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Buffalo's finances look good now, but what happens after federal aid is gone?

Buffalo's finances look good now, but what happens after federal aid is gone?

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The City of Buffalo closed out its fiscal 2020-21 budget with a $14.8 million surplus that went back into the dwindling cash reserves.

But some city officials are worried that sunny outlook is a mirage.

The surplus was due to an increase in sales tax receipts, restored state aid payments, a reduction of budget expenditures; savings from the early repayment of a $25 million revenue deficiency note, the loan the city took out to cover lost tax revenue during the pandemic; and $331.4 million American Rescue Plan federal stimulus aid.

The Brown administration used the $14.8 million surplus to replenish the city’s dwindling general fund balance, including $8.2 million put into the unassigned fund – the pot of money the city can use to balance operating budgets. It had dropped conspicuously to zero in 2018, which prompted warnings from public finance experts about the city’s financial position once the one-shot federal stimulus money is spent.

The $14.8 million infusion into the cash reserves resulted in a $104.3 million fund balance overall, up from $89.6 million last year, according to Buffalo Comptroller Barbara Miller-Williams' Annual Comprehensive Financial Report.

Mayor Byron Brown has remained optimistic about the city's fiscal outlook. He recommended using $50.4 million in federal stimulus money in the current $534.5 million budget, which began July 1, to help offset pandemic-related revenue shortfalls and pay for rising costs. The Council approved the budget in May.

But questions remain about the city’s financial position after the $331 million windfall from the federal government is spent and if other aid dries up.

“This onetime infusion of money from the federal government allows us to regain our financial footing, but it will be up to the Council and the administration to address the long-term budgetary gaps,” said Fillmore Council Member Mitch Nowakowski.

Niagara Council Member David Rivera said it’s encouraging that the administration was able to replenish some of the cash reserves. But he is concerned about what will happen when the city doesn’t have the “luxury of federal dollars coming in and state dollars.”

“We’re very fortunate to have received state aid, increases in sales tax, American Rescue Plan dollars. It all came at the right time,” Rivera said. “Absent those things we would be perhaps in a deficit.”

Miller-Williams cautioned in her report, “We have to continue our steadiness in financial operations, increase revenue, limit expenditure increases and continue to build adequate general fund reserve balance.”

The financial review will be presented during the Common Council’s Finance Committee meeting Dec. 7.

In addition to the $8.2 million the administration put into the unassigned fund balance, the city also increased its emergency stabilization fund – commonly referred as the Rainy Day fund – to $40.7 million. Last year, it was about $38 million. The Brown administration established the fund in 2008.

And the city was able to fully fund at $16.8 million another cash reserve set aside for things like judgement claims against the city. It was short by $5.4 million the year before.

The city’s diminishing reserves had been a point of contention since 2019 and prompted warnings from public finance experts about the city’s financial position once the one-shot federal stimulus money is spent.

Over the summer, the Council passed fund balance replenishment legislation to start in the current budget year.

As a budgeting tool for the administration every year to replenish the unassigned fund balance, the policy would require the city to maintain 45 days of annual operating expenses in unassigned funds, which has had a zero balance since 2018. To reach that level, the administration would put between .07% to 2.5% of revenues into unassigned funds.

The $8.2 million the administration put into the fund was over and beyond what is required under the policy, Nowakowski said.

“The administration replenishing the unassigned fund balance so significantly after the Common Council’s leadership on this priority is very well received,” he said. “This allocation moves the City in the right fiscal direction – and our residents are better off as a result.”

The legislation was meant to restore the confidence of Wall Street rating agencies and appease the Buffalo Fiscal Stability Authority, both of which had taken a dim view of the city's diminishing fund balance.

Another purpose was to allay concerns about the city’s financial position after the $350 million windfall the city will receive under the American Rescue Plan. The city has already applied for and received about half of it.

“Our goal is to replenish that surplus just in case we do experience a downturn,” Rivera said. “I’m happy that we’re able to begin to replenish it, put money aside for those kinds of things and I think we just need to continue to do that going forward because we’re not always going to be able to rely on the federal government to come in. Or the county government might go through the same problems, even the state for that matter. The state was in the same situation the city was until they got their American rescue plan money.”

The Buffalo News: Good Morning, Buffalo

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