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SEP 29 - OCT 06, 2015

Mychajliw Downgrades Dyster

By Deborah Eddel

Oct 08, 2015

Stefan Mychajliw


“No family in their right mind would ever use their savings account to pay their bills. That’s a recipe for disaster.”

That’s how Stefan Mychajliw—the former TV news reporter turned Erie County comptroller—describes Niagara Falls Mayor Paul A. Dyster’s decision to raid the city’s casino revenues to pay off this year’s $7 million budget deficit.

Dyster’s proposed budget calls for using about $12.5 million in casino revenue in the city’s general fund. This is a significant jump from the roughly $8 million included in 2015’s budget.  “Our tax base is not growing fast enough to keep up with the growth in our expenses,” is how Dyster explains it.

Of the $12.5 million, about $6.5 million is marked “property tax avoidance.” This gimmicky spending covers things that otherwise would have been paid for by property tax revenues. And it doesn’t impress Erie County’s top financial watchdog.

Mychajliw, who is at once at ease in an open-collared shirt and yet direct and by-the-numbers, explains to me in no uncertain terms that Dyster’s budget amounts to rearranging deck chairs on the Titanic.

“You pay your expenses with revenue—constant, reliable revenue. The casino money is not guaranteed year-to-year, it’s not guaranteed beyond the end of the current compact,” Mychajliw reminds me over lunch in downtown Buffalo. “Remember what happened when the Senecas pulled the plug?”

Of course, we all recall the near panic at City Hall a couple years ago as state disbursements of Seneca slot revenues dried up while the Senecas held their payments back in a fight over cigarettes and non-Indian casinos. Mychajliw tells me to imagine that, only without the state blinking at the last minute.

“The tribal-state compact only is in place for seven more years,” Mychajliw reminds me. “The current administration is continuing to operate as if that money will never stop. That will eventually put Niagara Falls into a crisis it won’t be able to climb out of.”

Mychajliw would know.

After being elected Erie County comptroller, he began the arduous task of digging out of bad policies and bad decisions that had paralyzed Erie County government in 2004 and 2005, during its infamous “Red and Green Budget” crises.

“I would strongly recommend that the current mayor not do this,” Mychajliw says, looking out an office window.  He then looks directly at me.

“I saw firsthand the damage that can happen to a community 10 years ago. I would never want the City of Niagara Falls to go through that.”  At 45, the young father, whose daughter is in middle school, is old enough to remember watching Erie County contemplate gutting virtually every non-mandated service to avoid a massive property tax hike due to pressures that had been building for years from budget gimmickry—and worrying about whether he was raising his family in a community that would have things like libraries, parks and a police presence.

“What scares me, though, is this is not the first time this has taken place in Niagara Falls under this present mayor,” Mychajliw says. “This budget is smoke-and-mirrors, and it’s a dangerous game they’ve been playing for several years.”

“I’m very fearful for Niagara Falls if the present leadership of that city keeps using this tactic to balance their budget.” Mychajliw again alludes to the Red-and-Green Budget crisis. That episode got its name from the colors of the two sets of proposed budgets from then-County Executive Joel Giambra.  Under the Green Budget, the county would successfully enact a one percent sales tax increase. Under the Red Budget, or “scorched earth budget,” the county would have been forced to make massive cuts to non-mandated services, including public safety, as well as wide-spread layoffs, and closure of county parks and libraries.                                                                                                                        

“Niagara Falls was warned about this stuff three years ago,” Mychajliw says, before handing me a 2013 audit report from the New York State Comptroller’s Office.  I flip through its pages, which Mychajliw has covered liberally in highlighting marker and Post-It notes.

He refers me to page 10 of the lengthy document, where he has scribbled the word “unsustainable” in the margin.

The Comptroller’s report is direct: “While the City has been significantly affected by the casino revenue impasse, its financial condition has worsened significantly due to its budgeting practices.”

“Although the City’s fund balance has been depleted, the City continued to budget for one-shot revenues. In the 2013 budget, in addition to $2 million of unavailable appropriated fund balance, the City budgeted for the following one-shots: transfers from the capital projects fund of $2.9 million, transfers from the debt service fund of $850,000, and property sale revenue of $1 million. The City’s adopted 2013 general fund budget has a structural deficit of $12 million. Therefore, if the City does not receive any or an insufficient amount of casino revenue in 2013, it will have a revenue shortfall of approximately $7.2 million, representing the budgeted casino revenues and the unavailable appropriated fund balance.”

This year, the potential shortfall was $7.6 million.

“You’re supposed to pay your recurring expenses with recurring revenue,” Mychajliw says in a level, even tone. “That’s how households do it—or, at least the ones not in debt counseling do it.”

Mychajliw’s criticism of Dyster’s application of casino funds to balance his budget is particularly damning not just because it comes from a qualified reviewer—as chief financial officer for a county with 922,000 people and a $1.4 billion budget, Mychajliw has financial responsibilities a bit headier than Dyster’s—but also one with a record of righting a once-sinking ship.

“This goes to the core of leadership,” Mychajliw explains. “We’re doing well, now, here in Erie County, because we’re doing the exact opposite.”

Mychajliw isn’t bragging, he’s stating a fact. He shows me Erie County’s bond ratings—essentially, the county’s credit score.

Fitch Ratings gave them an “‘A’ with a stable outlook” last year. That means Erie County’s government bonds are considered “investment grade.” Credible investors will put their money in Erie County’s long-term obligations. It’s the same as a car buyer being given favorable, low-APR financing because of their credit score.

Standard & Poor’s, meanwhile, was so impressed by reforms enacted on Mychajliw’s watch that, in January, they gave the county a three-step bond increase to an impressive AA-. S&P credited Mychajliw’s “strong management, with good financial policies and practices in place” in awarding the county its high credit score.

“We received high ratings from multiple, private, independent Wall Street bond rating agencies,” Mychajliw says. “They gave us those ratings because we pay our bills, and because we pay our bills with revenues—not one-shot gimmicks. Because we maintain a healthy fund balance. Because we held the line on spending and taxes.”

Mychajliw crosses his arms and looks at me a moment.

“Niagara Falls can do the same thing. But first they need to listen to what Wall Street is trying to tell them.”

I look up the city’s bond rating on my mobile device. Just last month, Fitch gave the city a BBB.

Instead of praising the Cataract City’s “strong management,” Fitch condemned the city’s reliance on “diverse but volatile revenues,” its “strained operating history,” “weak economic indicators,” and “high, fixed-cost burden.”

The Fitch report went on to blast Niagara Falls for being unable to “reverse operating deficits.”

In short, Fitch said the same things about the Dyster Administration’s budgeting that Mychajliw has just spent 40 minutes explaining to me, only with far less tact than the friendly former TV anchor.

Mychajliw is quick to prescribe a course of action.

“You look at a guy like John Accardo,” he says of Dyster’s opponent in the mayoral race. “I’ve talked to John. He’s a serious guy. He comes from the private sector. He actually had to meet payrolls and pay taxes and couldn’t rely on budget gimmicks and one-shot revenues.”

I ask him if that’s his endorsement.

“Niagara Falls needs to elect the right leader, but if it were my vote, I’d like to see a private-sector businessman like John Accardo,” he says in the same clipped, forceful matter-of-fact speech pattern I’ve come to know over the last hour. “A decade ago, Erie County’s bond rating was borderline junk bond status. We’re in tremendous shape now. But it took leadership—something that your city is currently lacking at the top.”

 

 

 

 

 

 

 

 

 

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