City of Buffalo, New York - roosevelt-cross.com · This Preliminry Official Statement does not...

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n.PRELIMINARY OFFICIAL STATEMENT DATED APRIL 4, 2016

NEW MONEY BONDS RATINGS:REFUNDING BONDS (See “Ratings” herein)

In the opinion of Bond Counsel, under existing statutes, regulations, administrative rulings, and court decisions, and assuming continuing compliance by the City with its covenants relating to certain requirements contained in the Internal Revenue Code of 1986, as amended (the “Code”), and the accuracy of certain representations made by the City, interest on the Bonds (i) is excluded from gross income of the owners thereof for Federal income tax purposes, and (ii) is not an “item of tax preference” for purposes of the Federal alternative minimum tax imposed on individuals and corporations. However, such interest is included in “adjusted current earnings” for purposes of calculating the Federal alternative minimum tax imposed on certain corporations. Bond Counsel is also of the opinion that under existing statutes interest on the Bonds is exempt from personal income taxes imposed by the State of New York or any political subdivision thereof (including The City of New York). No opinion is expressed regarding other Federal or State tax consequences arising with respect to the Bonds. See “Tax Matters” herein.

The Bonds will NOT be designated by the City as “qualified tax-exempt obligations” pursuant to the provision of Section 265 of the Code.

$52,697,968*CITY OF BUFFALO, NEW YORK

$27,807,968* GENERAL IMPROVEMENT SERIAL BONDS – 2016A(the “Series A Bonds”)

Date of Issue: Date of Delivery Maturity Dates: April 1, 2017-2028 (as shown on the inside cover)

$24,890,000* GENERAL OBLIGATION REFUNDING BONDS – 2016B(the “Series B Bonds” and together with the Series A Bonds, the “Bonds”)

Date of Issue: Date of Delivery Maturity Dates: November 15, 2016-2023 (as shown on the inside cover)

The Bonds are general obligations of the City of Buffalo (the “City”), in the County of Erie (the “County”) in the State of New York (the “State”), and will contain a pledge of the faith and credit of the City for the payment of the principal thereof and interest thereon and, unless paid from other sources, the Bonds are payable from ad valorem taxes which may be levied upon all the taxable real property within the City, subject to certain statutory limitations imposed by Chapter 97 of the Laws of 2011 of the State of New York, as amended. See “TAX LEVY LIMITATION LAW,” herein.

The Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co., as a nominee of The Depository Trust Company, Jersey City, New Jersey (“DTC”). DTC will act as Securities Depository for the Bonds. Individual purchases will be made in book-entry form only, in the principal amount of $5,000 or integral multiples thereof, except for one necessary odd denomination for the Series A Bonds. Purchasers will not receive certificates representing their interest in the Bonds.

The Bonds are dated the date of delivery and will mature on the dates and in the amounts, will bear interest at the rates and will have the yields or public offering prices shown on the inside cover of this Official Statement. Interest on the Bonds will be payable on the dates as shown on the inside cover of this Official Statement, calculated on a 30-day month and 360-day year basis. Principal and interest will be paid by Manufacturers & Traders Trust Company, Buffalo, New York, as Paying Agent, to the Securities Depository, which will in turn remit such principal and interest to its Participants, for subsequent distribution to the Beneficial Owners of the Bonds, as described herein. The Series A Bonds maturing in the year 2027 and thereafter will be subject to optional redemption prior to maturity (see “Optional Redemption for the Bonds” herein). The Series B Bonds will not be subject to redemption prior to maturity.

The Bonds are offered when, as, and if issued by the City and accepted by the Underwriters, subject to receipt of the final approving opinion as to the validity of the Bonds of Harris Beach PLLC, Buffalo, New York, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the Underwriters by their counsel, Bryant Rabbino LLP, New York, New York. Capital Markets Advisors, LLC has served as Financial Advisor to the City in connection with the issuance of the Bonds. It is expected that delivery of the Bonds in book-entry form will be made through the offices of DTC in Jersey City, New Jersey on or about April 28, 2016 (the “Delivery Date”).

THIS PRELIMINARY OFFICIAL STATEMENT IS IN A FORM DEEMED FINAL BY THE CITY FOR PURPOSES OF SECURITIES AND EXCHANGE COMMISSION RULE 15c2-12 (THE “RULE”). FOR A DESCRIPTION OF THE CITY’S AGREEMENT TO PROVIDE CONTINUING DISCLOSURE FOR THE BONDS AS DESCRIBED IN THE RULE, SEE “DISCLOSURE UNDERTAKING” HEREIN.

Ramirez & Co., Inc. Drexel Hamilton, LLCDated: April _, 2016

* Preliminary, subject to change.

$27,807,968∗ GENERAL IMPROVEMENT SERIAL BONDS - 2016A

Dated: Date of Delivery Principal Due: April 1 as shown below Interest Due: April 1, 2017, October 1, 2017 and

semi-annually thereafter on April 1 and October 1 in each year until maturity

Maturity Amount Interest

Rate Yield CUSIP(†) Maturity Amount Interest

Rate Yield CUSIP(†)

2017 $2,197,968 119677 2023 $2,315,000 119677 2018 $2,155,000 119677 2024 $2,365,000 119677 2019 $2,160,000 119677 2025 $2,395,000 119677 2020 $2,220,000 119677 2027 $2,435,000 119677 2021 $2,255,000 119677 2027 $2,485,000 119677 2022 $2,290,000 119677 2028 $2,535,000 119677

$24,890,000∗ GENERAL OBLIGATION REFUNDING BONDS – 2016B

Dated: Date of Delivery Principal Due: November 15 as shown below Interest Due: November 15, 2016, and semi-annually

thereafter on May 15 and November 15 in each year until maturity

Maturity Amount Interest

Rate Yield CUSIP(†) Maturity Amount Interest

Rate Yield CUSIP(†)

2016 $490,000 119677 2020 $4,745,000 119677 2017 $520,000 119677 2021 $4,810,000 119677 2018 $2,825,000 119677 2022 $4,685,000 119677 2019 $4,695,000 119677 2023 $2,120,000 119677

* Preliminary, subject to change.

† CUSIP numbers have been assigned by an organization not affiliated with the City nor the Underwriter and are included solely for the convenience of the holders of the Bonds. Neither the City nor the Underwriter are responsible for the selection or uses of these CUSIP numbers, nor is any representation made as to their correctness on the Bonds or as indicated above.

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No dealer, broker, salesman or other person has been authorized by the City, or any officer thereof, to give any information or to make any representations, other than those contained in this Official Statement and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained by the City, from sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City, since the date hereof.

The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in the Official Statement in accordance with, and as part of, their responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. .

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CITY OF BUFFALO NEW YORK

MAYOR Byron W. Brown

COMPTROLLER Mark J. F. Schroeder

COMMON COUNCIL Darius G. Pridgen, President

Richard A. Fontana David A. Franczyk Joseph Golombek, Jr.

Joel L. Feroleto Christopher P. Scanlon Rasheed N.C. Wyatt David A. Rivera Ulysees O. Wingo, Sr.

Donna J. Estrich Commissioner of Administration, Finance, Policy and Urban Affairs

Timothy A. Ball, Esq. Corporation Counsel

Harris Beach PLLC Bond Counsel

Capital Markets Advisors, LLC

Financial Advisor

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TABLE OF CONTENTS

INTRODUCTION ................................................................ 1 THE CITY’S FINANCIAL PRACTICES/OUTLOOK ........ 2 THE SERIES A BONDS ...................................................... 3

Description of the Series A Bonds ................................ 3 Authorization for the Series A Bonds ........................... 3 Purpose of the Series A Bonds ...................................... 3 Optional Redemption – Series A Bonds ....................... 4

THE SERIES B BONDS ...................................................... 5 Description of the Series B Bonds ................................ 5 Authorization for and Purpose of the Series B Bonds ... 5 Sources and Uses of Proceeds of the Series B Bonds ... 7 Verification of Math Computation ................................ 8 Optional Redemption – Series B Bonds ........................ 8

PAYMENT OF AND SECURITY FOR THE BONDS ......... 8 General ........................................................................... 8 Capital Debt Service Fund ............................................. 8 Rights and Remedies ...................................................... 9 Book-Entry-Only System ............................................. 10

TAX MATTERS .................................................................. 13 LEGAL MATTERS ............................................................. 14 MARKET FACTORS .......................................................... 15 RATINGS ............................................................................ 15 UNDERWRITING ............................................................... 15 FINANCIAL ADVISOR ...................................................... 16 DISCLOSURE UNDERTAKING ....................................... 16 ADDITIONAL INFORMATION ........................................ 18

APPENDIX A

THE GOVERNMENT OF BUFFALO ................................ A-1 City Services .................................................................... A-1 Elected Officials ............................................................... A-1

DISCUSSION OF FINANCIAL OPERATIONS ................. A-2 Four-Year Financial Plans ................................................ A-2 Projected Financial Information ....................................... A-4 Financial Control Procedures ........................................... A-5 Charter Revision ............................................................... A-5 Independent Audits .......................................................... A-6 Fund Structure and Accounts ........................................... A-6 Basis of Accounting ......................................................... A-6 Cash Management/Cash Flow .......................................... A-7 Budget Process ................................................................. A-7 City and Buffalo CSD General Fund Financial Operations, 2012-13, 2013-14, and 2014-15 .................... A-7 City and Buffalo CSD General Fund 2014-15 and 2015-16 Adopted Budgets ................................................ A-8 Summary of Operations .................................................... A-8

ENTERPRISE FUNDS ........................................................ A-11 REVENUES ......................................................................... A-11

Municipally Generated Revenues ..................................... A-11 Departmental and Other Revenues ................................... A-13 Intergovernmental Revenues ............................................ A-13 New York State Aid to Education .................................... A-13 New York State General Purpose Aid .............................. A-15 State Aid and Initiatives for Municipalities ...................... A-16 Federal Aids and Grants ................................................... A-16 Erie County Sales Tax ...................................................... A-16

EXPENDITURES ................................................................ A-17 Employee Contracts ......................................................... A-18 Retirement Benefits .......................................................... A-19 GASB 45 and Other Post-employment Benefits .............. A-21

Health Insurance ...............................................................A-22 Debt Service ......................................................................A-22 Buffalo CSD .....................................................................A-22

CITY-RELATED ENTITIES ...............................................A-23 Other Entities ....................................................................A-26

THE BUFFALO FISCAL STABILITY AUTHORITY .......................................................................A-28 CITY INDEBTEDNESS .......................................................A-35

Certain Features of Debt Authorization ............................A-35 Debt Limit .........................................................................A-36 Debt Statement ..................................................................A-37 Debt Ratios .......................................................................A-39 Debt Service Requirements ...............................................A-39 Rate of Principal Retirement .............................................A-39 Short-Term Indebtedness ..................................................A-40 Prospective Long-Term Indebtedness of the City .............A-42

PROPERTY TAXES ............................................................A-43 Tax Levy Limitation Law .................................................A-43 Tax Levy ...........................................................................A-47 Tax Collection Procedure and History ..............................A-48 Real Property Tax Delinquencies ......................................A-49 Major Taxpayers ...............................................................A-50

ECONOMIC AND DEMOGRAPHIC FACTORS ...............A-51 Employment ......................................................................A-51 Unemployment Rates ........................................................A-52 Population .........................................................................A-53 Development Activity .......................................................A-54

BUFFALO CSD SCHOOL FACILITIES RECONSTRUCTION PROJECT .........................................A-58 LITIGATION ........................................................................A-59

Tax Certiorari Proceedings ...............................................A-59 Provision for Judgments and Claims .................................A-60

APPENDIX B – City of Buffalo Basic Financial Statements FYE June 30, 2015 APPENDIX C – Buffalo CSD Component Financial Statements FYE June 30, 2015 APPENDIX D – Summary of the Act APPENDIX E – Summary of Enabling Resolution

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OFFICIAL STATEMENT OF THE

$52,697,968* CITY OF BUFFALO, NEW YORK

$27,807,968∗ GENERAL IMPROVEMENT SERIAL BONDS – 2016A

and $24,890,000∗ GENERAL OBLIGATION REFUNDING BONDS – 2016B

This Official Statement (the "Official Statement"), which includes the cover page, inside cover page and appendices hereto, presents certain information relating to the City of Buffalo, New York (the “City”), located in the County of Erie (the “County”), State of New York (the “State”), and was prepared by the City in connection with the sale of its $27,807,968* General Improvement Serial Bonds – 2016 (the “Series A Bonds”) and $24,890,000∗ General Obligation Refunding Bonds – 2016B (the “Series B Bonds” and together with the Series A Bonds, the “Bonds”). The factors affecting the City’s financial condition and the Bonds are described throughout this Official Statement and many of these factors, including economic and demographic factors, are complex and may influence the City’s tax base, revenues, and expenditures. This Official Statement should be read in its entirety. All quotations from and summaries and explanations of provisions of the Constitution and laws of the State and acts and proceedings of the City contained herein do not purport to be complete and are qualified in their entirety by reference to the official compilations thereof and all references to the Bonds and the proceedings of the City relating thereto are qualified in their entirety by reference to the definitive form of the Bonds and such proceedings.

