.

In making the case for a strong financial control board, known as the Buffalo Oversight and Recovery Board, Hevesi pointed to estimates that suggest the combined city and school district deficit could reach $127 million by 2006.

"Buffalo, for a long time, has been a city characterized by economic weakness," Hevesi told reporters. "The city has a permanent structural deficit."

Hevesi's proposal is subject to approval by the State Legislature and Gov. George E. Pataki, a prospect many lawmakers consider likely, perhaps as early as next month.

If it happens, it would be only the fifth control board one in state history. Only three other cities -- Troy, Yonkers and New York City -- have had control boards. Yonkers had two.

Hevesi, a Democrat, did not propose a new revenue source for Buffalo but hinted at a number of possible solutions. They include dipping into a portion of the county's sales tax revenues.

He also expressed skepticism over Mayor Anthony M. Masiello's fiscal recovery plan, a proposal that centers around shrinking and restructuring the police and fire departments.

The oversight panel, which Hevesi suggests be headed by a Pataki appointee, will not have the legal authority to directly cancel employee contracts, including the one the Buffalo police union quickly pushed through Friday before the release of Hevesi's audit.

But the board, said sources speaking on condition of anonymity, would have the power to defer or suspend aspects of contracts, such as raises for city employees, if Buffalo's finances continue to erode.

The board's powers would include everything from approval of all contracts and borrowing to signing off on a four-year financial plan for getting a better grip on the city's finances.

The panel's reach will extend to the school system because, in the words of one top government official, it is "an organization with a material impact on the City of Buffalo."

City schools, like City Hall, have been floundering in red ink for years.

The board will be based on a combination of powers given to the other oversight boards that have operated in the state. One official involved in creating the plan said the board could set up a fund from which all city money would be dispersed, though there is no evidence that such sweeping power would be needed in Buffalo's case.

The control board Hevesi proposed today -- and in a specific legislative request to the State Legislature in the days ahead -- will be composed of representatives of Pataki; Hevesi; Assembly Speaker Sheldon Silver, D-Manhattan; Senate Majority Leader Joseph Bruno, R-Brunswick; the mayor; city comptroller and county executive.

The board also would include six nonvoting members. They would include representatives of the Common Council and Erie County Legislature as well as business and union representatives.

One official said putting both Masiello and County Executive Joel A. Giambra on the panel will force a number of issues to come to a head, whether it's the city's long-standing attempt to get a share of county sales tax revenues or Giambra's effort to merge the county sheriff's department and Buffalo Police Department.

The panel would not directly have the power to raise revenue, officials said. But it could raise revenues through negotiations by its board members.

One official noted, for example, that tax increases in Nassau County were pushed through by county officials, not the control board, while it was the mayor of Troy, not the control board, who pushed through everything from library closings to property tax hikes.

"This will not take away the responsibility of elected officials," one government source said Tuesday night.

Mayor, Council have roles

Even with a control board, the mayor will still be responsible for deciding how to spend money, and the Council will still have the role of approving a budget.

Officials believe the board would not need to use all its strengths if the mayor and Common Council can agree with it on a long-range plan to end the deficit.

"The hammer would be there, but the hammer would not have to be used," one official said.

Hevesi met in the Capitol on Tuesday night with Silver, who asked him to examine Buffalo's finances.

Masiello, after a briefing by Hevesi in Albany, said the package being put forth this morning will amount to "tough love" for the city. He said Hevesi declined to provide him any specifics in a 90-minute meeting. He said Hevesi characterized the city's problems as "severe."

"But the sense I get from him is we can fix this problem," the mayor said.

Masiello spent the day with his top lieutenants in meetings with legislative officials and Hevesi, trying to convince them that his plan for restructuring the police and fire departments will go a long way to solving the city's fiscal woes. "I think he realizes it's got to happen," Masiello said of Hevesi's reaction, "even though he may not agree on every detail."

But government officials said Hevesi has concerns that the $11 million in touted savings by 2006-07 from reducing the police ranks are too optimistic considering the price tag to get the police union to go along with it. A top official said the mayor's plan might make sense from a management perspective, but even if it achieves all the savings envisioned it will only make a 10 percent dent in the projected deficits.

"It's just not the key issue. Even if you save everything he hopes, it would still leave the city with huge problems," an official speaking on condition of anonymity said.

Still to be played out is how the city will raise revenues. State lawmakers believe the county and state will have to be partners, either through direct aid or, in the state's case, permitting the city to borrow $29 million to help pay for the contract with the police union.

Hevesi's audit revealed staggering fiscal problems ahead for the city unless a series of steps -- including revenue raising ideas, cutbacks, sale of city assets and bond restructurings -- are put in place.

The Hevesi report, according to government officials, will come up with a series of deficit projections, based on optimistic and pessimistic scenarios, including everything from health of the economy to state aid to the ability of the police restructuring to work.

When the city and school district finances are combined, the numbers are gloomy: in 2004-05, the combined city and school deficit is expected to total $60 million to $78 million, the Hevesi audit will reveal. By 2006-07, it will leap to $93 million to $127 million, sources said.

No sales tax sharing

Hevesi, at least in his written report, stopped short of proposing that Erie County be forced to give up a portion of its sales tax revenues. But he has figures supporting Masiello's claim that the city is shortchanged in sales tax revenues compared to other upstate cities, sources said.

Masiello has pointed to Rochester, which gets 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.

Assemblyman Sam Hoyt, D-Buffalo, said he was "very pleased" with Hevesi's ideas. "As described to me, this will be one of the strongest control boards in New York State, and I'm happy about that," said Hoyt, who has mayoral ambitions.

Another mayoral hopeful, State Sen. Byron Brown, D-Buffalo, said he doesn't like the idea but thinks a control board may be necessary to gain state legislative support for more aid to the city.

State Sen. Dale Volker, R-Depew, said all sides have to realize that money from the county and state must be on the table to help the city.

"A control board does not solve the problem," he said, criticizing business leaders who have promoted an oversight panel. "I've not seen any indication that the private sector knows what this is all about."

Common Council members, meanwhile, expressed clashing views over who should serve on such an oversight panel.

No one with direct ties to the area's political or business community should sit on the control board, according to four Council members who sponsored a resolution Tuesday. They attacked what they called the "usual cast of local characters" who have "made the mess" in the region, arguing that the panel should be made up of municipal finance experts from across the state and nation.

"The political leaders haven't been successful in solving the problems, and I haven't seen the business community step up to the plate as business people have done in other cities," said North Council Member Joseph Golombek Jr., the lead sponsor.

Board makeup suggestions

Council President James W. Pitts thinks a control board made up entirely of people from outside the region would have built-in disadvantages.

"The learning curve for people who are estranged from the process would be enormous," he said. "You need to have a diverse group that includes political, business and community representatives."


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