Mayor’s State of the City Address

Delivered February 2, 2010

Council President Zeisz, members of the City of Tonawanda Common Council, colleagues in city government, and residents of the city, thank you for attending this 2010 State of the City message, my fifth as mayor. As required in Section 2.027 of the City Charter, “the mayor shall communicate to the Common Council at its first meeting in February of each year a general statement of the affairs of the city in relation to its finances, government and improvements, with such recommendations as the mayor may deem proper”. This message is intended to not only satisfy basic Charter requirements, but to provide a level of detail that exceeds these basic requirements, in part because current economic and financial conditions warrant such detail. Although City of Tonawanda finances are sound and stable, we must recognize the city is operating at a time when our state and national economies and budgets are under extreme stress. While city finances are in relatively good condition, the city is obviously not immune from an economic environment that carries an unemployment rate of 10% nationally and 8.3% in Erie County, the federal government running trillion dollar deficits while increasing the national debt ceiling to $14.3 trillion dollars, and New York State government faced with a $7.4B projected deficit in 2010-2011 and a $60B projected deficit over five State fiscal years. The fundamental challenge for us as elected and appointed officials remains the same, although the degree of difficulty has increased; provide vital public services at the least cost to the taxpayers. This task is especially difficult today. This message is intended to give the public and city officials a detailed statement of the current affairs of city government and steps that have, and will be taken, to minimize the negative economic and fiscal forces impacting the city of Tonawanda and to improve the business climate in our city.

Let me begin by discussing the current financial condition of city government. The most current, comprehensive financial data is contained in the city’s draft fiscal year 2008 financial statement. That information, along with approved fiscal year 2010 approved budget figures, will be used in the following fiscal analysis. The city began fiscal year 2008 with an unrestricted general fund balance of approximately $1.97M. Total general fund balance was approximately $5.76M, with $200,000 reserved for future tax stabilization and $1.7M reserved for self-insured workers compensation and liability insurance claims. The city managed 2008 general fund operations with a $74,999 surplus.  Stated as a percentage, this $1.97M unreserved general fund balance represents 10.66% of the city’s 2010 general operating budget, comfortably within the State Comptroller’s recommended range of 5-10% that prudently balances adequate reserves for unforeseen fiscal developments and an excessive balance that would tend to indicate higher than needed taxation rates and levies. An initial, pre-audited analysis of 2009 general Fund budget expenditures indicates the city will close its books within its $18.4M budget. 2009 General fund revenues, including property tax collections should approach $18.0M. The city’s share of Erie County sales tax receipts will approximate $4.1M, $3.1M in State general purpose aid, which includes approximately $2.775M in per capita Revenue Sharing through the State’s Aid to Municipalities and Incentive Program (AIM). A more detailed analysis of individual appropriation expenditures can be found in the City Treasurer’s report attached to this Message, including the fact health insurance expenses increased from $1.335M in 2001 to approximately $3.183M in 2009, an increase of $1,848,000 or 138.4%, an average of 15.38% per year. As part of its 2008 Financial statements, pursuant to the Government Accounting Standards Board (GASB) Statement Number 45, the city is now required to measure and disclose the actuarial valuation of post-retirement health care benefits. The Post Employment Benefit of city paid health insurance is currently in excess of $30M.

 Under the New York State Constitution, the city is permitted to levy property taxes at 2% of the city’s most recent five year average of it’s taxable assessed valuation roll. For the city’s fiscal year ending on December 31, 2010, this five-year average is estimated to be $597,412,172. Applying the 2% maximum taxation levy to this average yields a 2% constitutional taxing limit of $11,361,792. Although the city’s 2010 fiscal year property tax levy is $9,464,769, $1,721,292 of this amount is excludable in calculating the city’s constitutional limit because this levy includes revenue from sewer, water and other sources that charge for services as opposed to a pledge of the full faith and credit of the city’s ability to levy property taxes. Therefore, $7,743,477 or 68.15% of the city’s 2010 property tax levy is subject to the constitutional taxing limit, meaning the city is taxing 31.85% below legal limits. It should be noted many New York State cities are taxing in the 90% range of their limits. Cities taxing at or near their constitutional limits is one important indicator of severe financial distress. Fortunately, the City of Tonawanda is not in this operating condition.

