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For first time in 12 years, city may hike taxes

Buffalo residents could see hikes in property taxes and/or user fees for the first time during the Brown era after two credit rating agencies lowered their outlook on the city’s financial prospects just as the mayor prepares to release his 2018-19 budget.

Moody’s Investors Service and Standard & Poor’s Financial Services cited Buffalo’s structurally imbalanced budgets and repeated reliance on reserves to make ends meet in lowering the city’s fiscal outlook from "positive" to "stable," though the actual bond ratings remain favorable.

Even before that, some city officials had been chattering about the possibility of raising property taxes or user fees.

Hiking the garbage user fee – which has never been increased during Mayor Byron W. Brown’s 12 years in office – would make the solid waste fund self-sustaining. The fund has been subsidized at $3.2 million per year for the last nine years as Brown said he has intentionally kept user fees low.

But an increase of about $33 in the garbage user fee spread evenly among users would make the fund self-sustaining, said Patrick J. Curry, a top aide to city Comptroller Mark J.F. Schroeder. That way, the city would not have to continue borrowing from the general fund, Curry said.

Lovejoy Council Member Richard A. Fontana, chairman of the Council’s Finance Committee, said he began eight or nine years ago looking for ways to reduce expenses in the solid waste fund with the goal of making it self-sustaining because taxpayers have been paying both user fees and the annual $3.2 million subsidy.

"(It) has been dipping into the general fund, therefore it hasn’t been a true self-sustaining fund," Fontana said. "Taxpayers have been subsidizing it for years, and that has to end."

University Council Member Rasheed N.C. Wyatt said the Council will try to find ways in the upcoming budget to minimize the impact to taxpayers.

"When you talk about how many years taxes were not increased, it was a long run. We all know all good things come to an end," Wyatt said. "To the mayor’s credit, he has held the line on taxes and those types of fees for a very long time. But we know there was going to be a day coming that we had to look at ways to generate other revenues to assist the city in its continued growth."

Even with the downward shift in outlooks, which reflect where the agencies think the city is headed, the credit ratings are still very good, among the highest since 1990 and have improved since Brown took office in 2006.

Where Buffalo is now is part of a collaborative, strategic financial management plan, Brown said.

"In the budget and four-year financial plan that I will present by May 1 to the Common Council, we will address structural imbalances," he said. "I have managed in a very fiscally conservative way with a very clear strategic plan for future growth for this city. And part of that plan was using reserves and keeping revenues low to stimulate growth and investment in the City of Buffalo.

"Now taxes are lower, and the tax base in Buffalo is more diversified and stronger. We anticipated where we are today and we are prepared to realign revenues as necessary."

Brown has frozen or cut property taxes every year since taking office in 2006.

The current tax rate is $17.88 per $1,000 of assessed value for residential property and $26.76 per $1,000 for commercial properties. As of the current 2017-18 budget, residential rates are down by 16 percent since Brown took office in 2006, and commercial property tax rates are down by about 32 percent.

Under the state’s property tax cap, the most the city can increase the tax levy – the amount collected in taxes – in the upcoming budget is about $6 million, Curry said. That would mean a property tax increase of about $75 for a house assessed at $100,000, and approximately a $130 increase for commercial property assessed at $100,000. Right now, the levy is $139.6 million, Curry said.

Still, the combined $9.2 million from the increased tax levy and user fees would not be enough to keep pace with rising expenses, Curry said.

Hopefully, there will be new streams of revenue in Brown’s upcoming budget "so we don’t have to use much of the reserves," said Niagara Councilmember David A. Rivera.

"We’re anxiously waiting for the mayor’s budget to see where the revenues are and the tough decisions that are going to be made," he said.

Moody’s and S&P primarily pointed to Buffalo’s structurally imbalanced budgets with revenues coming in less than expected and declining reserves as reasons for lowering the city’s credit outlook. The outlook from Fitch Ratings remained at "stable."

Despite the revised outlooks from Moody’s and S&P, the grades given by the three agencies for Buffalo remained the same: A1 from Moody’s; A+ from S&P; and AA- from Fitch. And the city’s reserves and liquidity continue to be strong, the agencies said.

And the companies noted that the city’s finances should improve down the road once the revaluation process is completed in 2019. Brown has frozen property assessments for the past seven years. The new assessments will be reflected in the 2019-20 budget.

Still, the agencies would like to see the city less dependent on reserves.

From the 2010-11 budget through the 2016-17 spending plan – excluding the 2012-13 and 2014-2015 budget years when no reserves were tapped – the city has used $84.7 million in reserves to balance budgets, Curry said. The figure includes $34.5 million in reserves the city needed for the 2016-17 budget.

And right now, there’s an estimated $36 million in savings the city may need for the current 2017-18 budget, Curry said.

The city has a total of $114.9 million in fund balance, but most of that must be set aside for specific purposes – such as capital expenses or a rainy day fund – and can’t be tapped for balancing the budget.

The city can use $30.8 million in reserves for the current budget, but that would leave no savings available for the 2018-19 budget, Curry said, adding that there has been "yearly use of reserves to close budget gaps."

Compounding the city’s problem, the dispute between the Seneca Nation and the state over whether the nation still must share casino revenue means Buffalo has not gotten casino payments since the 2016-2017 budget, when the city received $3.5 million, half of what was owed, Curry said.

"Casino money could come in at $7 million, but that’s an unknown," Curry said.

At the end of this budget year on June 30, $10.5 million will be owed the city by the Seneca Nation.

"Our belief is that the money will eventually come to the city when the dispute between the Senecas and New York state is resolved," Brown said.

In addition, the Buffalo Municipal Housing Authority still owes the city $4 million in overdue utility and other bills dating back years, Curry said.

All three credit rating agencies cited factors that could affect the city’s future grades or outlook. Fitch, for instance, warned that "if management is not able to align revenues with expenditures, the city might be challenged to maintain healthy reserve balances, which could pressure the current rating." And S&P said "if the city is unable to make changes to revenue assumptions for its projected revenues, resulting in a third year of a multi-million-dollar drawdown further evidenced by a possible structural imbalance, we could possibly lower our long-term rating or revise the outlook to negative."

The agencies are echoing what the Comptroller’s Office has been saying for years, Curry said.

"But instead of warning the city, this is the first time they actually changed the rating," he said of the lowered outlook.

Brown said he is not worried about the city’s financial progress.

"I’m very confident that we have a sound plan to realign revenues as necessary for the healthy operation of the City of Buffalo," he said.

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