INTRODUCTION

The City is a municipal corporation and the second largest city in the State. The City covers a land area of 42 square miles on the eastern shore of Lake Erie in western New York State. The City’s 2010 population is estimated by the U.S. Bureau of the Census to be 261,310. The Bonds are general obligations of the City for which the City has pledged its faith and credit. For the payment of the principal of and interest on the Bonds, the City has, under existing law, the power and statutory authorization to levy ad valorem taxes on all taxable real property in the City, subject to applicable statutory limitations. See “PROPERTY TAXES - Tax Levy Limitation Law” herein. With respect to the Bonds, pursuant to special legislation enacted in March 1977 by the State at the request of the City, and an Enabling Resolution adopted by the Common Council of the City (the “Common Council” or the “Council”) in March 1977, the City established a Capital Debt Service Fund (the “CDSF” or the “Fund”). In accordance with said Enabling Resolution, the City each year segregates and deposits with an appointed trustee the first real property taxes received in each of two tax collection periods, or other monies available in * Preliminary, subject to change.

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cash, in amounts sufficient to pay debt service on serial bonds, bond anticipation notes and capital notes issued by the City. Manufacturers and Traders Trust Company, Buffalo, New York (the “Trustee”) serves as the trustee for the CDSF. The CDSF was established in order to enhance the market acceptance for capital debt obligations issued by the City. (See “PAYMENT AND SECURITY FOR THE BONDS – Capital Debt Service Fund” and Appendices D and E herein.) The audited government-wide financial statements for the City’s fiscal year ended June 30, 2015 indicate that net position totals $57.1 million, an increase of $9.3 million over the prior year, as restated. Total revenues increased by $36.6 million, primarily a result of an increase in miscellaneous revenues of $24.7 million for a one-time transaction to record a refund of prior year expenses related to retroactive wages, and $14.4 million increase in capital grants and contributions. Total expenses decreased by $33.5 million, primarily due to a $16.8 million decrease in pension expenses and other post-employment benefits and a decrease of $15.0 million as a result of the City recognizing its proportionate share of the New York State Employee Retirement System net pension asset, which reduced fringe benefit expenses. General Fund revenues and other sources exceeded expenditures and other uses by $4.9 million. This compares to expenditures and other uses exceeding revenues and other sources by $19.4 million for the fiscal year ended June 30, 2014 and revenues and other sources exceeding expenditures and other uses by $52.2 million for the fiscal year ended June 30, 2013. The City recognized a one-time increase in revenue relating to retroactive wages (discussed above) in the 2014-15 fiscal year resulting in an increase of fund balance for the year ended June 30, 2015. The City’s audited General Fund fund balance at June 30, 2015 was $151.2 million, compared to a General Fund fund balance of $146.4 million at June 30, 2014. The Buffalo City School District’s (referred to herein as the “Buffalo CSD” or the “CSD”) General Fund expenditures and other uses exceeded revenues and other sources by $2.7 million determined in accordance with GAAP for the fiscal year ended June 30, 2015. This compares to expenditures and other uses exceeding revenues and other sources by $14.6 million and $12.9 million for fiscal years ended June 30, 2014 and 2013, respectively. The Buffalo CSD’s General Fund fund balance at June 30, 2015 was $191.0 million compared to a General Fund fund balance of $193.7 million at June 30, 2014 (See “DISCUSSION OF FINANCIAL OPERATIONS - City and Buffalo CSD General Fund Financial Operations, 2012-13, 2013-14 and 2014-15” and “Independent Audits” herein.)

THE CITY’S FINANCIAL PRACTICES/OUTLOOK

Since 2003, the City has operated under the fiscal oversight of the Buffalo Fiscal Stability Authority (“BFSA”), imposed and enacted by the State, which was created by the Buffalo Fiscal Stability Authority Act (the “BFSA Act”). During this period, the City has experienced considerable and measurable improvement in its financial operations and cash flow results. On May 29, 2012, the BFSA determined that all provisions of §3851.1 of the BFSA Act have been met with respect to transitioning into an Advisory Period, and in accordance with this Section of the Act the Authority entered into an Advisory Period effective July 1, 2012. The advisory period shall continue through June 30, 2037, unless a control period is reimposed. (See “THE BUFFALO FISCAL STABILITY AUTHORITY” herein.) As a consequence of the substantial improvement in the City’s financial operations, the City has experienced a sizeable increase in its cash and liquidity position. Historically, the City has annually sold revenue anticipation notes (“RANs”) to cover seasonal gaps in the City’s cash position. The City’s cash management and liquidity condition have improved so significantly in recent years that it was not necessary for the City to sell any such RANs to cover seasonal cash flow gaps for fiscal 2008 through 2015 and the City does not expect to issue RANs in the current fiscal year ending June 30, 2016. The absence of the need to sell short-term debt for seasonal, cash flow requirements is virtually without precedent over several decades of the City’s recent financial history.

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THE SERIES A BONDS

Description of the Series A Bonds

The Series A Bonds will be dated the date of delivery and will mature in the principal amounts in each of the years and will bear interest at the rates shown on the inside cover page hereof.

Interest on the Series A Bonds will be payable on April 1, 2017, October 1, 2017 and semi-annually thereafter on April 1 and October 1 in each year until maturity. Principal and interest will be paid by the City’s Paying Agent, Manufacturers and Traders Trust Company, Buffalo, New York, to the Securities Depository, which will in turn remit such principal and interest to its Participants, for subsequent distribution to the Beneficial Owners of the Series A Bonds, as described herein under “THE BONDS – Book-Entry-Only System.”

The Series A Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, Jersey City, New Jersey (“DTC”). DTC will act as Securities Depository for the Series A Bonds. Individual purchases will be made in book-entry form only, in the principal amount of $5,000 or integral multiples thereof, except for one necessary odd denomination. Purchasers will not receive certificates representing their interest in the Series A Bonds.

The record date for payment of the principal of and interest on the Series A Bonds will be the fifteenth day of the calendar month preceding each interest payment date. Authorization for the Series A Bonds

The Series A Bonds are authorized pursuant to the Constitution and Laws of the State, including various bond resolutions adopted by the Common Council and approved by the Mayor of the City (the “Mayor”) as described in the chart under the heading “Purpose of the Series A Bonds” immediately below. Purpose of the Series A Bonds

The proceeds received from the sale of the Series A Bonds will be applied to finance capital improvements of the City pursuant to various bond resolutions adopted and amended by the Common Counsel as detailed below:

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Project Date

Authorized Authorized

Amount

Amount of Previous

Borrowing The Bonds 1 Court Street Improvements 02/18/2014 $ 802,500 $ 0 $ 150,000 2 S. Ogden & Mineral Springs Bridge Rehabilitation 02/18/2014 181,000(1) 0 53,500 3 Public Arts & Monuments Restoration 02/18/2014 229,000 0 229,000 4 Fire Apparatus Purchase 02/17/2015 2,113,250 0 2,113,250 5 Highland Park Road Acquisition 12/22/2015 1,219,800 0 1,219,800 6 Allendale Theatre Upgrades 02/17/2015 172,324 0 172,324 7 City Court Rehabilitation 02/17/2015 3,224,407 1,300,000 600,000 8 Fire Stations Rehabilitation 02/17/2015 400,000 0 400,000 9 Library Buildings Improvements 02/17/2015 150,000 0 150,000 10 Monument Restoration 02/17/2015 222,000 0 222,000 11 Museum of Science Roof & Exterior Restoration 02/17/2015 584,027 0 584,027 12 Police Precinct Renovation 02/17/2015 1,223,036 0 1,020,000 13 Reptile House (Buffalo Zoo) Roof Replacement 02/17/2015 267,500 0 267,500 14 Infrastructure Improvements 02/16/2016 6,271,055 0 6,271,055 15 Street Lighting Improvements 02/16/2016 500,000 0 500,000 16 Broadway Market Kitchen Renovations 02/16/2016 267,500 0 267,500 17 City Hall Improvements 02/16/2016 2,354,958 0 1,700,000 18 Coca Cola Field Improvements 02/16/2016 350,000 0 350,000 19 Fire Department Buildings Renovations 02/16/2016 1,259,046 0 400,000 20 Lovejoy Pool Renovations 02/16/2016 530,000 0 530,000 21 Main Animal Building Roof Replacement (South Side) 02/16/2016 267,500 0 267,500 22 Naval Park Hanger Expansion (Planning) 02/16/2016 240,750 0 240,750 23 North Buffalo Ice Rink (Ice Making Equipment) 02/16/2016 1,535,787 0 1,535,787 24 Park Building Improvements 02/16/2016 540,350 0 540,350 25 Parks Improvements 02/16/2016 1,035,500 0 1,035,500 26 Tree Removal and Planting 02/16/2016 600,000 0 600,000 27 Dilapidated Structures Demolition 02/16/2016 2,000,000 0 2,000,000 28 Fernback Ramp Improvements 02/16/2016 1,343,600 0 1,343,600 29 Turner Ramp Improvements 02/16/2016 1,844,260 0 1,844,260 30 Augspurger Ramp Improvements 02/16/2016 1,200,265 0 1,200,265 $ 32,929,415 $ 1,300,000 $27,807,968

(1) Amended February 16, 2016 to increase authorized amount and expand project scope.

Optional Redemption of the Series A Bonds The Series A Bonds maturing on or after April 1, 2027 will be subject to redemption prior to maturity at the option of the City on April 1, 2026 and thereafter on any date, as a whole or in part, as specified by the City, in such order of maturity as may be determined by the City, at par, plus accrued interest to the date of redemption.

Selection of Series A Bonds to be Redeemed

So long as DTC or a successor securities depository is the sole registered owner of the Series A Bonds, the City will cause notice of redemption to be given only to DTC as registered owner. The selection of the book-entry interests within each Series A Bond maturity to be redeemed will be done in accordance with DTC procedures. See “THE BONDS − Book-Entry-Only System” herein regarding DTC’s practice of determining by lot the amount of the interest of each Direct Participant for partial bond redemptions.

If the Series A Bonds are not registered in book-entry form, any redemption of less than all of a maturity of the Series A Bonds shall be allocated (in the amounts of $5,000 or any whole multiple) among the registered owners of such maturity of the Series A Bonds then outstanding as nearly as practicable in proportion to the

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principal amounts of such maturity of the Series A Bonds owned by each registered owner. This will be calculated based on the following formula:

(principal to be redeemed) x (principal amount owned by owner) (principal amount outstanding)

Notice of Redemption

Notice of redemption shall be given by mailing such notice to the registered holders of Series A Bonds to be redeemed at their respective addresses as shown upon the registration books of the Paying Agent at least 30 days prior to the date set for any such redemption. If notice of redemption shall have been given as aforesaid, the Series A Bonds so called for redemption shall become due and payable at the applicable redemption price on the redemption date designated in such notice, and interest on such Bonds shall cease to accrue from and after such redemption date.

THE SERIES B BONDS

Description of the Series B Bonds

The Series B Bonds will be dated the date of delivery and will mature in the principal amounts in each of the years and will bear interest at the rates shown on the inside cover page hereof.

Interest on the Series B Bonds will be payable on November 15, 2016 and semi-annually thereafter on May 15 and November 15 in each year until maturity. Principal and interest will be paid by the City’s Paying Agent, Manufacturers and Traders Trust Company, Buffalo, New York, to the Securities Depository, which will in turn remit such principal and interest to its Participants, for subsequent distribution to the Beneficial Owners of the Bonds, as described herein under “THE BONDS – Book-Entry-Only System.”

The Series B Bonds will be issued in fully registered form and when issued will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, Jersey City, New Jersey (“DTC”). DTC will act as Securities Depository for the Series B Bonds. Individual purchases will be made in book-entry form only, in the principal amount of $5,000 or integral multiples thereof. Purchasers will not receive certificates representing their interest in the Series B Bonds.

The record date for payment of the principal of and interest on the Series B Bonds will be the last business day of the calendar month preceding each interest payment date. Authorization for and Purpose of the Series B Bonds

The Series B Bonds are authorized to be issued pursuant to the Constitution and laws of the State, including the Local Finance Law and a refunding bond resolution duly adopted by the Common Counsel on March 15, 2016 and approved by the Mayor of the City authorizing the issuance of refunding bonds in an aggregate principal amount not to exceed $27,000,000 to provide funds required by the City to refund certain bonds previously issued by the City, and other proceedings and determinations related thereto. A refunding financial plan has been prepared and is described below (the “Refunding Plan”).

