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The financial crisis will pose serious money problems at City Hall

Originally published on politicsandstuff.com

The coronavirus pandemic is taking its toll on those who are physically suffering through the infections and on the families who have already lost loved ones. The incredibly serious situation seems to get worse by the hour.

The leadership on this issue has come from state houses, county halls and city halls. Donald Trump is late to the game and it remains to be seen just what will come out of Washington to provide health care administrators with the medical personnel, facilities, supplies and equipment to flatten the virus’ curve.  The head-in-the-sand partisans in Washington don’t exactly have a good track record of producing results in situations such as the one we find our collective selves in at the moment.

Priority one is certainly to get the virus under some reasonable management. Control for now is another matter.

Then there are the financial issues, stretching from the kitchen tables of most Americans to those with macro-management responsibilities in DC and on Wall Street. People will be rapidly losing their jobs.  Government will be expected to help but will be stretched thin.

In New York State we have seen this movie before, after 911 and after the 2008 fiscal meltdown, but this time it is playing in 3-D on an IMAX screen (if we could only get into a theater). The depth and breadth of this financial crisis is likely to be far greater than the vast majority of those living have ever experienced.

In New York State we have seen this movie before, after 911 and after the 2008 fiscal meltdown, but this time it is playing in 3-D on an IMAX screen (if we could only get into a theater).

Wall Street income is heading for an awful year, and that will cost state budget coffers greatly. More on that in a moment.

Sales tax revenues are going to plunge for an extended period of time, which will damage the finances of states and local governments. In counties such as Erie that share a substantial portion of their sales tax revenues with cities, towns, school districts and the Transportation Authority, the difficulties will be shared from Tonawanda to Springville.  People out of work will have problems paying their city, school district, town and county property taxes and fees.  The amount of these lost revenues is impossible to project at this time, but the numbers are going to be very big.

State Comptroller Tom DiNapoli issued a report yesterday about the state’s finances. Here is part of what he said:

“[T]he Office of the State Comptroller has analyzed the economic and revenue outlook for the remainder of the current fiscal year and for the next fiscal year. Based on information as of March 13, 2020, the most optimistic revenue scenario is that All Funds tax revenues in State Fiscal Year 2020-21 will be at least $4 billion below projections of $87.9 billion in the Executive Budget. However, given deteriorating conditions and the potential likelihood of a deep recession in the coming fiscal year, one alternative scenario suggests that tax revenues in SFY 2020-21 could be more than $7 billion below the Executive Budget forecast…

“Congress is considering legislation that would bolster unemployment insurance, make paid sick leave and family leave more widely available, and temporarily increase the federal share of states’ Medicaid costs under certain circumstances. Such provisions would be expected to have a positive economic impact that is not yet possible to quantify with specificity. Additional federal funding for Medicaid would benefit the State Financial Plan…

“The federal government is also considering delaying tax filing deadlines, which could result in billions of dollars of New York tax payments being delayed as well. This raises concern regarding the State’s cash flow in the coming fiscal year.

“In addition to the tax revenue impacts discussed above, the State faces other risks. State gaming receipts from video-lottery facilities and commercial casinos will be depressed by recent events including actions taken to limit public gatherings, although any specific estimate currently is not possible. The Executive Budget Financial Plan projects receipts from VLTs and casinos to total $1.1 billion in SFY 2020-21. Other non-tax revenue sources could be at risk as well.

“The Legislature has authorized $40 million to address costs related to COVID-19, including personal services, equipment, supplies or training. Other costs not currently expected, and difficult to estimate, may arise due to a variety of factors related to the outbreak and its economic impact.”

The State Comptroller’s Office regularly reviews localities that the Office has found to be under financial stress. The most recent list, which evaluated municipalities for their 2018 fiscal years, includes the City of Niagara Falls, which is considered to be under significant stress.

The State Legislature is due to approve the 2020-21 state budget in less than two weeks. How that is going to work out is anybody’s guess.

The State Legislature is due to approve the 2020-21 state budget in less than two weeks. How that is going to work out is anybody’s guess.

The State, in situations like these, has often been inclined to pass part of the financial burden on to local governments and school districts. Governor Andrew Cuomo’s proposed budget, which was filed before the coronavirus issue rose to its current level, was already looking to solve a portion of its multi-billion dollar deficit by having counties and New York City pick up some additional Medicaid costs.  That effort may have now been stymied by federal legislation, leaving the big budget hole to fill on top of what is now on the horizon.

It seems probable that the State will either now, when the budget is adopted, and/or later in this year, when the full dimensions of the problem are better known, look to cut local financial assistance to counties, cities, towns, villages and school districts. The pain could be great and distributed from Montauk Point to Niagara Falls.  It has been that way with lesser financial meltdowns.

So the question will be which among the local governments and school districts and SUNY/CUNY colleges are best prepared to deal with the pain? We will soon find out.  Reserves will be helpful if available, but higher local taxes and budget cuts will need to be part of the package.

Erie County government has built up reserves to the tune of about $102 million that will come in mighty handy. Last Sunday County Executive Mark Poloncarz announced that he would ask the County Legislature to set aside $5 million out of the anticipated $8-10 million surplus from 2019 for the purpose of additional potential expenses related to dealing with coronavirus issues.

Erie County government has built up reserves to the tune of about $102 million that will come in mighty handy.

And then there is the City of Buffalo. All of the city’s reserves were used up in 2019.  There remains a “rainy day fund” of about $39 million, which is intended for a “Break Glass” situation.  The axe is being readied to do just that.

But if that happens, as seems likely, diminished State and city revenues could quickly require Buffalo to use up much of the $39 million or leave the city with no reserves at all.

For several years The City Comptroller’s office, beginning with Mark Schroeder’s tenure, has advocated re-building the city’s reserves beyond just the rainy day fund. That would have made things that are coming a little easier to handle, but Mayor Byron Brown has resisted such an effort.  The Common Council has only paid lip service to re-building the reserves.  The million-dollar Buffalo Control Board has sat on its hands and done nothing.

The national fiscal crisis is coming to a state and locality near you.  It’s not going to be pretty.

Ken Kruly writes about politics and other stuff at politicsandstuff.com.

Written by Ken Kruly

Ken Kruly

Ken has been a very active community participant in the world of politics for nearly 50 years. Everything from envelope stuffing to campaign management. From the local council level to presidential campaigns. On the Democratic side. A whole lot of politicians worked for, fought against, had a beer with. Now, "mostly" retired, Ken continues to have a great interest in government and politics on the local, state and federal levels. His blog, politicsandstuff.com provides weekly commentary and opinions about policy, budgeting, candidacies, and analysis of public issues. 

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