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'Slight tax increase' in Dyster budger slightly misleading

Niagara Falls Repoerter

October 11, 2011

From the publisher Frank Parlato Jr.

Niagara Falls Mayor Paul Dyster is proposing what has been called a "slight tax increase" that will accomplish a "balanced budget" for 2012.

Before we get into details, let me remind the reader that, as the cover story reports, Niagara Falls' unemployment rate is the highest in New York state.

It is also a matter of record that New York state is one of, if not the highest-taxed state of all 50 in terms of income, sales and excise taxes. Taxpaying residents in New York, on average, pay almost 12 percent of their income in state taxes alone.

On top of this, the property tax rate -- which is a local, not a state tax -- in Niagara County happens to be one of, if not the highest in the United States.

This is from Business First of Buffalo:

"Niagara County residents carry the heaviest property-tax burden in America, according to a (2009) report from the Tax Foundation.

"The typical Niagara County household pays $2,802 in property taxes each year, which equals 2.92 percent of the value of the typical home in the county, $95,800. That's triple the national rate of 0.95 percent."

The city of Niagara Falls, therefore, where taxes are high and property values low, is possibly the highest-taxed city in the highest-taxed county in the highest-taxed state.

Last week, Dyster unveiled a $100.3 million city budget plan with a $3 million increase in spending for 2012. He proposed raising taxes for residential property owners by 16 cents to $17.75 per $1,000 of assessed value. The tax increase is admittedly "slight." It will mean perhaps a $12 or so increase on someone's property taxes per year.

Still, if one peers behind this apparent "slight increase," one finds something else going on.

Dyster took two significant steps to avoid, in an election year, a large tax increase, perhaps more than double the tax increase that Dyster gave us in 2010 when he raised taxes by 3.6 percent for residential and 4.2 percent for commercial properties.

First, Dyster secured a 10-year loan at 3.75 percent interest to pay about $1.6 million of the increase in spending. In other words, he borrowed about half the increase in spending.

Secondly, his budget proposes using money set aside in reserve accounts to cover the $9.8 million gap between revenues and expenses.

Borrowing money to be paid by future residents and draining reserves are what combined to create an election-year budget with no appreciable tax increase.

It was successfully spun too. The Gazette headline of Oct. 4 was "Slight tax increase in Dyster plan." The Buffalo Newsheadline was "Mayor's budget seeks less than 1 percent tax rate hike, no layoffs."

From these and the stories that followed, it reads like he is doing a pretty good job fiscally by balancing the budget without layoffs or tax increases.

A little analysis shows this may not be entirely true.

If Niagara Falls had a balanced budget, balanced being defined as spending an amount equal to what is collected in taxes, then the headlines would have read "Nine percent tax increase in Dyster plan." Or "Mayor's budget seeks 9 percent tax rate hike, no cuts in spending."

This would have been poisonous to Dyster's re-election efforts.

Dyster said using reserve funds -- or in other words, taking the city's accumulated savings or money kept on hand in reserve -- and spending most of it next year was "necessary to help overcome" what he described as "unprecedented" fiscal challenges.

Every city needs surplus funds for emergencies, shifting needs or special projects. Draining them cannot be a substitute for taxation or spending cuts, no more than the average wage-earner who spends substantially more than he earns can use his savings to fund the difference in what he spends and earns for very long.

Dyster spun his short-term use of reserves as intelligent, long-term strategy, suggesting that the ability to deplete reserve accounts in the first place was a credit to his "sound fiscal management" and "self-imposed discipline," adding the city has been planning for "multiple years of hard times and tough budgets" since 2008.

"This year, with no increase in the tax levy, we have balanced the budget without layoffs or service cuts," Dyster said. "We are proposing essentially no increase in either the homestead or non-homestead tax rate. This very significant accomplishment has been achieved without touching the undesignated fund balance that we keep as the city's 'rainy day' fund."

By the way, this is technically true. The $5 million in the so-called "undesignated fund balance" will be untouched (unless, of course, there is a "rainy day" or bona fide emergency), but almost all the designated reserve funds or special projects funds available -- and that appears to be about $7.4 million -- apparently will be touched and presumably depleted in one year.