The Series B Bonds are being issued to refund (i) $1,170,000 of the outstanding principal of the City’s $2,700,000 School Serial Bonds - 2004C, which mature in the years 2016 to 2021, inclusive (the “Refunded 2004C Bonds”), $8,925,000 of the outstanding principal of the City’s $22,000,000 General Improvement Serial Bonds - 2008A, which mature in the years 2019 to 2023, inclusive (the “Refunded 2008A Bonds”), $3,630,000 of the outstanding principal of the City’s $8,920,000 School Serial Bonds - 2008B, which mature in the years 2019 to 2023, inclusive (the “Refunded 2008B Bonds”), $8,660,000 of the outstanding principal of the City’s $21,500,000 General Improvement Serial Bonds - 2009A, which mature in the years 2020 to 2024,

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inclusive (the “Refunded 2009A Bonds”), and $1,410,000 of the outstanding principal of the City’s $3,530,000 School Serial Bonds - 2009B, which mature in the years 2020 to 2024, inclusive (the “Refunded 2009B Bonds” and collectively with the Refunded 2004C Bonds, Refunded 2008A Bonds, Refunded 2008B Bonds and the Refunded 2009A Bonds, herein referred to as the “Refunded Bonds”). Under the Refunding Plan, the Refunded 2004C Bonds are to be redeemed on May 31, 2016, the Refunded 2008A Bonds and Refunded 2008B Bonds are to be redeemed on February 1, 2018, and the Refunded 2009A Bonds and Refunded 2009B Bonds are to be redeemed on April 1, 2019. Details concerning the Refunded Bonds are presented in the tables below. The net proceeds of the Series B Bonds (after payment of the underwriting fee and other costs of issuance relating to the Series B Bonds) will be used to purchase non-callable, direct obligations of or obligations guaranteed by the United States of America (the “Government Obligations”) which, together with remaining cash proceeds from the sale of the Series B Bonds, will be placed in an irrevocable trust fund (the “Escrow Fund”) to be held by Manufacturers Traders Trust Company Corporate Trust Services (the “Escrow Holder”), a bank located and authorized to do business in the State, pursuant to the terms of an escrow contract by and between the City and the Escrow Holder, dated as of the delivery date of the Series B Bonds (the “Escrow Contract”). The Government Obligations so deposited will mature in amounts which, together with the cash so deposited, will be sufficient to pay the principal of, interest on and applicable redemption premium of the Refunded Bonds on the date of their redemption. The Refunding Plan requires the Escrow Holder, pursuant to the refunding bond resolution of the City and the Escrow Contract, to pay the Refunded Bonds at maturity or at the earliest date on which the Refunded Bonds may be called for redemption prior to maturity.

The holders of the Refunded Bonds will have a first lien on investment income from and maturing principal of the Government Obligations, along with other all available monies held in the Escrow Fund. The Escrow Contract shall terminate upon final payment by the Escrow Holder to the paying agents/fiscal agent for the Refunded Bonds amounts from the Escrow Fund adequate for the payment, in full, of the Refunded Bonds, including interest and the redemption premium payable with respect thereto.

The Refunding Plan will permit the City to realize, as a result of the issuance of the Bonds, cumulative dollar and present value debt service savings.

Under the Refunding Plan, the Refunded Bonds will continue to be general obligations of the City. However, inasmuch as the monies held in the Escrow Fund will be sufficient to meet all required payments of principal, interest and redemption premium requirements when required in accordance with the Refunding Plan, it is not anticipated that any other source of payment will be required.

Refunded $2,700,000 School Serial Bonds - 2004C

Maturity Coupon Maturity Value Call Date Call Price CUSIP BASE

119674 November 15, 2016 4.250% $ 175,000 May 31, 2016 100.00% 8H5 November 15, 2017 4.375% 180,000 May 31, 2016 100.00% 8J1 November 15, 2018 4.500% 190,000 May 31, 2016 100.00% 8K8 November 15, 2019 4.500% 200,000 May 31, 2016 100.00% 8L6 November 15, 2020 4.625% 210,000 May 31, 2016 100.00% 8M4 November 15, 2021 4.875% 215,000 May 31, 2016 100.00% 8N2

$ 1,170,000 Refunded $22,000,000 General Improvement Serial Bonds - 2008A


119677 February 1, 2019 4.375% $ 1,630,000 February 1, 2018 100.00% AL6 February 1, 2020 4.500% 1,705,000 February 1, 2018 100.00% AM4 February 1, 2021 4.625% 1,780,000 February 1, 2018 100.00% AN2 February 1, 2022 4.625% 1,860,000 February 1, 2018 100.00% AP7 February 1, 2023 4.700% 1,950,000 February 1, 2018 100.00% AQ5

$ 8,925,000

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Refunded $8,920,000 School Serial Bonds - 2008B


119677 February 1, 2019 4.300% $ 665,000 February 1, 2018 100.00% BB7 February 1, 2020 4.375% 695,000 February 1, 2018 100.00% BC5 February 1, 2021 4.500% 725,000 February 1, 2018 100.00% BD3 February 1, 2022 4.500% 755,000 February 1, 2018 100.00% BE1 February 1, 2023 4.500% 790,000 February 1, 2018 100.00% BF8

$ 3,630,000

Refunded $21,500,000 General Improvement Serial Bonds - 2009A


119677 April 1, 2020 4.500% $ 1,565,000 April 1, 2019 100.00% BS0 April 1, 2021 6.000% 1,635,000 April 1, 2019 100.00% BT8 April 1, 2022 4.750% 1,735,000 April 1, 2019 100.00% BU5 April 1, 2023 5.000% 1,815,000 April 1, 2019 100.00% BV3 April 1, 2024 5.000% 1,910,000 April 1, 2019 100.00% BW1

$ 8,660,000

Refunded $3,530,000 School Serial Bonds - 2009B


119677 April 1, 2020 4.500% $ 255,000 April 1, 2019 100.00% CH3 April 1, 2021 5.000% 270,000 April 1, 2019 100.00% CJ9 April 1, 2022 5.000% 280,000 April 1, 2019 100.00% CK6 April 1, 2023 5.000% 295,000 April 1, 2019 100.00% CL4 April 1, 2024 5.000% 310,000 April 1, 2019 100.00% CM2

$ 1,410,000

TOTAL: $23,795,000

Sources and Uses of Proceeds of the Series B Bonds

Sources:

Par Amount $ Net Original Issue Premium/Discount City Contribution – Unspent Proceeds Total:

Uses: Refunding Escrow Deposit: $ Costs of Issuance and Contingency Underwriter’s Discount Total: $

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Verification of Mathematical Computations

Causey Demgen and Moore P.C. will verify from the information provided to them, the mathematical accuracy, as of the date of the closing of the Series B Bonds, of: (1) the computations contained in the provided schedules to determine that the anticipated receipts from the Government Obligations and cash deposits listed in the underwriters’ schedules, to be held in escrow, will be sufficient to pay, when due, the principal of and interest on the Refunded Bonds, and (2) the computations of the yield on both the Government Obligations and the Series B Bonds contained in the provided schedules to be used by Bond Counsel in its determination that the interest on the Bonds is excludable from gross income for Federal income tax purposes. Causey, Demgen, and Moore P.C. will express no opinion on the assumptions provided to them, nor as to the exclusion from taxation of the interest on the Bonds.

Optional Redemption of the Series B Bonds

The Series B Bonds are not subject to redemption prior to maturity.

PAYMENT OF AND SECURITY FOR THE BONDS

General

Each Bond when duly issued and paid for will constitute a contract between the City and the owner thereof. The Bonds will be general obligations of the City and will contain a pledge of the faith and credit of the City for payment of principal and interest thereon. For the payment of such principal and interest, the City has, under existing law, the power and statutory authorization to levy ad valorem taxes on all taxable real property in the City, subject to applicable statutory limitations imposed by the Tax Levy Limitation Law. Such statutory limitation does not apply to the City’s power to increase its annual tax levy for Buffalo CSD purposes. See “PROPERTY TAXES - Tax Levy Limitation Law,” herein.

Under the Constitution of the State, the City is required to pledge its faith and credit for the payment of the principal of and interest on the Bonds, and the State is specifically precluded from restricting the power of the City to levy taxes on real estate for the payment of interest on or principal of indebtedness theretofore contracted. The State Constitution requires the City to provide by appropriation for the payment of interest on all obligations which will become due during the fiscal year. In addition, the State Constitution requires the City to provide in each year by appropriation for the payment of all installments of principal of the Bonds which will become due and payable in such year.

No principal of or interest on City indebtedness is past due. The City has never defaulted in the payment of principal of or interest on any indebtedness.

Capital Debt Service Fund

Pursuant to State legislation requested by the City, the Capital Debt Service Fund Act of the City, constituting Chapter 12 of the Laws of 1977 (the “Act”) and an Enabling Resolution adopted by the Common Council (the “Enabling Resolution”), the City has established the CDSF, held by and maintained with the Trustee, for the purpose of paying debt service due and payable on all general obligation bonds and capital notes, and the interest on and, under certain circumstances, the amortized principal of bond anticipation notes of the City (the “Capital Debt Obligations”). The Bonds are entitled to the benefits of the Act and the Enabling Resolution including certain covenants of the City authorized by the Act and set forth in the Enabling Resolution (see Appendices D and E).

Operation of the CDSF is coordinated with the City’s real property tax collection procedure in the following manner. The first real property taxes collected during each of two collection periods commencing July 1 and December 1 are deposited in the CDSF until the amount on deposit in the CDSF during each collection period

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equals the amount necessary to pay capital debt service as allocated to such collection periods. Capital debt service due and payable from July 1 through December 31 is paid from amounts deposited during the first collection period (July 1 - November 30) and capital debt service due and payable from January 1 through June 30 is paid from amounts deposited during the second collection period (December 1 - June 30). The City may deposit other funds at any time into the CDSF as such other funds are required by law or otherwise to be applied to payment of capital debt service.

The amounts to be deposited in the CDSF are certified by the Comptroller pursuant to an annual certificate prepared prior to the commencement of each fiscal year. Such certificate and the amounts to be deposited must be amended, if necessary, in order to provide for the payment of debt service due and payable during the fiscal year on Capital Debt Obligations issued and sold after the commencement of the fiscal year.

If at any time during a collection period, the amount on deposit in the CDSF exceeds the unpaid amount of capital debt service allocated to such collection period and any prior collection period, such excess may be returned to the City in the manner provided by the Enabling Resolution.

The Act provides that the CDSF is City property devoted to essential governmental purposes and is not subject to any order, judgment, lien, encumbrance, attachment, set off or counterclaim by any creditors of the City, other than a creditor for whose benefit the CDSF is established.

In the Enabling Resolution, the City has covenanted with the Trustee and the holders of Capital Debt Obligations that it will comply in all respects with the provisions of the Act and the Enabling Resolution, and that it will maintain the CDSF with the Trustee and operate the CDSF in the manner described. The Enabling Resolution also includes the pledge and agreement of the State to respect the Act and the contract of the City with holders of Capital Debt Obligations.

Rights and Remedies

The Act authorizes the City to include in an enabling resolution certain covenants of the City to protect and safeguard the security and rights of certain holders of Capital Debt Obligations. The Enabling Resolution provides special rights and remedies for holders of Capital Debt Obligations, and contains covenants, including its covenant to comply in all respects with the provisions of the Act, to maintain the Fund with a trustee, and to operate the Fund in the manner set forth in the Enabling Resolution. In general, the rights afforded to holders of outstanding Capital Debt Obligations by the Act and the Enabling Resolution significantly supplement the rights presently afforded holders of general obligations issued under general State law by other political subdivisions of the State.

The Enabling Resolution vests in a trustee the powers of enforcement of the Enabling Resolution. The Enabling Resolution provides that it shall be an “event of default” should the City fail or refuse to maintain the Fund and the covenants with respect thereto made with holders of Capital Debt Obligations, including default in the payment of the principal of and interest on their obligations. The Trustee, during the happening and continuance of an event of default, may, by mandamus or other suit in law or in equity, enforce all such rights, including the right to require the City to carry out the covenants made with such benefited holders, and may enjoin any acts or things which may be unlawful or in violation of the rights of such holders.

