Health insurance, pension costs and other employee fringe benefits could eat up 42 percent of Buffalo's operating budget by 2020 if expenses aren't reined in, according to city finance experts.
If the crisis on Wall Street continues for a prolonged period, the fiscal hit on municipalities such as Buffalo could be even more painful, City Finance Commissioner Janet Penksa said Tuesday.
When the stock market suffers long-term losses, the state can require local governments to make larger contributions to the state pension fund.
City pension costs have increased by more more than 50 percent since 2007, according to data compiled by the mayor's accountability office. The city has projected small increases in pension costs in each of the next several years, Budget Director Donna Estrich said.
But Wall Street's wild ride could result in significantly higher increases at a time when municipalities are already smarting from cuts in state and federal aid. During prolonged periods when stocks lose value, municipalities' pension costs rise in the following year, Penksa said.
"The lack of performance on the part of the pension fund investments translates down right here to the local level in a very, very large pension increase," Penksa said.
The city's tab for health insurance has increased by more than 26 percent since mid-2007. Experts are bracing for similar or larger increases over the next several years.
The multipronged fiscal pressures all hit at a time when Mayor Byron W. Brown has pledged to freeze property tax rates through at least 2013.
While city finances remain stable, thanks in part to unspent reserves from prior years, ever-increasing health care and pension expenses could create major challenges, Penksa said.
Employee fringe benefits currently account for about a quarter of the city's overall budget, Estrich said.
The city's tab for employee pensions rose from $23.8 million in the 2009-10 fiscal year to more than $27.2 million in the fiscal year that ended June 30 -- or a 14.3 percent increase -- according to figures released by the budget office.
The state control board that oversees city finances had repeatedly warned that soaring employee fringe benefits are among the key challenges that face the city and its school district. But Bryce E. Link, the control board's principal analyst, said the panel has yet to see new projections from the city that estimate fringe benefits over the next decade.
In prior meetings, some control board members have stressed the importance of negotiating new agreements that help control health insurance costs. They cite a nine-year contract the control board approved in February that involves about 45 unionized workers in the Buffalo Urban Renewal Agency.
The employees received raises in return for agreeing to pay for some of their health insurance premiums during their employment and when they retire. The contributions range from 15 percent to 75 percent, depending on the type of coverage, when workers were hired and how long they were employed by the city.