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NIAGARA FALLS---The City of Niagara Falls has improved its financial condition in the last year, but remains dangerously close to its constitutional tax limit and has little margin for error in the 2007 tentative budget, according to a budget review released by the state comptroller's office.
At the request of Mayor Vincenzo Anello, auditors examined the tentative 2007 budget and found that revenue and expenditure projections in the budget were reasonable. Auditors also found that the overall financial condition of the city had improved primarily because of increased state aid, which exceeded last year's budget estimates by nearly $1.7 million.
The city is projected to end the year with a $4.25 million operating surplus. As a result, the city will have an unreserved, unappropriated fund balance of approximately $7.5 million. Rating agencies recently upgraded the city's bond rating because of its improved financial condition, and this should result in lower costs for borrowing for the city.
Despite the city's improved finances, the city is close to its constitutional tax limit and the 2007 tentative budget contains some risks that could reduce its fund balance. The proposed 2007 levy of $29,080,951, which is an increase of $1 million above the 2006 levy, leaves the city within 1.03 percent of its taxing limit, meaning the city has used 98.97 percent of its constitutionally set tax limit. If the city exceeds this limit, then a portion of state aid would be withheld based on how much the city is over its limit.
"The City of Niagara Falls is in a better financial situation than in recent years, but the fact remains that it is under severe fiscal stress," comptroller Alan Hevesi said. "The city needs a long-term strategy to address cost containment and revenue growth, and we can help them do this. More needs to be done on a statewide level to help cities like Niagara Falls that are struggling to pay their bills and maintain adequate services."
The state comptroller's office has been monitoring the city's budget for the past several years because of the city's deteriorating financial condition.
Other findings:
While the city has budgeted $486,000 for contingencies, the entire amount is actually intended for police and fire retirement buyouts. If the city has an unanticipated expenditure or revenue shortfall, the only option would be to use fund balance. Auditors recommended that the city set aside some additional funds for these unforeseen costs. A minimal contingency appropriation of 1 percent of appropriations, or $731,000, would give the city some flexibility in dealing with unexpected events.
Even though the collective bargaining agreements between the city and its eight unions have expired, the 2007 tentative budget does not include any provision for pay raises should the city and the unions negotiate an agreement. Therefore, fund balance again may be the only available resource to finance any pay raises in the coming year.
In August 2006, the city entered into a shared service agreement for a coordinated assessment program with the Town of Wilson. Because of this agreement, the city was able to obtain a one-time state aid payment of $240,000. Although this is not a large revenue source, the city is so close to its tax limit that the city may need to find another revenue source to make up for this shortfall in 2008.
What is a Constitutional Tax Limit?
Cities, counties and villages are subject to a constitutional tax limit. For cities, the tax limit is calculated as 2 percent of full value of property. Local governments can run up against their tax limit in several ways. First, by increasing the amount of taxes levied, a greater portion of the limit will be exhausted. It is important to note, however, that since the limit is expressed as a percentage of full value, if property values in a municipality decline, the tax limit will decline as well. Additionally, certain exclusions are allowed from the limit and therefore if the exclusions change, the impact of the limit can change. 11-20-06
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© 2006 North
Country Gazette
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