In addition, the Act provides such benefited holders with certain other rights. Under the General Municipal Law of the State, the amount of interest that may be adjudged due to creditors is limited to nine per centum (9.0%) per annum. Pursuant to the Act, however, the rate of interest to be paid by the City upon any judgment or accrued claim with respect to obligations issued by it shall be the rate of interest per annum so stated on such obligations. In addition, the Act provides that the provisions of Title 6-A of the Local Finance Law shall not apply to the City and obligations issued by it. Title 6-A provides that any municipality for which the State has declared a financial emergency has the power to stay the commencement and continuation of any enforcement against such municipality of any claim for payment relating to any contract debt or obligation of

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the municipality during the emergency period. Title 6-A also contains the consent of the State to any municipality filing a petition under any provision of the laws of the United States, now or hereafter in effect, for the composition or adjustment of municipal indebtedness.

Neither the Act nor the Enabling Resolution purports to create any priority for the benefited holders should the City be under the jurisdiction of any federal court or court of bankruptcy. Under the United States Constitution and subject to State consent, Congress has jurisdiction over such matters, and has enacted amendments to the federal bankruptcy statute, generally to the effect and with the purpose of affording municipal corporations, under certain circumstances, easier access to judicially approved adjustments of debts, including judicial control over identifiable and unidentifiable creditors.

Legislation affecting remedies on default has from time to time resulted in litigation. While courts of final jurisdiction in various states have upheld and sustained the rights of bondholders, State and Federal courts might hold that future events, including financial crises as they may occur in the State and in municipalities of the State, require the exercise by the State of its emergency and police powers to ensure the continuation of essential public services, or if it is reasonable and necessary to serve an important service. However, in granting the City certain powers and duties in connection with the establishment of the CDSF, the State authorized and directed the City to include in its Enabling Resolution a pledge and agreement of the State with and for the benefit of the holders of Capital Debt Obligations.

The terms of the pledge and agreement are substantially as follows:

The State will not (a) repeal, revoke, repudiate, limit, alter, stay, suspend or otherwise reduce or rescind or impair the power of the City to exercise, perform, carry out and fulfill its responsibilities under the Act to the extent that the City has incorporated in the Enabling Resolution covenants and agreements to so exercise, perform, carry out and fulfill such responsibilities, (b) repeal, revoke, repudiate, limit, alter, stay, suspend or otherwise reduce or rescind or impair the rights and remedies of any such holders to fully enforce in a court of law such covenants and agreements so incorporated in the Enabling Resolution or to enforce the pledge and agreement of the State contained in the Act, or (c) otherwise exercise any sovereign power contrary to or inconsistent with the provisions of the Enabling Resolution.

The pledge and agreement shall be of no further force and effect if at any time all Capital Debt Obligations have been paid or provision for such payment has been made. The pledge and agreement by the State may be temporarily suspended upon the declaration of martial law in the City in the event of circumstances of the City deriving directly from a natural disaster (such as an earthquake or major conflagration or flood but not a snowstorm) or civil disturbance such as military invasions or civil insurrections but not strikes or crises created by fiscal or economic conditions or events.

In the opinion of Bond Counsel, the City has validly included the State pledge and agreement in the Enabling Resolution, and the State pledge and agreement is a valid and legally binding pledge and agreement of the State enforceable against the State in accordance with its terms.

Book-Entry-Only System

The Depository Trust Company (“DTC”), Jersey City, New Jersey, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities, in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond certificate will be issued for each maturity each series of the Bonds and deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC

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holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of: AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interest in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant of such issue to be redeemed. The City is not responsible for sending notices to Beneficial Owners. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual

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procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City on the payable date, in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee) or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, disbursement of such payments to Direct Participants will be the responsibility of DTC), and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. Source: The Depository Trust Company, New York, New York.

THE INFORMATION CONTAINED IN THE ABOVE SECTION CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SAMPLE OFFERING DOCUMENT LANGUAGE SUPPLIED BY DTC, BUT THE CITY TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. IN ADDITION, THE CITY WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS, TO INDIRECT PARTICIPANTS OR TO ANY BENEFICIAL OWNER WITH RESPECT TO: (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY PARTICIPANT OR ANY INDIRECT PARTICIPANT; (II) THE PAYMENTS BY DTC OR ANY PARTICIPANT OR ANY INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BONDOWNERS. THE CITY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (1) PAYMENTS OF PRINCIPAL OF OR INTEREST OR REDEMPTION PREMIUM ON THE BONDS (2) CONFIRMATIONS OF THEIR OWNERSHIP INTERESTS IN THE BONDS OR (3) OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS PARTNERSHIP NOMINEE, AS THE REGISTERED OWNER OF THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CITY WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OF DTC OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICPANTS OR INDIRECT PARTICIPANTS OF DTC; (2) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST OR REDEMPTION PREMIUM ON THE BONDS; (3) THE DELIVERY BY DTC OR ANY DIRECT

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PARTICIPANTS OR INDIRECT PARTICIPANTS OF DTC OR ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO OWNERS; OR (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE REGISTERED HOLDER OF THE BONDS.

TAX MATTERS

Federal Income Taxes In the opinion of Bond Counsel, based on existing statutes, regulations, administrative rulings and court decisions and assuming continuing compliance by the City with certain covenants, and the accuracy of certain representations, interest on the Bonds is excluded from gross income of the owners thereof for Federal income tax purposes. The Internal Revenue Code of 1986, as amended (the “Code”), imposes various limitations, conditions and other requirements which must be met at and subsequent to the date of issue of the Bonds in order that interest on the Bonds will be and remain excluded from gross income for federal income tax purposes. Included among these requirements are restrictions on the investment and use of proceeds of the Bonds, as applicable, and in certain circumstances, payment of amounts in respect of such proceeds to the United States. Failure to comply with the requirement of the Code may cause interest on the Bonds to be includable in gross income for purposes of federal income tax, possibly from the date of issuance of the Bonds. The City has covenanted to comply with certain procedures and it has made certain representations and certifications, designed to assure satisfaction of the requirements of the Code in respect to the Bonds, as applicable. The opinion of Bond Counsel assumes compliance with such covenants and the accuracy, in all material respects, of such representations and certificates. Bond Counsel is of the further opinion that interest on the Bonds is not an “item of tax preference” for purposes of Federal alternative minimum tax on individuals and corporations; interest on the Bonds is, however, included in "adjusted current earnings" for purposes of calculating the Federal alternative minimum tax imposed on certain corporations. Prospective purchases of the Bonds, should consult with their tax advisors concerning the computation of any alternative minimum tax. Prospective purchasers of the Bonds should be aware that ownership of the Bonds, and the accrual or receipt of interest thereon, may have collateral federal income tax consequences for certain taxpayers, including financial institutions, property and casualty insurance companies, S corporations, certain foreign corporations, individual recipients of Social Security or Railroad benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry such obligations. Prospective purchasers should consult their tax advisors as to any possible collateral consequences of their ownership of the Bonds and their accrual or receipt of interest thereon. Bond Counsel expresses no opinion regarding any such collateral federal income tax consequences. The Bonds will NOT be designated as “qualified tax exempt obligations” within the meaning of, and pursuant of Section 265(b)(3) of the Code.

State and Local Income Taxes

In the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxes imposed by the State or any political subdivision thereof, (including The City of New York).

Any noncompliance with the federal income tax requirements set forth above with respect to the Bonds would not affect the exemption of interest thereon from personal income taxes imposed by the State of New York or any political subdivision thereof.

Bond Counsel expresses no opinion regarding any other state or local tax consequences related to the ownership or disposition of, or the receipt or accrual of interest on, the Bonds.

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Interest on the Bonds may or may not be subject to state or local income taxes in jurisdictions other than the State of New York under applicable state or local tax laws. Bond Counsel expresses no opinion, however, as to the tax treatment of the Bonds under other state or local jurisdictions. Each purchaser of the Bonds should consult his or her own tax advisor regarding the taxable status of the Bonds in a particular state or local jurisdiction other than the State of New York.

Other Considerations Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the respective dates of issuance and delivery of the Bonds may affect the tax status of interest on the Bonds. No assurance can be given that any future legislation, including amendments to the Code or the State income tax laws, regulations, administrative rulings, or court decisions, will not, directly or indirectly, cause interest on the Bonds to be subject to federal or State income taxation, or otherwise prevent Bondholders from realizing the full current benefit of the tax status of such interest. Further, no assurance can be given that the introduction or enactment of any such future legislation, or any judicial decision or action of the Internal Revenue Service or any State taxing authority, including, but not limited to, the promulgation of a regulation or ruling, or the selection of the Bonds for audit examination, or the course or result of any Internal Revenue Service examination of the Bonds or of obligations which present similar tax issues, will not affect the market price or marketability of the Bonds. For example, President Obama has released various legislative proposals that would limit the extent of the exclusion from gross income of interest on obligations of states and political subdivisions under Section 103 of the Code (including the Bonds) for taxpayers whose income exceeds certain threshold levels. No prediction is made as to whether any such proposals will be enacted. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters. All summaries and explanations of provisions of law do not purport to be complete and reference is made to such laws for full and complete statements of their provisions. ALL PROSPECTIVE PURCHASERS OF THE BONDS SHOULD CONSULT WITH THEIR TAX ADVISORS IN ORDER TO UNDERSTAND THE IMPLICATIONS OF THE CODE AS TO THE TAX CONSEQUENCES OF PURCHASING OR HOLDING THE BONDS.

LEGAL MATTERS

Legal matters incident to the authorization, issuance and sale of the Bonds will be subject to the final approving opinion of Harris Beach PLLC, Buffalo, New York, Bond Counsel to the City. Such legal opinion will state that (i) in rendering the opinions expressed therein, Bond Counsel has assumed the accuracy and truthfulness of all public records, documents and proceedings examined by Bond Counsel which have been executed or certified by public officials acting within the scope of their official capacities, and has not verified the accuracy or truthfulness thereof, and Bond Counsel also has assumed the accuracy of the signatures appearing upon such public records, documents and proceedings and such certifications; (ii) the scope of Bond Counsel's engagement in relation to the issuance of the Bonds, as applicable, has extended solely to the examination of the facts and law incident to rendering the opinions expressed therein; (iii) the opinions expressed therein are not intended and should not be construed to express or imply any conclusion that the amount of real property subject to taxation within the boundaries of the City together with other legally available sources of revenue, if any, will be sufficient to enable the City to pay the principal of and interest on the Bonds as the same become due and payable. In addition, while Bond Counsel has participated in the preparation of the Official Statement, Bond Counsel has not verified the accuracy, completeness or fairness of the factual information contained therein and, accordingly, no opinion is expressed by Bond Counsel in connection therewith.

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Certain legal matters will be passed on for the Underwriters by their counsel, Bryant Rabbino LLP, New York, New York.

MARKET FACTORS

The financial condition of the City as well as the market for the Bonds could be affected by a variety of factors, some of which are beyond the City’s control. There can be no assurances that adverse events in the State will not occur which might affect the market price of, and the market for, the Bonds.

If a significant default or other financial crisis should occur in the affairs of the State or of any of its agencies or political subdivisions, it could impair the acceptability of obligations issued by borrowers within the State, and both the ability of the City to arrange for additional borrowings and the market for and market value of outstanding debt obligations, including the Bonds, could be adversely affected.

The City depends in significant part on financial assistance from the State. Accordingly, in this year or future years, if the State should experience difficulty in borrowing funds in anticipation of the receipt of State taxes or if the State experiences delays in the adoption of the State budget, the State may have to delay payments of aid to its municipalities and school districts, including the City, until sufficient State funds are available to make such payments. The City may be adversely affected by such delay. In the past, delays in adoption of the State budget have resulted in delays in the payment of State aid to municipalities and school districts.

State aid requires appropriations by the State Legislature. There can be no assurance the State Legislature will continue appropriations at the levels of past years. Also, State aid formulas may be changed by act of the State Legislature. No assurance can be given that the State Legislature will not modify or eliminate State aid as it currently exists.

The enactment of the Tax Levy Limitation Law, which imposes a tax levy limitation upon municipalities, school districts and fire district in the State, including the City, without providing an exclusion for debt service on obligations issued by municipalities and fire districts, including the City, could have an impact upon the market price for the Bonds. See “PROPERTY TAXES - Tax Levy Limitation Law,” herein.

RATINGS

Moody's Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”) and Fitch Ratings (“Fitch”) have assigned underlying ratings to the City’s bonded debt, including the Bonds, of “A1”, “A+” and “A+”, respectively. These ratings reflect only the view of the rating agency furnishing the same, and an explanation of the significance of each of these ratings may be obtained only from the respective rating agency. There is no assurance that any of these ratings will be maintained for any given period of time or will not be raised, lowered or withdrawn entirely by the rating agency furnishing the same if, in its judgment, circumstances so warrant. Any downward revision or withdrawal of any of these ratings may have an adverse effect on the market price of the Bonds.