"We sat and we talked about using these revenues and the consequences of that," Controller Maria Brown was quoted in theBuffalo News, sounding what seems like a warning. "You can't keep using ... savings. That's not wise. You have to cut back."

Dyster spun it the opposite way.

"We have prided ourselves on sound financial management," he said, "and therefore have funds available now because of past good decisions that can help us weather the storm."

But the storm is far from over. To my mind, the good mayor simply dipped into the city's reserves in order not to raise taxes or cut spending in an election year.

He probably will not be able to dip again next year, for there will be nothing left. Unless there are massive cuts in spending next year or a sudden infusion of new taxpayers or businesses moving into the city, there will be a large tax increase needed in 2013 to cover the nearly $10 million and growing gap between spending and taxing that is likely to occur in 2013, as apparently it will occur in 2012 -- when Dyster proposed draining reserves -- and did occur in 2011 when Dyster raised taxes by nearly 4 percent.

To date, Dyster has shown little inclination to cut. City government wages increased by more than $1.5 million from 2010 to 2011, and more than $1.7 million from 2011 to 2012.

Dyster blames this increase on police and fire department salaries, which were subject to arbitration rulings outside his control. But he failed to mention that he has been liberal with pay increases and the hiring of numerous $100,000 employees at City Hall -- people like Donna Owens, his city administrator, who earns more than $160,000 per year with benefits.

He was solely responsible for spiking pay at City Hall by hiring out-of-town department heads and boosting salaries from a typical $55,000 salary to $100,000 plus.

This created a momentum throughout city government to get pay raises, for parity, an effort Dyster pushed, and successfully accomplished during the primary campaign season, perhaps in part to create a grateful rank of voting city employees. Most city employees got a 6 percent raise this year.

Dyster also proposes to borrow, as mentioned above, to finance a portion of increased pension costs for police and fire. Taxpayers will pay an additional, approximate $200,000 a year as repayment of the loan, on top of a $2.4 million increase in city pension costs, for 10 years, simply so he can defer paying $1.6 million this year.

In the end, Dyster failed to make necessary cuts, raised taxes, dipped into reserves and borrowed money to avoid raising taxes in an election year. He spun this as a balanced budget with a "slight" tax increase.

It could be compared to a college student being supported by dad and mom, arguing he balanced his budget and is living within his means, who spins it that he will require only a "slight" increase in his allowance this year, without mentioning that his parents mortgaged their house and drained their savings to fund his high-flying lifestyle.

"We are headed in the right direction and we are not going to quit," Dyster said, then added with a masterful spin that the city added $22.7 million in new business properties to the tax rolls. What he did not say was that $28.2 million in business assessments were dropped from the tax rolls in 2011. That's not progress -- that's a $5.5 million net loss. Dyster said he created 330 industrial jobs during his four years here. He does not talk about what I would estimate as 2,000 jobs lost mainly due to the closing of countless small businesses.

"The message here is: Hang on, help is on the way," the mayor said.

But where? Will a Wal-Mart (initiated under the Anello administration), an Olive Garden and some development on Military Road offset the continuing loss of small businesses elsewhere?

For every Olive Garden, one or two small Italian restaurants close. It's not like there are more restaurant customers. The real message ought to be this: Someone -- like it or not -- is going to have to cut spending massively, even if it is not politically expedient. This ultimately will attract business and employment.

It should be done out of good governance. After all, Niagara Falls has the highest taxes in the nation. Who would want to brag about that on their mayoral resume?

But can Dyster do it? If he is re-elected, will he simply play politics as usual, as he has done this year and in previous years?

In spite of all his masterful, optimistic, even inspiring rhetoric and brilliant spin-doctoring, there has been little or no progress in tax cuts, spending cuts, development or employment.

Perhaps in the general election, with a vote for Johnny Destino, Dyster's opponent, the help Dyster promised may be on its way.

Self help. And spending cuts. Followed by growth and tax reduction and prosperity again.

Who knows?

 

 

 
 
 
  Copyright © 2008 Frank Parlato Jr.