Major revenue sources supporting the 2010 operating budget are not unreasonably dependent on any one type of revenue and prudently diversified, especially sources beyond the direct control of the city. This fact is another positive indicator because its represents a degree of diversification and insulation for the city should any one source of revenue decline in value. For example, budgeted 2010 sales tax revenue of $4,130,000 represents 22.03% of all city revenue, budgeted state aid totals $2,739,531 or 14.8% of 2010 revenue, although at this time the Governor has proposed a 2% or $54,791 decrease in his proposed 2010-2011 state budget. City property taxes of $ 9,464,769 are 51.12% of all budget revenue. Although we all recognize the importance of holding the line on city property taxes, previously mentioned revenue figures mean the city is not overly or dangerously dependent on revenue decisions made by others, beyond the influence of city officials.

As of December 31, 2009 city indebtedness for capital improvements and major purchases is approximately $10.73M, down from the $11.2M at the close of fiscal year 2008. The Fire Department’s new ladder truck of $350,000 and Department of Public Works Packers ($335,000) were both permanently financed at an interest rate of 2.86% in fiscal year 2008. In 2009, $715,000 was permanently financed at a rate of 3.05%, $600,000 for the replacement of the main pump at the Sanitary Sewer Lift Station and $115,000 for the replacement of the roof at Fire Headquarters. Additionally, the city renewed $990,000 intended to cash flow financing of redevelopment work at the Spaulding Fibre site. In June 2009 the city refinanced $2.9M of outstanding indebtedness at an interest rate of 2.47%, saving the city approximately $110,000 in future debt service expenses. The New York State Constitutional limit for such debt is 7% of the previously referenced five year full value city tax roll, or $38.1M.Therefore the city has exhausted about 28.87% of its constitutional limit, an amount the State Comptroller and credit rating agencies would find both reasonable and manageable. This conclusion is confirmed by the fact the city’s credit rating was recently increased when the city accessed the credit market in May 2009. In fiscal year 2010, the city budgeted $1,196,482 in its general operating budget for general debt service payments, $190,000 and $242,471 respectively in the water and sewer fund budgets for debt service, for a combined total of $1,628,953. Stated as a percentage of the 2010 operating budget, general fund debt service appropriations represents 6.46% of the general fund budget, another indicator the city’s operating budget is manageable, exhibiting favorable numbers the State Comptroller and credit rating agencies like to see. It is important to keep in mind these debt service numbers reflect a revised, meaningful capital budgeting process that greatly increases executing the projects contained in that budget and process, managing debt service obligations and total city indebtedness and integrating the operating and capital budgets processes.

The Water Fund began fiscal year 2008 with a deficit of $72,760. Management of the 2008 Water Fund budget resulted in a surplus of $32,716, leaving a Water Fund Balance of ($40,044) by the end of fiscal year 2008. The approved 2010 budget contains Water Fund revenues of $225,000 and expenses of $190,000. If these budget projections materialize, it is anticipated the Water Fund’s negative balance will be eliminated by the end of 2010. The city will continue to receive revenues from the Erie County Water Authority surcharge of $.49 per thousand gallons to help amortize indebtedness incurred prior to the city’s agreement with the Erie County Water Authority.

The 2008 Sewer Fund fiscal year began with a deficit of $213,419. 2008 operations ran at a $35,132 deficit, meaning the Sewer Fund Balance at the close of fiscal year 2008 was approximately $249,000. To address this negative fund balance, a 5% increase was adopted for fiscal year 2009, increasing the rate from $3.53 to $3.71 and from $3.71 to $ 3.90 in 2011. Budgeted 2010 appropriations for treatment services rendered by the Town of Tonawanda are $1,000,000 an increase of about $40,000 or 4.17% relative to 2009 rates. This appropriation represents about 64% of the entire Sewer Fund budget. These costs help illustrate the urgency of reducing the existing I&I problem currently found in the city infrastructure in order to reduce treatment costs services provided by the Town. Additional discussion on this important issue follows in a later section of this message.    