UNDERWRITING

The Series A Bonds are being purchased by Samuel A. Ramirez & Co., Inc. and Drexel Hamilton, LLC (the “Underwriters”) for reoffering to the public. The Underwriters will purchase all of the Series A Bonds, if any are purchased, at a price equal to $_________________, being the par amount of the Series A Bonds, plus a premium of $___________, less an underwriters’ discount of $__________. The Underwriters are initially offering the Series A Bonds to the public at the public offering yields indicated on the inside cover page, but the Underwriters may offer and sell the Series A Bonds to certain dealers, institutional investors and others (including sales for deposit into investment trusts, certain of which may be sponsored or managed by the

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Underwriters) at yields higher that the public offering yields stated on the cover page hereof and the public offering yields may be changed from time to time by the Underwriters.

The Series B Bonds are being purchased by Samuel A. Ramirez & Co., Inc. and Drexel Hamilton, LLC (the Underwriters) for reoffering to the public. The Underwriters will purchase all of the Series B Bonds, if any are purchased, at a price equal to $_________________, being the par amount of the Series B Bonds, plus a premium of $_________, less an underwriters’ discount of $__________. The Underwriters are initially offering the Series B Bonds to the public at the public offering yields indicated on the inside cover page, but the Underwriters may offer and sell the Series B Bonds to certain dealers, institutional investors and others (including sales for deposit into investment trusts, certain of which may be sponsored or managed by the Underwriters) at yields higher that the public offering yields stated on the cover page hereof and the public offering yields may be changed from time to time by the Underwriters.

FINANCIAL ADVISOR

Capital Markets Advisors LLC, has acted as the independent registered Financial Advisor to the City in connection with the sale of the Bonds. In preparing this Official Statement, the Financial Advisor has relied upon governmental officials, and other sources, who have access to relevant data to provide accurate information for the Official Statement, and the Financial Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of such information. The Financial Advisor is not a public accounting firm and has not been engaged by the City to compile, review, examine or audit any information in the Official Statement in accordance with accounting standards. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities and therefore will not participate in the underwriting of the Bonds.

DISCLOSURE UNDERTAKING

At the time of the delivery of the Bonds, the City will provide an executed copy of its “Undertaking to Provide Continuing Disclosure” (the “Undertaking”). Said Undertaking will constitute a written agreement or contract of the City for the benefit of holders of and owners of beneficial interests in the Bonds, to provide, or cause to be provided to the Electronic Municipal Market Access (“EMMA”) System implemented by the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of such Board contemplated by the Undertaking: (1) (i) Certain annual financial information, in a form generally consistent with the information contained in Appendix A, on or prior to the end of the ninth month following the end of each fiscal year, commencing with the fiscal year ending June 30, 2016 and (ii) the audited financial statement, if any, of the City for each fiscal year commencing with the fiscal year ending June 30, 2016 unless such audited financial statement, if any, shall not then be available in which case the unaudited financial statement shall be provided and an audited financial statement shall be provided within 30 days after it becomes available and in no event later than 360 days after the end of each fiscal year; (2) In a timely manner, not in excess of ten (10) business days after occurrence, notice of the following events: (i) Principal and interest payment delinquencies; (ii) non-payment related defaults, if material; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices of determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (vii) modifications to rights of Bondholders, if material; (viii) Bond calls, if material, and tender offers; (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Bonds, if

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material; (xi) rating changes; (xii) bankruptcy, insolvency, receivership or similar event of the City; [note to clause (xii): For the purposes of the event identified in clause (xii) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the City in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or government authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City]; (xiii) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) appointment of a successor or additional trustee or the change of name of a trustee, if material. The City may provide notice of the occurrence of certain other events, in addition to those listed above, if it determines that any such other event is material with respect to the Bonds; but the City does not undertake to commit to provide any such notice of the occurrence of any event except those events listed above; and (3) In a timely manner, not in excess of ten (10) business days after occurrence, notice of a failure to provide the annual financial information by the date specified. The City’s Undertaking shall remain in full force and effect until such time as the principal of, redemption premiums, if any, and interest on the Bonds shall have been paid in full or in the event that those portions of the Rule which require the Undertaking, or such provision, as the case may be, do not or no longer apply to the Bonds. The sole and exclusive remedy for breach or default under the Undertaking is an action to compel specific performance of the undertakings of the City, and no person or entity, including a Holder of the Bonds, shall be entitled to recover monetary damages thereunder under any circumstances. Any failure by the City to comply with the Undertaking will not constitute a default with respect to the Bonds. The City reserves the right to amend or modify the Undertaking under certain circumstances set forth therein; provided that any such amendment or modification will be done in a manner consistent with Rule 15c2-12, as amended. Compliance History Since 2007, there have been in excess of 50 rating actions reported by Moody’s Investors Service, Standard & Poor’s Rating Corporation and Fitch Ratings affecting the municipal bond insurance companies, some of which had insured bonds previously issued by the City. Due to widespread knowledge of these rating actions, material event notices were not filed by the City in all instances. The City did not file in a timely manner the event notice related to the March 6, 2014 upgrade of its General Obligation rating from “A” to “A+” by Standard & Poor’s Ratings Service. The event notice was filed on June 19, 2014. For the City’s fiscal year ending June 30, 2011, the City failed to file in a timely manner its audited financial statements. The City filed through EMMA its audited financial statements on March 6, 2012. On June 19, 2014, the City cross-referenced its operating data filings on EMMA for fiscal years 2010 through 2013 which were filed on February 18, 2011, April 20, 2012, April 18, 2013 and April 21, 2014, respectively. The City has previously undertaken a review and revision of its oversight procedures and technical capabilities in order to minimize the likelihood of any untimely filings in the future. The City filed its operating data for the fiscal years (ending June 30) 2014 and 2015 in a timely manner and audited financial statements for the fiscal years ending June 30, 2012, 2013, 2014 and 2015 in a timely manner as required by its Undertaking.

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Except as disclosed in the Official Statement, in the past five years the City has not failed in any material respect under the Rule to provide annual reports or notices of material events.

ADDITIONAL INFORMATION

This Official Statement is not to be construed as a contract or an agreement between the City and the purchasers or holders of any of the Bonds. Any statements made in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended merely as an opinion and not as representations of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of the Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no material change in the affairs of the City since the date hereof. Additional copies of this Official Statement may be obtained upon request from the office of the Comptroller, Room 1225 City Hall, Buffalo, New York 14202 (716-851-5255), or from Capital Markets Advisors, LLC, 4211 N. Buffalo Street., Orchard Park, NY 14127, (716-662-3910). The preparation and distribution of this Official Statement has been authorized by the applicable bond resolutions of the City, which delegate to the City Comptroller the power to sell and issue the Bonds. Capital Markets Advisors, LLC and the City may place a copy of this Official Statement on its respective websites at www.capmark.org and www.ci.buffalo.ny.us/Home/Leadership/City_Comptroller/investinbuffalo. Unless this Official Statement specifically indicates otherwise, no statement on such website is included by specific reference or constitutes a part of this Official Statement. Capital Markets Advisors, LLC and the City have prepared such website information for convenience, but no decisions should be made in reliance upon that information. Typographical or other errors may have occurred in converting original source documents to digital format, and neither the City nor Capital Markets Advisors, LLC assumes any liability or responsibility for errors or omissions on such website. Further, Capital Markets Advisors, LLC and the City disclaim any duty or obligation either to update or to maintain that information or any responsibility or liability for any damages caused by viruses in the electronic files on the website. Capital Markets Advisors, LLC and the City also assume no liability or responsibility for any errors or omissions or for any updates to dated website information.

CITY OF BUFFALO

/s/ Mark J. F. Schroeder City Comptroller

April _, 2016

APPENDIX A

THE GOVERNMENT OF BUFFALO

The City of Buffalo (the “City”) was incorporated in 1832 and operates under a Charter adopted in August 1927 and revised in 2001 pursuant to the City Home Rule Law of the State. In its Charter, the City adopted the strong Mayor-Council form of government. The Mayor, as chief executive officer, is the head of the Executive Department and oversees all administrative functions. The Comptroller, as the chief fiscal officer, is the superintendent of the fiscal affairs of the City. The Common Council performs all legislative duties. As of July 1, 2012, the Buffalo Fiscal Stability Authority (BFSA) entered into an advisory period in which they operate with a reduced set of financial oversight powers and responsibilities over the City.

City Services

The City is responsible for and maintains police, fire, and sanitation services, streets and several parks and playgrounds. Although the City is also responsible, in large measure, for the financing of local primary and secondary educational expenditures, the Board of Education, comprising independently elected members, administers the City’s school system. Pursuant to State law, the County, not the City, is responsible for the local funding of mandated social service programs, such as Medicaid, Aid to Families with Dependent Children and home relief programs.

Elected Officials

The Mayor, elected by general election for a four-year term and eligible to succeed himself, has the power to appoint and remove the non-elected heads of City departments, boards, commissions and agencies except for the Management Information Systems Chief Information Officer and the Commissioner of Assessment and Taxation. The Chief Information Officer of Management Information Systems and Commissioner of Assessment and Taxation shall be appointed by the Mayor, the Comptroller and the President of the Common Council, by a majority thereof. Most major appointments are subject to the approval of the Common Council. In addition, the Mayor is responsible for the initial preparation of the City’s operating and capital budgets which are then submitted to the Common Council for approval. The Mayor has the power of approval or veto of any additions to the budget made by the Common Council. The Mayor also has veto power over any resolution or ordinance passed by the Common Council. Any such vetoes can be overridden by a two-thirds majority vote of the Common Council.

The fiscal affairs of the City are the responsibility of the Comptroller, who is elected by the general electorate to a four-year term and is eligible to succeed himself. The specific responsibilities of the Comptroller are those delegated to him by City Charter and by the Common Council, as authorized by the Local Finance Law, and include the audit and control of all financial activities of all departments, boards, commissions and other agencies of the City. The Comptroller also supervises the debt management function and the temporary investment of monies for both the City and the Buffalo CSD. In addition, the Comptroller serves as the head of the Department of Audit and Control, as well as chief fiscal officer of the Buffalo Sewer Authority and Buffalo Municipal Water Finance Authority. The Comptroller has the power to prevent any additions to the adopted operating or capital budget by refusing to sign the required certificate of necessity.

The legislative body of the City is the Common Council, which consists of nine council members, who are elected in a general election to four-year terms from their respective districts. At its organizational meeting, the Common Council is required to elect one of its members to serve a two-year term as President of the Common Council. In addition to the legislative power to adopt ordinances and resolutions, the Council has the specific power to override the Mayor’s veto of any ordinance approved by the Council, and to review and approve the operating and capital budgets and most mayoral appointments. In addition, the Council has the power to make investigations of City affairs, to subpoena witnesses and records, to administer oaths and to

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compel testimony. The Council, through the adoption of salary ordinances passed separately from the budget, has the power to set salaries. The establishment of water rates is the responsibility of the Buffalo Water Board.

DISCUSSION OF FINANCIAL OPERATIONS

Four-Year Financial Plans

General

On May 1, 2015, the Mayor submitted to the BFSA a proposed four-year financial plan for the City and the Buffalo CSD. Not more than 20 days after such submission, the BFSA is required to determine whether such plan is complete and complies with the BFSA Act, and is required to submit its recommendations with respect to the financial plan. The BFSA declared the initial financial plan to be incomplete with respect to covered organizations and requested a revised financial plan be submitted. The revised four year financial plan was determined to be complete and compliant with the standards set forth in the BFSA Act, at their board meeting on June 22, 2015. (See “THE BUFFALO FISCAL STABILITY AUTHORITY” herein.)

City of Buffalo

In the first year of the plan (2015-16) expenditures decreased over the 2014-15 adopted budget expenditures by $11.3 million. The four-year financial plan projects balanced budgets for all four years. In the out years, the plan includes small increases in fringe benefits, flattening of pension costs and small increases in State Aid. In concert with the Strategic Planning process, Buffalo continues to assess its facilities and citywide needs for the use and disposal of buildings. As throughout the country, City expenses for health care and pensions are increasing. The City is partially offsetting these expected increases with strict personnel cost containment practices and utility savings.

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The following chart summarizes revenues and expenditures under the City’s four-year financial plan.

