26-83 : Fiscal Year 2024-2025 - Managment Letter

This report details findings from the Fiscal Year 2024-2025 audit of the City of Buffalo, identifying a significant deficiency in internal control and compliance. The audit, conducted by Drescher & Malecki LLP, highlights critical issues with the City's budget practices and fund balance management.

Key Findings:

• Unfunded Encumbrances and Assignments: As of June 30, 2025, the City had $13,612,203 in encumbrances and $14,121,134 in unfunded appropriated fund balance and other assignments.
• Underfunded Reserves: The "Emergency Stabilization Fund" (Rainy Day Fund) was underfunded by $6,862,734, and the General Fund reported $0 in total assigned and unassigned fund balance, both falling short of the City Charter's requirement for at least 30 days of prior year expenditures.
• Budget Overspending: Total actual expenditures and transfers out in the General Fund exceeded the authorized budget by $58,935,500, largely due to significant overages in transfers out, public safety (police and fire), employee benefits, and other areas. This was partially offset by higher-than-budgeted ARPA federal aid.
• Revenue Shortfalls: General Fund revenues have consistently fallen short of budgeted amounts for several years.
• Reliance on One-Time Funds: The City has relied heavily on one-time revenues like ARPA funds to support operations, and these funds are now exhausted.
• Solid Waste and Recycling Fund Deficit: Consistent operating losses in this fund have led to $28,346,429 in interfund advances from the General Fund as of June 30, 2025. The fund's cash flow from operations reported losses of approximately $4.1 million for FY2025.

Recommendations: The report recommends reviewing budgeting practices, ensuring realistic revenue estimates, reducing expenditures, and developing a plan to comply with City Charter fund balance requirements. It also suggests establishing adequate rates for the Solid Waste and Recycling Fund to cover expenses and repay advances, and exploring the feasibility of collecting delinquent water fees on property tax bills. A comprehensive wrap-up process for ARPA spending is also advised.

Management's Response: A new Mayoral Administration taking office on January 1, 2026, will consider these recommendations.