The city must carefully monitor, manage and whenever possible control, vital and significant revenue and expense to maintain the fiscal integrity of the city and its most important planning and management tool, the annual budget. No issue is more important that doing what is necessary to hold the line on raising city property taxes and while providing vital public services. To accomplish this fundamental goal, the city must closely administer whenever possible major expense centers first, work to preserve outside revenue streams and be aggressive in growing the tax base by executing successful economic development projects and initiatives.  Understanding existing conditions and developments, and developing contingency plans for these developments is a basic step in this regard.  For example, due to the recession and the loss in value in the State Retirement Fund portfolio, in fiscal 2010 the city budgeted $1,339,000 for state mandated employee pension costs, an increase of $401,029 or 43.4% over 2009 appropriations. Along with 2010 appropriations for contractual medical insurance costs of $3,367,452, pension and medical insurance appropriations alone total $4,693,481 or 49.59% of the entire 2010 property tax levy, excluding any expenditures for salaries, utilities, capital improvements or any other city expense.

Outside, independent confirmation of sound city management practices can be found in the analysis conducted by Standard & Poor’s relative to the city entering the credit market in 2009 to sell $2.9M in General Obligation serial bonds. S&P improved the city’s credit rating by assigning its A+/Stable rating in a very risk adverse credit market. S&P comments contained in its Summary Credit Analysis, Rationale and Outlook Sections include: “Sound financial position, based on a limited budget, supporting a strong reserve position……Low overall net debt burden, coupled with rapid debt amortization…. The city’s financial performance has been stable, with operating surpluses in each of the past three audited fiscal years (2005-2007)… We consider Tonawanda’s management practices to be “good”… Management conducts formal financial and capital planning, and has recently made efforts to synthesize the processes.” Across New York State, relative to other small cities, Tonawanda’s bond rating is in the top tier. 

Positive developments in managing city expenditures include the fact the city is operating under voluntary, multi-year collective bargaining agreements with its four unions. Financial terms contained in these agreements are fair and reasonable; they provide a decent living wage for hard working city employees at a fair cost to the taxpayers. An important consideration on the horizon is the fact collective bargaining agreements with Local 859. The Uniformed Professional Firefighters contract expires on December 31, 2010 and the PBA, CSEA and CTEA contracts expire on December 31, 2011. It is extremely important successor agreements contain reasonable terms that are fair to city employees, that are also fair to city taxpayers. The city aggressively worked with representatives of an existing retiree group being provided medical insurance benefits mandated by a Settlement of Stipulation agreement under State Supreme Court jurisdiction, in providing alternate, comparable medical benefits for those retirees, but at a reduced cost to the taxpayers. Those savings totaled over $175,000 and greatly assisted in preparing the city’s 2010 operating budget. Common Council support in helping make this happen must and should be recognized. With the cooperation of all the city’s labor unions, the city has launched a labor-management committee that is meeting on a monthly basis, to identify, research, work on and execute initiatives associated with terms and conditions of employment, that have real opportunity of providing contractual benefits at a reduced cost and sharing the savings to induce additional savings in the future. One major success in this regard was reaching an agreement with CTEA on providing a new Blue Cross/Blue Shield medical plan that provided comparable and better benefits at a reduced cost to the taxpayers. The city is working with CSEA and Local 859 toward a similar goal, namely providing all city medical benefits under one plan and one carrier. Achievement of this goal would position the city to be experience rather than community rated on premiums, resulting in a much-improved position to actively manage utilization of benefits and corresponding cost savings. City senior staff has also moved medical insurance plans, another step in the right direction. Again, we appreciate their cooperation and the support of Council.

City departments and personnel accomplished a great deal over the past fiscal year. Controlling the growth in city tax rates by doing more with less is an important component in managing the growth of city appropriations, the resulting cost of living and doing business in the city. Although time does not permit an extensive discussions of this work activity, this Council and the public deserves at least a summary accounting of the work activity and accomplishments of city employees and city departments. A summary of 2009 city departmental accomplishments are attached and made part of this message.

As stated earlier, the city’s fundamental mission, as planned and executed through the development and management of the city’s most important planning document, the city budget, is to protect the public, to provide quality public services at the most reasonable cost, and to provide leadership in making the city a good place to live and an positive environment to invest and do business. Although global, national and state affairs qualify the city’s ability of independently achieving these goals, city efforts and policy can still strongly influence progress in moving closer to these same goals. These efforts must include operating an efficient and honest city government, by minimizing the need to raise city taxes by maximizing outside revenue sources and by expanding the city’s tax base with sound economic development activity

and effort. Growing the tax base requires working closely with other public sector officials and agencies, with the business community and by identifying, securing and managing outside funding sources to make projects happen. These efforts rarely occur over one or two fiscal or calendar years, but over several years depending on the complexity of the project, market conditions and many other factors. Therefore, the city’s economic development efforts need to be addressed looking back looking forward to 2010 and beyond.