CITY OF BUFFALO FOUR-YEAR FINANCIAL PLAN GENERAL FUND(1)

(000’s Omitted)

ITEM DESCRIPTION2015-2016 2016-2017 2017-2018 2018-2019

General Fund Revenues:

Property Tax 135,137$ 137,613$ 140,139$ 142,715$ Star 13,237 13,237 13,237 13,237 NYS - General Aid 161,285 164,511 167,801 171,157 NYS - Other 9,307 9,338 9,369 9,400 Federal Aid 1,804 1,804 1,804 1,804 Sales Tax 84,482 86,594 88,759 90,978 Utility Tax 13,135 13,135 13,135 13,135 Departmental 46,688 45,026 43,326 43,630 Transfers In 13,136 12,434 12,747 13,076

Total Revenues 478,211 483,692 490,317 499,132

General Fund Expenditures:

Personal Services 194,513$ 196,599$ 199,553$ 203,569$ Departmental 39,180 37,937 37,365 38,279 Utilities 17,966 18,143 18,323 18,504 Fringe 137,688 138,749 138,912 138,616 Misc. 5,062 5,062 5,062 5,062 Interest & Debt 112 112 112 112 Board of Education 70,323 70,323 70,323 70,323 Capital Debt 24,767 24,767 24,767 24,767 Transfers Out 3,600 2,000 400 400

Total Expenditures 493,211 493,692 494,817 499,632

Change in Fund Balance (15,000)$ (10,000)$ (4,500)$ (500)$ Deficit to be closed through Gap Closing Measures -$ -$ -$ -$

_________________________________________________________________________________________ (1)Source: City of Buffalo Administration, Finance, Policy and Urban Affairs, Division of Budget as submitted to BFSA, May 1, 2015.

Buffalo CSD

On May 1, 2015, the Buffalo CSD submitted a four-year financial plan for years 2015-16 through 2018-19. The plan indicates surpluses of $0.0 million, $4.6 million, $10.4 million and $11.6 in years 2015-16, 2016-17, 2017-18 and 2018-19, respectively, after the use of reserves. The Buffalo CSD would be utilizing $24.9 of appropriated reserves over the four year period.

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BUFFALO CSD FOUR-YEAR FINANCIAL PLAN GENERAL FUND(1)

(000’s Omitted)

ITEM DESCRIPTION 2015-16 2016-17 2017-18 2018-19General Fund Revenues:

Property Taxes 70,323$ 70,323$ 70,323$ 70,323$ NYS - Foundation Aid 465,044 474,345 483,832 493,509 NYS - Other Aid 220,619 226,903 230,570 234,243 Federal Medicaid 3,000 3,000 3,000 3,000 Sales Tax 42,000 43,050 44,126 45,229 Departmental and Other Revenues 16,455 16,455 16,455 16,455

Total Revenues 817,441 834,076 848,306 862,759

General Fund Expenditures:Personal Services 255,483 257,696 259,989 262,338

Departmental Expenditures 59,021 57,955 58,121 58,291 Tuition (other than Charter Schools) 33,444 34,447 35,480 36,545 Charter School Tuition 103,500 108,600 113,400 118,200 Fringe Benefits 193,127 194,456 197,366 201,541 Utilities 9,676 9,773 9,871 9,969 Contingency 3,000 3,000 3,000 3,000 Transportation 46,700 47,634 48,587 49,559 Transfers to Debt Service Fund 118,723 117,844 114,463 114,453 Transfers to Other Funds 3,139 3,139 3,139 3,139

Total Expenditures 825,813 834,544 843,416 857,035

Change in Fund Balance (8,372)$ (468)$ 4,890$ 5,724$

Deficit to be closed -$ -$ -$ -$

_________________________________________________________________________________________ (1)Source: Buffalo CSD, Division of Finance, as submitted to BFSA, May 1, 2015.

Projected Financial Information

The management of the City and the Buffalo CSD have prepared the projected financial information set forth herein under their respective headings in “FOUR-YEAR FINANCIAL PLAN” to present the plan for the City and the Buffalo CSD for the fiscal years 2016 through 2019. The foregoing prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. However, in the view of the City’s and the Buffalo CSD’s management, such financial information was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the City and the Buffalo CSD. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this document are cautioned not to place undue reliance on the prospective financial information.

Neither the City’s nor the Buffalo CSD’s independent auditors, nor any other independent accountants have compiled, examined, or performed any procedures with respect to the prospective financial information

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contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

The City and the Buffalo CSD used current financial information, historical trends, anticipated cost increases and projected changes in service delivery in developing the four-year plans. The assumptions and estimates underlying the prospective financial information are inherently uncertain and, though considered reasonable by the management of the City and the Buffalo CSD as of the date of preparation of the four-year plans, are subject to a wide variety of significant business, economic, and other risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information. Accordingly, there can be no assurance that the prospective results are indicative of the future performance of the City or the Buffalo CSD or that actual results will not differ materially from those presented in the prospective financial information. Inclusion of the prospective financial information in this document should not be regarded as a representation by any person that the results contained in the prospective financial information will be achieved.

Financial Control Procedures

The publicly elected City Comptroller is responsible for controlling municipal expenditures to ensure that budget appropriations for the City are not exceeded and for reviewing all revenues received by the City. Procedures of the Comptroller’s Division of Audit provide for pre-audits of requests for encumbrance of municipal funds as to budget appropriation, departmental authorization, compliance with the City Charter, City ordinances, and State laws. The Division of Audit also conducts inspections to ensure that all revenues are being collected and deposited by the City. Similar audit and control procedures for the Buffalo CSD operating budget are exercised by the Buffalo CSD directly.

Expenditures of municipal appropriations are also monitored on a regular basis by the Budget Division. The Budget Division monitors payroll by a number of control systems including review of all personnel requisitions for adequate funding and legal authorization prior to filling vacancies or creating new positions.

The Comptroller’s Debt Management Policy establishes a cap on borrowing for both the City and the Buffalo CSD in relation to various indices and requires the City to pay down more debt than it issues in a fiscal year.

The City has a “Rainy Day Policy” whereby fund balance in an amount equal to no less than 30 days of prior year expenditures is to be set aside to be used for extraordinary operating or capital needs that could not be anticipated.

Charter Revisions

The voters of the City approved the recommendations of the Charter Revision Commission on November 2, 1999. The amended charter established more disciplined procedures for management of the City’s capital assets (parks, streets, building, equipment, vehicles, etc.) and for planning and authorizing capital projects. The Comptroller is required to submit at the outset of the capital budgeting process an estimate of the amount of new debt the City can prudently incur during the next year and the following four years. Capital programming and budgeting are integrated into the new strategic planning process, and the Citizens Planning Council is required to review proposed capital projects and recommend a capital budget and four-year program of capital investments. Projects may be recommended by individual members of the Common Council in initial preparation of the capital budget and four-year program, and the Common Council is empowered to review and amend the four-year capital program submitted by the Mayor. Those measures, together with Common Council representation on the Citizens Planning Council, encourage the Common Council to participate in the planning of the capital budget rather than simply to add on projects after the planning process has been completed. The Mayor is required to issue systematic reports on the management of the City’s Capital Assets and on Capital Investment proposals and decisions. The Capital Programming and Budgeting Process are completed by December 15th each year, which separates the process from the operating budget cycle, allows more time for deliberation by the Council, provides more definite information as to Debt Service Requirements for incorporation in the operating budget, and enables the City to take full advantage of the next

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construction season and favorable market conditions early in the year for issuing bonds or notes and taking bids on construction contracts (see Sections 20-19 through 20-31 of the Charter).

Section 20 of the Charter was amended effective May 1, 2008 to include a fund balance policy. Starting with the 2007-08 fiscal year, unassigned fund balance in an amount equal to no less than 30 days of prior year expenditures is to be set aside to be used for extraordinary operating or capital needs that could not be anticipated. In addition, a reserve of fund balance in an amount equal to 15 days of prior year general fund expenditures could be set aside for purposes allowed for in General Municipal Law, Section 6-c.

After unanimous passage by the Common Council on October 2, 2012, and the approval of the Mayor on October 22, 2012, The Buffalo Fiscal Integrity Act amended Article 20 of the City Charter to require the budget director to prepare and submit annually to the Mayor and Common Council a four-year financial plan. Beginning with the 2013-14 fiscal year, the four-year financial plan shall include balanced budgets for each year included in the plan, covering all expenditures without a deficit when reported in accordance with generally accepted accounting principles. The plan shall also include adequate reserves to maintain essential services, adequate cash resources to meet obligations, and one year of cash flow projections of receipts and disbursements. This approval codifies a practice that had commenced in 2003. The comptroller shall opine on the sufficiency of the financial plan and whether it contains sufficient data to support the outcomes projected.

Fund Structure and Accounts

The General Fund of the City is the general operating fund which is used to account for all financial resources except those required to be accounted for in another fund. The General Fund accounts for substantially all operating and maintenance costs. For a description of other governmental fund types see Appendix B.

In accordance with State law, the Buffalo CSD maintains its own accounts independently of the City. The Buffalo CSD is responsible for managing and controlling its own budget appropriations approved by the City’s Common Council. Accordingly, the City levies and collects real property taxes for general City and Buffalo CSD purposes. The City accounts for the entire real property tax in its General Fund and records revenue allocations to the Board of the Buffalo CSD as operating transfers. The City accounts for the Buffalo CSD as a component unit. The Buffalo CSD is accounted for in this manner since the Buffalo CSD is a legally separate organization. A summary of its financial statements are presented in a discrete (i.e., separate) column in the City’s government-wide financial statements, in accordance with the Governmental Accounting Standards Board, Statement No. 39, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments.

Basis of Accounting

The government-wide financial statements of the City are reported using the economic resources measurement focus and the accrual basis of accounting, like proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements, including the General Fund, are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible in the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

Significant revenues considered to be susceptible to accrual in addition to general property taxes include New York State general purpose aid, sales taxes, and various categorical grants. Long-term historical payment

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patterns of general purpose State aid are considered in determining whether such payments are susceptible to accrual.

Cash Management/Cash Flow

The Comptroller is empowered by (i) the City Charter to invest all monies not immediately required and (ii) Common Council resolution to borrow monies as needed for the uninterrupted operations of the City, subject to the limitations of the Local Finance Law. Although the Treasurer has custody of all monies deposited with the City (both for City and Buffalo CSD purposes), the Comptroller is responsible for cash management.

Cash management is handled on a combined basis for the City and Buffalo CSD General Funds and summaries of cash receipts and cash disbursements provide the basis for establishing borrowing needs. Prior years’ experience shows that disbursements on a combined basis are fairly consistent for the twelve months of the fiscal year. The real property tax levy, which may be paid 50% in July and 50% in December without penalty, comprises about 11.2% and 11.4% for both of the combined general fund budgets of the City and the Board in fiscal year 2015-16 and 2014-15 respectively.

There is currently no outstanding short-term debt relating to cash flow timing for the City, Buffalo CSD or the BFSA.

Budget Process

On or before May 1, the Mayor submits the proposed executive budget to the Common Council. The City Charter requires that the Mayor submit a balanced budget. The Council may delete, reduce or add expenditure items but may not modify the Mayor’s estimates of revenue, except for the real property tax levy, which is levied in the amount necessary to balance total appropriations and estimated revenues. The Mayor may veto additions to the proposed budget; however, the Council may override any item veto by a two-thirds vote. If the budget has not been passed by the Council by June 8, the budget as submitted by the Mayor, including all additions which he has not vetoed, is adopted. Budget amendments during the fiscal year require approval of the Mayor, the Comptroller and two-thirds of the Council.

The Buffalo CSD submits its estimates of revenues and expenditures to the City’s Budget Division. Pursuant to State law, the City determines total appropriations for the Board but the allocation of monies within its total appropriation is determined by the Board. The Board’s budget, as contained within the Mayor’s proposed budget, is not presented with the same detail and performance measures that appear in other sections of the City budget.

City and Buffalo CSD General Fund Financial Operations, 2012-13, 2013-14 and 2014-15

The City completed its fiscal year ended June 30, 2015 with revenues and other financing sources exceeding expenditures and other financing uses in the General Fund by $4.9 million determined in accordance with GAAP. This compares to prior fiscal years in which expenditures and other financing uses exceeded revenues and other financing sources by $19.4 million in 2014 and revenues and other financing sources exceeded expenditures and other financing uses by $52.2 million in 2013. At June 30, 2015, 2014 and 2013, the nonspendable fund balance, which is comprised of real estate acquired for resale and long term receivables, was $27.7 million, $26.7 million and $24.6 million, respectively; the restricted fund balance, which consists of capital outlays, bond set asides and emergency medical funds, was $7.9 million, $8.8 million and $11.1 million, respectively; the committed fund balance, which consists of the Emergency Stabilization “Rainy Day” Fund, was $37.2 million, $37.7 million and $35.7 million, respectively; the assigned fund balance, which consists of encumbrances, potential judgments and claims and funds appropriated for next year’s budget, was $35.0 million, $42.5 million and $30.5 million, respectively; and the unassigned fund balance was $43.4 million, $30.7 million and $63.9 million, respectively.

