Statement for Hearing on Proposed 2009-2010 City Budget

By Beth N. Smayda

Beth Smayda's comments at the White Plains Common Council's hearing on the City's 2009-2010 Budget

This year's proposed City Budget represents a stark departure from past practices of the City, which were designed to ensure the City's fiscal stability. If this Budget is passed as is, it will set off a string of unintended consequences, not the least of which are the creation of even larger structural budget gaps in the future, higher borrowing costs, potential problems with accessing the bond markets, difficulty rolling over short term debt, and potential liquidity problems. The City has long subscribed to conservative Fiscal Performance Goals, which when employed, have served it well in good times and bad. This 2009-2010 budget retreats from these goals in several important ways. It relies heavily on the one time revenue of fund balance to cover operating expenses. It does not maintain an adequate carryover fund balance for the following year and it employs optimistic assumptions for next year's sales tax collections. This budget essentially guarantees continued city deficits and reduction of fund balance to dangerously low levels.

Some may ask, what is so important about keeping fund balance? In White Plains, which relies heavily on the cyclically sensitive sales tax, at almost 35% of budgeted General Fund Revenues, financial market participants expect the City to maintain significant cushion against economic downturns. That means a substantial and healthy fund balance. Moody's Investors Service recently warned that it will be looking carefully at how municipalities around the country mitigate the negative impacts of the recession on their budgets and reinstate budgetary balance. Rating agencies and bond investors will be looking for sound reserve levels, expenditure adjustments and conservative budget assumptions. To the extent that governments do not respond in a meaningful way and fund balances decline significantly, rating downgrades are likely. To the extent fund balance is depleted, multiple notch downgrades are possible. In such instances, access to future capital financing could be limited, especially in light of recent market dislocations. Without capital access, the City would need to rely more on its own ongoing cash flow for fixing roads, water and sewer system improvements, renovations to city facilities; leaving even less money for employees and for providing services to residents. Just as important, though, would be the reduced ability of the City to make investments in our city that ensure that it remains a desirable place for our residents to live and attractive to newcomers. In short, poor financial decisions can set off a cascade of negative affects which could take years to repair.

As a consequence, I urge the Mayor and Council to take steps to restore structural balance to the City's finances in the proposed 2009-2010 Budget. This will undoubtedly require making very difficult decisions regarding expenditures and revenues, but will ensure that White Plains remains a viable and vibrant community for generations to come.