Without question, the most significant project the city worked on in 2009 was preparing the 47-acre former Spaulding Fibre site for redevelopment and reinvestment. A great deal of progress has already been made, in large part because of the process being used. A close, effective working relationship has been established and followed, as evidenced in the Spaulding Fibre Working Group that meets at least bi-weekly. Significant progress has been made on this site. All buildings have been remediated and demolished. At the present time SuperFund remediation of subsurface conditions is underway, under the supervision of the New York State Department of Environmental Conservation. Shortly, additional demolition work of subsurface structures will be initiated under Round III of the RESTORE NY Program. By the close of 2010 all major remediation and demolition work will be completed. Already, efforts are underway to prepare and approve new zoning ordinance language for the site, to facilitate redevelopment. A good amount of time discussing this project is made because it is so significant for the future of our city, because it has so much potential to build our tax base, create jobs, support existing businesses in the city and because it is a rare opportunity for any community our size to have such a large parcel available for redevelopment. Next important steps include design and construction of basic site infrastructure, roads, sewer and water lines and connections, that balances the proper scope of work between building enough to induce and facilitate future development, but not too much that restricts future developer options and project opportunities. Related to this initiative of course is securing the funding to design and build that infrastructure.

In addition to 2010 work to change the Spaulding Fibre site-zoning ordinance from one permitting manufacturing to one permitting business park type uses, efforts to create a Central Business District overlay district and updates to the city’s Comprehensive Plan are important initiatives to facilitate future quality development in the city. An important initiative in this regard is work to prepare the former water pumping plant and water treatment buildings for future development. Bid specification were prepared and publicly advertised to remediate and demolish these properties. Sealed bids were opened on January 20, 2010. $475,000 in capital budget funding was proposed, approved and secured to complete all of this work. Preparing these sites for development and changing the current residential zoning ordinance language as part of the above referenced planning initiatives is very important. These initiatives are well underway and should be completed in 2010. This is another opportunity to thank Erie County again for their great assistance on behalf of the city. Erie County provided $200,000 in funding to match the $275,000 provided by the city in its capital budgets.

Significant work in 2010 on a number of other economic development and capital improvement projects will build on efforts started in 2009 and before. These include: development of Request For Proposals language that frame, and provide acceptable city development guidelines and requirements, for residential development of 151 Little League Drive. Those proposals were submitted on January 15, 2010. Over the next few months the city will review those proposals, identify a preferred developer and then advance discussions of the details of a development that meets city and developer goals, but are grounded on actual market conditions, market demand and the economy. Part of this exercise will be discussions with the Tonawanda School District on this project and site in particular and on the Shared Services Initiatives plan in general. Resolving sanitary sewer capacity issues is extremely important in developing both Spaulding and Little League Drive.

The city has been assisting a development group proposing to construct two properties at 711 Young Street, totaling over 6,000 square feet of space to provide state-of-the-art dental implant and research and development services. The Erie County Industrial Development Agency recently approved an inducement resolution authorizing ECIDA participation in this project that is valued at over $4M.

Other major initiatives in 2010 will include planning and design work to construct the waterfront Pavilion the city successfully sought funding for from the Greenway Commission, implementation of the $5.046M capital budget, and construction of a waterfront memorial honoring two native son war hero’s, killed in action, whose efforts were memorialized on the silver screen.

In closing, like any community in New York State the city of Tonawanda faces serious challenges. The same is true for most cities in the United States. However, the state of the city of Tonawanda is relatively sound and positioned to make significant strides in 2010 and beyond. We must concentrate our efforts on managing the people’s business in areas that we can most directly influence, in an honest and no-nonsense manner. Managing city tax dollars, controlling city tax rates, growing the city’s tax base and successfully implanting economic development projects are at the top of that list. The key is for all of us to work together on behalf of the people of Tonawanda.

Thank you for permitting me this opportunity. I look forward to working with my colleagues in city government, the public and the business community in the days ahead. 

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