The Buffalo CSD completed its fiscal year ended June 30, 2015 with expenditures and other financing uses exceeding revenues and other financing sources by $2.7 million determined in accordance with GAAP. This compares with expenditures and other financing uses exceeding revenues and other financing sources by $14.6

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million in 2014 and $12.9 in 2013. At June 30, 2015 the non-spendable fund balance for inventory was $0.6 million; the restricted fund balance for judgments and claims, unemployment insurance and stabilization was $24.7 million; the assigned fund balance of $113.6 million consists of amounts appropriated for next year’s budget, capital needs, prior year claims, other post-employment benefits and encumbrances. There is no committed fund balance. Unassigned fund balance is $52.1 million. (See Appendix C for the Buffalo CSD’s audited financial statements for the fiscal year ended June 30, 2015.)

City and Buffalo CSD General Fund 2014-15 and 2015-16 Adopted Budgets

The City’s adopted 2015-16 General Fund budgeted appropriations are $394.5 million, representing a $8.1 million or 2.0% decrease over the 2014-15 adopted budget. The Buffalo CSD 2015-16 adopted General Fund budgeted appropriations are $825.8 million, representing an increase of 2.3% from the 2014-15 adopted Budget. The adopted budget was amended for an additional $2.4 million in Other New York State Aid on December 2, 2015. The adopted 2015-16 City and Buffalo CSD budgets aggregate to $1,422.9 million, a $4.7 million (or 0.3%) increase from the budget of $1,418.2 million adopted for fiscal year 2014-15. (See “DISCUSSION OF FINANCIAL OPERATIONS – Summary of Operations” herein.)

Summary of Operations

The following two tables present separate summaries of operations for fiscal years 2012-13 through 2014-15 for the City General Fund and for the Buffalo CSD derived from financial statements and prepared in accordance with GAAP. The tables also show an adopted budget for fiscal year 2015-16 for the City and the Buffalo CSD and a revised budget for the City and a projected budget for the Buffalo CSD for fiscal year 2015-16.

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CITY OF BUFFALO, NEW YORK GENERAL FUND - SUMMARY OF OPERATIONS

AND CHANGES IN FUND BALANCE Fiscal Year Ended June 30

(000’s Omitted) Actual Actual Actual Adopted Revised

2012-13 2012-13 2014-15 2015-16 2015-16 (1)

REVENUES Property Taxes and Other Tax Items 135,239$ 133,819$ 135,665$ 135,137$ 135,137$ Utility and Other Non-Property Tax Items 12,253 15,542 13,775 13,135 13,135 Charges for Services 13,719 12,544 13,302 14,212 14,212 Interest 1,187 890 748 800 800 Federal Aid 1,188 1,634 1,115 1,434 1,434 State Aid 216,455 196,924 183,585 183,829 183,829 Local Sources and Other 73,903 76,792 80,700 84,890 84,890 Licenses and Permits 3,408 3,258 4,060 4,721 4,721 Fines 7,289 6,896 6,195 12,301 12,301

Miscellaneous 40,317 3,642 31,109 14,616 14,616

Total Revenues 504,958 451,941 470,254 465,075 465,075

EXPENDITURESGeneral Government 53,395 54,413 55,702 65,299 67,581 Public Safety 136,468 149,302 151,860 148,921 150,094 Streets and Sanitation 9,824 11,649 11,295 12,998 14,114 Economic Assistance and Opportunity 1,303 1,449 1,782 2,170 2,189 Culture and Recreation 6,864 6,656 7,627 8,653 8,854 Health and Community Services 2,536 1,921 2,013 2,445 2,609 Education 70,323 70,323 70,323 70,323 70,323 Fringe Benefits 138,903 148,368 141,419 151,224 153,751 Other 7,412 7,109 3,720 2,700 2,700 Interest and Other Fiscal Charges 831 812 845 112 112

Total Expenditures 427,859 452,002 446,586 464,845 472,327

Excess (defict) of revenues over expenditures 77,099 (61) 23,668 230 (7,252)

OTHER FINANCING SOURCES (USES)Transfers In 11,024 15,819 14,896 13,136 13,136 Transfers Out (35,957) (35,182) (33,712) (28,366) (28,366)

Total Other Financing (Uses) Sources (24,933) (19,363) (18,816) (15,230) (15,230)

Change in Fund Balances 52,166 (19,424) 4,852 (15,000) (22,482) Fund Balance -Beginning of Year 113,631 165,797 146,373 151,225 151,225

Fund Balance -End of Year 165,797$ 146,373$ 151,225$ 136,225$ 128,743$

FUND BALANCENon Spendable 24,635$ 26,693$ 27,749$ Restricted 11,112 8,834 7,850 Committed 35,655 37,667 37,216 Assigned 30,452 42,477 34,969 Unassigned 63,943 30,702 43,441

Total Fund Balance 165,797$ 146,373$ 151,225$

_____________________________________________________________________________________________________________________ Source: City of Buffalo, Department of Audit & Control, Division of Accounting (1)The 2015-16 budgetary figures reflect changes made to the budget as of December 31, 2015 and reflects the use of $22.3 million of fund

balance, of which $7.5 million is for prior year encumbrances.

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BUFFALO CSD GENERAL FUND - SUMMARY OF OPERATIONS

AND CHANGES IN FUND BALANCE Fiscal Year Ended June 30

(000’s Omitted)

Actual Actual Actual Budget Projected

2012-13 2013-14 2014-15 2015-16(1)

2015-16(2)

REVENUES Property Taxes 70,323$ 70,323$ 70,323$ 70,323$ 70,323$ New York State - Foundation Aid 435,409 440,529 449,395 465,044 461,544 Other New York State Aid 190,322 196,977 211,883 223,019 223,119 Federal Sources 3,512 2,878 903 3,000 3,000 Sales Tax 37,283 40,104 40,168 42,000 42,000 Departmental and Other Revenues 15,652 13,225 14,903 16,455 16,455

Total Revenues 752,501 764,036 787,575 819,841 816,441

EXPENDITURES Personal Services 238,481 244,996 246,946 255,483 257,451 Departmental Expenditures 50,832 60,660 56,164 59,021 60,071 Tuition (other than Charter Schools) 32,623 31,598 31,706 33,444 33,444 Charter School Tuition 94,506 94,081 98,415 103,500 103,700 Fringe Benefits 160,933 171,311 183,353 193,127 192,333 Utilities 9,525 11,313 8,697 9,676 9,676 Contingency - - - 3,000 - Transportation 40,298 40,203 40,226 46,700 45,776

Total Expenditures 627,198 654,162 665,507 703,951 702,451

Excess (deficit) of revenue over expenditure 125,303 109,874 122,068 115,890 113,990

OTHER FINANCING SOURCES (USES) Transfers in 33 - Transfers out (138,266) (124,494) (124,724) (121,862) (121,862)

Total other financing sources (uses) (138,233) (124,494) (124,724) (121,862) (121,862)

Change in Fund Balance (12,930) (14,620) (2,656) (5,972) (7,872) Fund Balance – beginning of year 221,223 208,293 193,673 191,017 191,017

Fund Balance – end of year 208,293$ 193,673$ 191,017$ 185,045$ 183,145$

FUND BALANCE Non Spendable 913 777 554 Restricted 29,971 28,226 24,727 Committed - - - Assigned 133,246 112,770 113,629 Unassigned 44,163 51,900 52,107

Total Fund Balance 208,293$ 193,673$ 191,017$

____________________________________________________________________________________________________________________ Source: Buffalo CSD, Division of Finance (1)2015-16 Adopted Budget is amended for additional $2.4 million in Other New York State Aid as approved December 2,2015

(2)2015-16 Projections are based on available data as of December 31, 2015 and are subject to change

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ENTERPRISE FUNDS

Enterprise Funds are used to account for operations that are financed and operated in a manner similar to private business enterprises where the intent of the City is that the costs of providing services on a continuing basis be financed or recovered primarily through revenues earned from user charges. The individual enterprises accounted for by the City in separate Enterprise Funds are solid waste collection and recycling, City-owned parking ramps and the water system.

The Solid Waste and Recycling Enterprise Fund was established on October 1, 1996 to account for the costs associated with the operation of refuse and recycling services in the City. The fund is supported by revenues from user fees assessed against all users of the service. Unpaid user fees become a lien against the property and are subject to the City’s normal collection procedures. Net loss for the year ended June 30, 2015 was $2.5 million determined in accordance with GAAP. This loss includes $1.2 million for non-cash expenditures for other post employment benefits. This compares to a net loss of $4.5 million for the year ended June 30, 2014. The City received $19.4 million in user fees for the fiscal year ended June 30, 2015, $19.0 million in user fees for the fiscal year ended June 30, 2014 and $18.2 for the fiscal year ended June 30, 2013. The adopted 2015-16 budget includes $20.4 million for user fees. Nonspendable fund balance of the General Fund includes $17.4 million to cover deficits incurred by the Solid Waste and Recycling Enterprise Fund.

The Parking Enterprise Fund was established July 1, 1989 to account for the operations of City-owned parking ramps. The City has a management agreement with Buffalo Civic Auto Ramps, a non-profit organization, to operate the downtown ramps and parking ramp at an area hospital. Revenues collected in excess of normal operating costs are remitted to the City to cover administrative costs and debt service. Net position is reserved for debt service and major repairs. Net loss for the fiscal year ended June 30, 2015 was $0.9 million determined in accordance with GAAP. This compares to a net loss of $4.7 million for the fiscal year ended June 30, 2014 and a net income of $0.2 million for the fiscal year ended June 30, 2013. Operating transfers out to the General Fund were $6.7 million for fiscal year ended June 30, 2015. The adopted budget for fiscal year 2015-16 is $10.0 million. The 2015-16 budget amount includes $2.6 million for debt service and $6.5 million operating transfer to the General Fund.

The Water Enterprise Fund in conjunction with the Buffalo Water Board and the Buffalo Municipal Water Finance Authority, which are blended component units of the City, comprise the water system. The City’s Water Enterprise Fund provides personnel to the operator contracted by the Water Board. Operating transfers from the Water Board cover all expenses of the Water Enterprise Fund. Total expenses of the Water Enterprise Fund for the fiscal year ended June 30, 2015 were $10.8 million. This compares to total expenses of $11.1 million for the fiscal year ended June 30, 2014 and $11.0 million for the fiscal year ended June 30, 2013. The adopted budget for 2015-16 totals $12.3 million. (See “CITY-RELATED ENTITIES – Buffalo Municipal Water Finance Authority” and “–Buffalo Water Board” herein.)

REVENUES

The 2015-16 adopted General Fund budget estimates revenues to be derived approximately 45.1% from municipally generated revenues; 32.7% from State aid; 19.0% from other local governments, the majority of which is the shared County sales tax; and 0.5% from federal aid and other assistance.

Municipally Generated Revenues

Primarily, municipally generated revenues include, in order of magnitude, real property taxes, utility taxes, parking fines and penalties, and an annual payment from the Buffalo Water Board.

Real Property Tax

Real property taxes become payable upon levy of such taxes by the Common Council. The City collects real property taxes for general City and Buffalo CSD purposes. The total amount of the taxpayer’s bill is due and payable on July 1; however, the first half may be paid without penalty on or before July 31 and the second half on or before December 31. Penalties are assessed for delinquencies at an effective rate of 18% per annum.

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The General Fund accounts for the full receipt of the tax levy, including that portion of the levy raised for the Buffalo CSD and that portion of the levy deposited in the CDSF for the payment of capital debt service. The total valuation roll for general City tax purposes partially exempts certain properties (owned and occupied by veterans and senior citizens) which are taxable for school purposes. All provisions for uncollected taxes are charged against the general City budget. The Buffalo CSD receives its tax levy for operations in full from the City.

The City’s property tax levying powers, other than for debt service and certain other purposes, are limited by the State Constitution to 2.0% of the 5-year average full valuation of taxable real property of the City. On June 24, 2011, the Tax Levy Limitation Law was enacted, which imposes a tax Levy Limitation upon the municipalities, school districts and fire districts in the State, including the City, without providing an exclusion for debt service on obligations issued by municipalities, including the City. See “PROPERTY TAXES - Tax Levy Limitation Law,” herein. The City’s budgeted levy was $137.0 million for fiscal year 2015-16 and $137.2 million for fiscal year 2014-15 – an overall decrease of 0.1%. For a more complete discussion of property tax assessment, levy, collection and related matters, see “PROPERTY TAXES” herein.

BUDGETED ALLOCATION OF REAL PROPERTY TAX LEVY Fiscal Year Ended June 30

(000’s Omitted)

2012 2013 2014 2015 2016

Buffalo CSD Operations $ 59,516 $ 59,516 $ 59,516 $ 59,516 $ 59,516

City Operations 40,740 36,388 36,784 38,935 41,941

Capital Debt Service(1) 43,030 42,739 41,968 38,779 35,573

Total Budgeted Real Property Tax Levy $ 143,286 $ 138,643 $ 138,268 $ 137,230 $ 137,030 _______________________________________________________________________________________________________ Source: City of Buffalo Administration, Finance, Policy and Urban Affairs, Division of Budget (1)The tax levy for Capital Debt Service includes City and Buffalo CSD debt

Utility Taxes

The Class I Utility Tax collected by the City quarterly is levied against gas, electric and telephone utilities. Since 1990, the utility tax rate has been 3.0% of total gross receipts. The revenue from this source was $10.2 million for the 2014-15 fiscal year compared to $8.4 million for the 2013-14 fiscal year and $9.3 million for the 2012-13. The budgeted amount for 2015-16 is $9.5 million.

