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City close to establishing an official fund balance replenishment policy

City close to establishing an official fund balance replenishment policy

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The City of Buffalo's equivalent of a savings account has dropped conspicuously in recent years  down to a zero in unassigned funds since 2018  which has prompted warnings from public finance experts about the city’s financial position once the one-shot federal stimulus money is spent.

Now, city officials are moving closer to an agreement on a policy to deposit some of its money into the fund balance. The new policy would start during the 2022-23 fiscal budget.

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 commit to putting between .07% to 2.5% of revenues into unassigned funds.

The step to routinely replenish the fund balance has long been called for by rating agencies, the Control Board and the city’s auditors, but has been resisted by the mayor.

“We know it’s going to be a slow build, but you got to start somewhere,” said Fillmore Common Council Member Mitchell Nowakowski, who co-sponsored the proposal with fellow freshman Council Member Bryan Bollman, who represents the Lovejoy District.

The Council is likely to approve the proposed legislation in two weeks.

The ordinance was developed in conjunction with City Comptroller Barbara Miller-Williams’ office and Mayor Byron W. Brown, who has pushed back on implementing a formal replenishment policy, framing it in terms of hampering the city’s ability to maintain jobs and services.

Nowakowski joined University Council Member Rasheed Wyatt, chairman of the Finance Committee, and Majority Leader David A. Rivera, who represents the Niagara District, in a sit-down with Brown and members of his administration recently to work on the plan.

“They gave us their concerns, and we did the best we can to amend the document to respond to their concerns,” Nowakowski said.

A city spokesperson said the administration has had initial conversations with Council members regarding their original proposal, and the mayor and his staff plan on reviewing the newly amended version.

An official replenishment policy could restore the confidence of Wall Street rating agencies and appease the Buffalo Fiscal Stability Authority, both of which have taken a dim view of the city's diminishing fund balance.

It could also allay concerns about the city’s financial position after the $350 million windfall the city will receive under the American Rescue Plan, President Biden’s $1.9 trillion effort to boost the economy in the way of the coronavirus pandemic.

S&P – also known as Standard & Poor’s  maintained Buffalo’s A+ credit rating in February, but revised the outlook downward to negative from stable, noting concerns around future revenue generation, even with the one-shot revenue from the federal pandemic aid. 

The negative outlook also was based on “the city's history of negative operating results in three of the last four years, resulting in a weakened reserve position.”

And in September 2020, Fitch downgraded the City to A from A+ and also revised the outlook to negative, following a downgrade the year before to A+ from AA. Fitch cited overly optimistic revenue assumptions and expected use of fund balance to manage budgets.

By using millions in fund balance to balance budgets, Brown froze or cut property taxes every year since taking office in 2006, until the 2018-19 budget increased property taxes and user fees for the first time during his tenure.

For instance, on June 30, 2016 – the end of the 2015-16 budget year – the city reported a total fund balance of about $150 million, including about $42 million in unassigned fund balance that could be used to fill budget gaps. But the city used about $35 million of that to fill a gap in the 2016-17 budget and about $7 million – plus approximately $16 million from another account – to close a hole in the 2017-18 budget.

The result was that as of the beginning of the 2018-19 budget year on July 1, 2018, the fund balance had dropped to about $92 million, and the unassigned fund balance was depleted.

The replenishing or draining of the unassigned fund balance has been the purview of the administration, but the proposed fund balance legislation would give the Council some oversight.

“This is first time where we’ll actually going to be codifying it into the budget section. We want to make sure we have this framework in place to build up our unassigned,” Nowakowski said. “We’re saying, ‘When you’re crafting your budget every year, if you do use the unassigned fund balance, you have to let us know or if you don’t use it you have to commit .07% to 2.5% to build it back up.”

The Buffalo News: Good Morning, Buffalo

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