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Tonawanda budget surprise: City's plan stays under tax cap

Tonawanda's proposed 2020 budget raises taxes on city residents but, for the first time in six years, would not exceed the state property tax cap.

It's a notable development that follows months of warnings from city and state officials about Tonawanda's precarious finances.

Under Mayor Rick Davis' budget plan, the tax rate would rise by 1.5% next year, meaning the owner of an average home assessed at $120,000 would pay an extra $35 in city property taxes.

Davis said the city saved money by changing the health insurance carrier for retired employees, eliminating two jobs and cutting the Fire Department overtime budget. Further, he said, Tonawanda is counting on additional revenue from the sale of a portion of the long-vacant Spaulding Fibre property.

The tax levy — the amount the city collects in property taxes — would go up by 2.11%, one year after the city's budget blew through the tax cap and raised the levy by 12.9%.

However, Davis cautioned, the city can't keep dipping into its fund balance, must do more to rein in employee health insurance costs and can't continue to rely so much on state aid and sales tax revenue.

"While I was able to present a budget below the cap," Davis wrote in his budget message, "the ability of the city to operate within the confines of a 2 percent property tax cap is completely unrealistic moving forward."

He delivered his budget plan to the Common Council on Tuesday. The Council must approve the budget next month.

Difficult financial decisions loom in the City of Tonawanda

Tonawanda's fiscal problems are well documented.

Its population base and industrial sector are shrinking. There's little room for new development within the 4-square-mile city. Health insurance costs for the most part aren't offset by employee contributions. It provides an extensive range of services that many larger suburban communities do not.

As a result, the City of Tonawanda has the third-worst financial stress score of any government or school district in Erie County, according to the state Comptroller's Office.

Over the past decade, the city's general fund budget rose by 37%, to $24.1 million in 2019. That's forced the city to raise its tax levy by nearly 46% since 2009.

The Council earlier this year refused to grant permission to exceed the tax cap in 2020. And Council President Jenna Koch, among other Tonawanda officials, had warned that difficult decisions were looming for the 2020 budget.

The city is at 82% of its constitutional taxing limit, and if it reaches 100%, it could cost more for the city to borrow money, among other consequences. Davis said under his proposed 2020 budget, the city's position would improve slightly to about 81% of that limit.

City taxpayers also would benefit if the city stays under the cap because they would, for the first time since 2014, receive a property tax relief credit from the state.

Spending would go up in the 2020 budget by 2.7%, or $639,600, to $24.7 million. The bulk of that is salary increases for employees and a related increase in the city's contribution to the state retirement system.

Overtime in the Fire Department would drop by $95,000, or 48%, thanks to a federal grant that allowed the city to hire two new firefighters.

The mayor proposes eliminating two positions and said the city saved about $265,000 next year after switching 160 Medicare-eligible retirees to a new health insurance carrier, UnitedHealthcare.

The city would not tap into its unassigned fund balance — Tonawanda's savings account — as it has in recent years. That balance has fallen from 10% of city appropriations in 2015 to 5.4% in 2018, and Davis said it remains "weak by general accounting standards."

The pressures on the city only will grow, Davis said, though he blames state government for many of the challenges facing Tonawanda.

The city, for example, has to continue to make costly improvements to its sanitary sewer system, likely requiring future sewer rate increases.

Tonawanda relies on state aid sharing and sales tax revenue for 32% of its budgeted revenue. That's not sustainable, Davis said, because this state aid has remained at $2.6 million for the past decade and it is lower than it was in 2009.

And the city's share of county sales tax revenue could fall after the 2020 Census when its population will be updated.

"The city currently maintains a tenuous financial position," Davis wrote.

In one bright spot, the city has budgeted for $400,000 in one-time revenue from an anticipated sale of city-owned property, a reference to the expected sale of 15 acres of the still-vacant former Spaulding Fibre manufacturing site.

Council members spoke briefly Tuesday night about the budget plan they had received just hours earlier.

Several members urged the public to contact them with feedback on the proposal.

"Certainly, we're still digesting it. The ink's barely gone dry on this. But I'm optimistic to see that we're below the tax cap," Koch said after the meeting.

The Council will meet with the city's department heads to discuss their budget requests on Oct. 15. It will hold a public hearing on the budget on Nov. 4 and must approve the 2020 budget later that month.

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