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City of Buffalo Surplus At Historic Levels

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Office of the Mayor
Peter K. Cutler
Director of Communications
716-851-4841

Mayor Brown says City Passes Test for Fiscal Stability, Calls for End of Fiscal Control Period


Last week, Deloitte & Touche LLP issued a favorable FY 2006-07 audit for the City, which reported a $21,695,000 surplus, the largest in the history of the City of Buffalo and the fifth consecutive surplus the City has reported since the fiscal crisis began in 2001-02.  This latest double-digit surplus brings the City's total fund balance to just over $117 million, with $76 million free from any financial commitments or restrictions.The announcement of the surplus follows two successive credit upgrades and the Brown Administration’s implementation of best practice policies, including: establishing CitiStat Buffalo, a nationally recognized accountability and management tool; creating a rainy day fund to insulate city finances from reductions in state aid or other unanticipated budget reductions; strengthening the city's commitment to four-year financial planning; lowering property tax rates; conservative budgeting; and increasing the city's taxing and debt margins to address Wall Street concerns and thereby ensuring long-term budget stability.
 
 The audit report attributes the fund balance or surplus to three primary factors:
1. Conservative budgeting on the part of city management.
2. Unnecessary deficit borrowing by the BFSA.
3. Mayor Brown’s direction to set aside state aid increases for “rainy day” fund.
 
"It is now time to acknowledge that the fiscal crisis in Buffalo is over and that the BFSA immediately begin to transition the city from a fiscal control period to an advisory period," said Mayor Brown.  "I am proud of the success my Administration has achieved in budgeting responsibly and maintaining a measurable city surplus.  We have faithfully followed the conservative fiscal management principles I announced when taking office.  The control period perpetuates old stereotypes of Buffalo and clouds the economic revival that has taken place with over $4.4 billion in new economic development projects throughout the city, as well as the healthy growth in property values in our residential neighborhoods and business districts."

Buffalo has met all of the tests stipulated in the BFSA Act, which are necessary before the City can transition into an advisory period:  three successive years of balanced budgets and the demonstrated ability to issue its own debt. 

"The five consecutive surpluses booked by the city clearly demonstrates it has met the first test and the credit upgrades by both Moody's and Standard and Poor’s demonstrate the city's ability to meet the terms of the second test, which is to gain access to the credit markets," said Mayor Brown.
 
Mayor Brown is calling on the BFSA to eliminate the $23 million in principal outstanding from the $26 million in deficit financing bonds it issued for the 2003-04 and 2004-05 fiscal years.  In both years, the city closed with surpluses far exceeding the value of the bonds, which indicates that these borrowings were unnecessary. 

Mayor Brown proposes refunding a portion of these bonds using the city's fund balance and issuing city debt to refinance the balance.  The amount of city debt issued would be dependent on market conditions allowing for refinancing of the debt at interest rates competitively lower than those of the current bonds.

"Over the ten-year term of these bonds, city taxpayers will pay approximately $9 million in interest and other charges,” stated Mayor Brown. “They will bind us and our children with these costs for many years to come unless we take this opportunity to eliminate and restructure them as soon as possible."
 
At the end of the control period, an advisory period would commence. The city would still be required to produce balanced four-year financial plans for Control Board review and the city must continue to ensure its budget is balanced each year or it would revert back into a control period according to state law. 

“While the same tough fiscal controls would be in place, what would be different is that Buffalo would no longer be under the cloud of a financial control period,” said Mayor Brown. “This outcome would send a powerful signal nationwide that Buffalo is fiscally sound, economically strong, and is a stable place to live, work, and invest.”