Warning Issued as 2012 Budget is Closed

Warning Issued on Overly Optimistic Sales Tax Revenue Projections as 2012 Budget is Closed

Erie County Comptroller Stefan I. Mychajliw issues another warning on how aggressive sales tax revenue projections could blow a hole in the 2013 budget, and officially closes the books on 2012

(Buffalo) – The Office of Erie County Comptroller Stefan I. Mychajliw tentatively closed the 2012 County fiscal year and at the same time expressed deep concern over the administration’s aggressive sales tax revenue projections that could cause significant gaps in the 2013 budget.  Comptroller Mychajliw has presented a detailed report to the Erie County Legislature reviewing the 2012 fiscal year and looking ahead at possible problems in the 2013 budget.

Without question the most alarming projection concerns overly aggressive sales tax revenues that could have a negative impact on this year’s budget.    

Sales tax revenues are the largest revenue source for Erie County.  Wall Street ratings agencies and the Office of Comptroller have issued numerous warnings on Erie County’s risky reliance on volatile sales tax revenue.  The 2012 sales tax revenue came in $326,801 under budget.  As the Office of Comptroller has consistently stated, sales tax revenue is subject to volatile economic conditions uncontrolled by the County.

“I am pleased the administration agrees with me that their own overly optimistic sales tax revenue projections could cause fiscal problems this year.  One of the largest threats to financial stability is if sales tax revenue falls short of the administration’s projected growth.  Sales tax revenues fell short of the administration’s projections last year, and is likely to happen again this year,” said Comptroller Mychajliw.

Representatives from the administration expressed similar concerns before the Erie County Legislature last month:

“(We) hope that sales tax comes in better than we expect, but right now we don’t think that is going to be the case.  We think the budget for sales tax this year is overly optimistic.  We are not going to make budget on that.”

Source: Erie County Senior Budget Consultant Dr. Timothy Callan, Erie County Legislature Finance and Management Committee, March 14^th, 2013

As for tentatively closing the books on the 2012 fiscal year, there were significant miscalculations and big swings, both positive and negative, in approximately 19 of the administration’s budget categories/budget lines.  This could lead to serious confusion for legislators when making budget amendments.  Total revenues were off by $20,305,331 and total expenditures were off by $29,078,960.

“How do you trust the administration’s projections when 19 of their budget categories were significantly off the mark to the tune of tens of millions of dollars?  Legislators would be justified in scrutinizing future budgets, based on the wild swings between projected and actual revenues and expenses  found throughout the 2012 budget,” added Comptroller Mychajliw.

Based on the significant swings in projected and actual revenues for 2012, the Office of Comptroller recommends that the administration provide the Erie County Fiscal Stability Authority (ECFSA) with yet another revised Four-Year Plan (FYP). 

Based on the many discrepancies found concerning the administration’s projections and actual revenues in the 2012 budget, it appears the administration’s attempt to raise property taxes last year was based on flawed fiscal projections and inflated budget categories.  

These results indicate the Erie County Legislature’s actions amending the 2013 budget were prudent, responsible, and afforded already financially struggling families relief from being hurt by an unnecessary property tax increase.

Specific spending reductions put forth by legislators to offset the proposed 2013 property tax increase came mostly from what appears to be inflated budget categories and did not negatively impact the budget.  Facts show a more significant threat to the 2013 budget is potential gaps due to the administration’s overly aggressive sales tax revenue projections.

“A bi-partisan group of Legislators cut spending last year to eliminate the administration’s proposed property tax increase.  When closing the books on 2012, we found most of the budget lines that were cut actually turned out to have less expense  in them than the administration projected.  It appears last year’s proposed property tax increase was almost forced down the throats of already hurting taxpayers based on mostly inflated and flawed budget lines.  It is entirely understandable if County Legislators are hesitant to trust the administration’s future budget projections,” said Comptroller Mychajliw.

The good news: there was  $83,490,024 in unassigned fund balance the current administration inherited as of December 31^st, 2011. Erie County Clerk Christopher L. Jacobs also reported a surplus within his department of approximately $2,179,241. That represents roughly 50% of the county’s entire operating surplus.

Article 25 of the Erie County charter as amended by Local Law 2-1 (2012) the Budget Modernization Act of 2012 Section 2605b states: “The County shall maintain (a) an unassigned balance in the General Fund fund balance equal to or greater than five percent of the amount contained in the adopted budget of the General Fund of the county’s last audited financial statements.  For purposes of this section, the total General Fund calculation shall not include sales and compensating use tax revenues shared with local governments and school districts.” 

Based on this article and the final 2012 adopted budget as contained in this report, the five percent amount is $55,570,254.  Therefore the unassigned fund balance as of this report, $93,262,414, exceeds the five percent amount by $39,692,160. 

“We continue to caution the Legislature and administration on using unassigned fund balance to keep future budgets balanced.  This is the equivalent of a family irresponsibly using their savings account to pay bills.  Eventually the account will be depleted but significant expenses remain,” added Comptroller Mychajliw.

Pertaining to the unaudited results, they indicate that the County ended 2012 with an operating surplus of $4,267,201 verses the budgeted deficit of $7,551,685 a difference of $11,818,886 the budget surplus. Total fund balance increased by $4,267,201 to $120,402,549.  Unassigned Fund Balance has increased by $9,772,391 to $93,262,414. All of this is subject to audit as well as any re-appropriations, assignment and/or designations of fund balance the administration may propose to the Erie County Legislature. 

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