Annual Payment from the Water Board

Pursuant to an operation agreement by and between the City and the Buffalo Water Board dated September 24, 1992, the Board initially paid the City $4.0 million in the 1992-93 fiscal year. This amount may be increased by 5.0% compounded annually at the City’s sole discretion. The actual amounts received were $5.7 million for 2014-15, $5.4 million for 2013-14 and $5.2 million for 2012-13. The adopted budget amount for 2015-16 is $6.0 million. Such payment is made in lieu of utility taxes and also for certain legal, payroll and other services performed by City personnel.

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Departmental and Other Revenues

Departmental revenues consist of various fees received from licenses, permits, rentals, concessions, commissions and asset sales as well as interest earnings on the temporary investment of idle funds.

DEPARTMENTAL AND OTHER REVENUE Fiscal Year Ended June 30

(in millions)

Actual 2012-13

Actual 2013-14

Actual 2014-15

Adopted 2015-16

Parking and Other Fines $7.3 $6.9 $6.2 $12.3Interest Earnings 1.2 0.9 0.7 0.8License and Permits 3.4 3.3 4.1 4.7Cable Francise Tax 2.8 2.8 2.8 2.8Payment In Lieu of Taxes 5.6 5.3 6.0 5.5

_______________________________________________________________________________________________________ Source: City of Buffalo Administration, Finance, Policy and Urban Affairs, Division of Budget

Intergovernmental Revenues

The principal categories of State aid to the City are State aid for education, general State aid and Aid and Incentive for Municipalities (AIM). In addition, there are several lesser State aid, grants and shared revenues including the mortgage tax (collected for the City by the State at the rate of 50 cents per $100 of mortgages) which was $1.6 million for 2014-15, 2013-14, and 2012-13. The adopted budgeted amount for the 2015-16 fiscal year is $2.2 million. State grants and aids for operating purposes are accounted for in the City’s General Fund. State aid for education is accounted for in the Buffalo CSD’s General Fund.

New York State Aid to Education

Beginning with the 2007-08 fiscal year, the majority of State aid to be received by the Buffalo CSD has been calculated using “Foundation Aid.” Foundation Aid was established by the 2007-08 State budget and combined four categorical aid grants with certain other formula aids. Formula aids consist of State aid determined in accordance with an application submitted to the State Education Department (“SED”), which incorporates required data concerning district enrollment, attendance and approved expenditures. At its inception, Foundation Aid established minimum annual increases in State aid of 3.0% per year through 2010-11, with high poverty districts such as the Buffalo CSD receiving more assistance. However, based on the economy of New York State, the State aid guarantees were abandoned after the first year. The Buffalo CSD received its first increase in Foundation Aid since 2008-09 with the adoption of the 2012-13 New York State Budget and has since received increases each year.

Other State aid includes State Building Aid, the purpose of which is to assure that each school district provides suitable and adequate facilities to accommodate students and programs of the district. To this end, new facilities, new buildings, additions and major alterations must meet specific standards pertaining to type, size and number of teaching stations, as well as building code requirements. Existing facilities must meet health and safety regulations and reconstruction of existing facilities must meet building code requirements.

The State Commissioner of Education must approve plans and specifications for the capital construction projects undertaken by public school districts. This charge is administered by the Office of Facilities Planning pursuant to Section 408 of the Education Law and Part 155.2 of the Regulations of the Commissioner of Education. State Building Aid is payable commencing 18 months after the State Education Department approves the final plans and specifications of a project with a Final Cost Report on file unless a waiver is granted by the Commissioner of Education. Currently, State Building Aid reimburses approximately 98.0% of approved costs for projects completed or now under construction for the Buffalo CSD. State Building Aid fluctuates from year to year based on a number of factors including the ratio of the City’s wealth to the State’s

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average wealth. The receipt of Foundation Aid is dependent upon, among others, satisfaction of certain monitoring and expenditure requirements. In addition, within Foundation Aid there are stipulations that the Buffalo CSD must use a formula-based amount on new programs, or expansion of existing programs, to improve student achievement as outlined in the Contract for Excellence (“CFE”). No increases in Foundation Aid were received in fiscal years 2010-11, or 2011-12. For fiscal years 2013-14, 2014-15 and 2015-16 the total CFE set-aside was $13.6 million.

The Buffalo CSD depends on substantial financial assistance from the State. The Buffalo CSD received $697.9 million of “State Aid” for all funds in fiscal year 2014-15 and $679.8 in fiscal year 2013-14. For the current fiscal year ending June 30, 2016, the Buffalo CSD budgeted $736.5 million of State Aid receipts for all funds, and as of December 31, 2015, expects to receive approximately $733.1 million by the close of such fiscal year. This projection is based upon the sum of, (i) a $684.7 million apportionment to the Buffalo CSD for operations and maintenance expenses, (ii) $47.6 million in projected receipts of State grant funding and; (iii) $0.8 million in projected receipt of food service funding. No assurance can be given that State Aid for all funds actually received by the Buffalo CSD in its 2015-16 fiscal year will equal the amounts estimated above, but the Buffalo CSD believes that this estimate of State Aid for all funds is reasonable based prior year State Aid receipts.

Another State aid category, Charter School Transitional Aid, was established in the 2007-08 as part of the State Budget to help provide relief from the financial drain caused by the significant number of charter school students in certain school districts, including the Buffalo CSD. Charter School Transitional Aid totaled $8.2 million for 2012-13, $7.8 million for 2013-14 and $4.4 million for 2014-15. The 2015-16 projected amount for Charter School Transitional Aid is $3.8 million. The aid continues on a rolling basis so long as charter school enrollment continues to increase.

The Buffalo CSD receives State aid for education in several installments paid to the City throughout its fiscal year based on a formula established by SED. These installments of State aid are paid net of the Buffalo CSD’s contributions to the New York State Teachers’ Retirement System.

The projected State aid for the Buffalo CSD General Fund, as of December 31, 2015 is $684.7 million, based on the amended budgeted amount of $688.1 million for the 2015-16 fiscal year.

In fiscal year 1999-00, the Buffalo CSD received additional lottery aid in the amount of $30.0 million which was provided to the Buffalo CSD to assist in funding the Buffalo Teachers Federation (“BTF”) settlement payment. The $30.0 million comprises two components: the first $20.0 million was used for the teacher settlement amount paid in July 2001, and the second component of $10.0 million was to be used as a stabilization reserve for the annual debt service owed to the New York State Municipal Bond Bank Agency for the $25.0 million advanced to the Buffalo CSD for the BTF settlement. The $30.0 million in lottery aid took the form of a “lottery advance” from the State. In effect, the $20.0 million was a loan from the State which is to be paid back over 30 years. The repayment of this “loan” is captured in annual installments through a reduction in the amount of lottery aid paid to the Buffalo CSD, such deductions began in fiscal year 2001. The Buffalo CSD took an additional advance of $1.4 million in the 2005-06 fiscal year in accordance with Chapter 465 of the Laws of 2005. This advance is also treated as a “loan” to be repaid over 30 years and the repayment is captured from annual aid installments. The Buffalo CSD records the gross amount of aid with its regular basic State aid amount and books debt service payments for the amount of the installments withheld by the State.

Chapter 57 of the Laws of 2005 provided for an apportionment to school districts for public pension accruals required to be accounted for beginning in the 2004-05 school year. Upon application, the apportionment is available to the Buffalo CSD as revenue and may be used to offset any General Fund deficit resulting from the impact of the implementation of GASB Technical Bulletin 2004-2. The apportionment is an advance of the subsequent years general aid payable, and will reduce general aid in such subsequent years. The Buffalo CSD applied for and received an advance of $11.5 million in each of the fiscal years 2004-05 through 2014-15. The Buffalo CSD intends to continue this practice so long as the legislation is renewed.

Payment of State aid for education may be withheld due to the failure of the City or the Buffalo CSD to comply with various requirements of State law or the regulations of the Commissioner of Education relating to

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instructional programs, programs for the handicapped or other matters or the failure of the City to pay debt service on obligations issued for school purposes. The City and the Buffalo CSD believe that they are in material compliance with all other requirements and have made the necessary debt service appropriations.

In addition to State aid for education, the Buffalo CSD receives federal medical reimbursement for certain health services provided to students. The Buffalo CSD received a total of $2.9 million for Medicaid reimbursement in fiscal year 2013-14, $0.7 million for 2014-15 and has projected $3.0 million for 2015-16.

The Buffalo CSD depends in significant part on financial assistance from the State. Accordingly, in this year or future years, if the State should experience difficulty in borrowing funds in anticipation of the receipt of State taxes or if the State experiences delays in the adoption of the State budget, the State may have to delay payments of aid to its municipalities and school districts, including the Buffalo CSD, until sufficient State funds are available to make such payments. The Buffalo CSD may be adversely affected by such delay. In the past, delays in adoption of the State budget have resulted in delays in the payment of State aid to municipalities and school districts.

In conjunction with the reconstruction of the Buffalo CSD school facilities and the issuance of the bonds by the Erie County Industrial Development Agency (“ECIDA”) to finance such reconstruction, the City and the Buffalo CSD have entered into a State Aid Trust Agreement. Pursuant to the State Aid Trust Agreement between the City, the Buffalo CSD, and Manufacturers and Traders Trust Company (“M&T”), the State Comptroller’s Office is directed by the City and the Buffalo CSD to pay all amounts of State aid to education appropriated by the State for the benefit of the Buffalo CSD to the State Aid Depository Fund held by M&T, as Depository Bank under such agreement. Amounts held in the State Aid Depository Fund are applied to pay debt service on such ECIDA bonds. (See “BUFFALO CSD SCHOOL FACILITIES RECONSTRUCTION PROJECT” herein.)

New York State General Purpose Aid

Prior to the enactment of the BFSA Act, the City received General Purpose Aid directly from the State. Pursuant to the BFSA Act, the City receives General Purpose Aid from the State through the BFSA. The budgeted amount for 2015-16 is $161.3 million. General Purpose Aid revenue recognized in the 2014-15 fiscal year was $161.3 million.

STATE GENERAL PURPOSE AID Fiscal Year Ended June 30

(000’s Omitted)

Actual Actual Actual AdoptedRevised Budget

2012-13 2013-14 2014-15 2015-16 2015-16

Total General Purpose Aid $179,936 $161,285 $161,285 $161,285 $161,285 __________________________________________________________________________________________________________________ Source: City of Buffalo Department of Audit & Control, Division of Accounting

Pursuant to the BFSA Act, the amounts of municipal aid appropriated by the State as local government assistance for the benefit of the City and the City’s and Buffalo CSD’s share of County sales taxes shall be paid by the State Comptroller to the BFSA and the City shall have no right, title, or interest in such revenues paid to the BFSA. (See “THE BUFFALO FISCAL STABILITY AUTHORITY” herein.) After application of such revenues to debt service obligations, if any, and operating expenses of the BFSA and subject to the BFSA’s agreements with the City, the balance of such revenues are to be transferred to the City as State BFSA Aid.

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State Aid and Initiatives for Municipalities

New York State included $16.1 million, $12.8 million and $12.8 million in its budgets for 2008-09, 2007-08 and 2006-07 respectively, for a total of $41.7 million in State Aid and Incentives for Municipalities (AIM) funds. These funds, which were paid to the BFSA for distribution to the City are to be used to reduce the property tax burden within the context of the approved four-year financial plan. Any funds not used for this purpose were to be held by the BFSA for use by the City for initiatives to permanently reduce the cost of City government.

The AIM funding can be used to (1) minimize or reduce the real property tax burden; (2) invest in economic development or infrastructure to achieve economic revitalization and generate real property tax growth; and (3) support investments in technology or other reengineering initiatives that permanently minimize or reduce operating expenses.

To date the City received $41.5 million to spend on BFSA approved initiatives. Currently the BFSA has $0.2 million of AIM funds that have not been released to the City.

Federal Aids and Grants

Federal categorical grants received by the City for restricted purposes are not normally budgeted as General Fund revenues with the exception of the treatment of staff support grants or the administrative portion of grants managed by City departments. The funding level for the 2015-16 fiscal year for the Consolidated Plan, which includes the Community Development Block Grant (CDBG) program, HOME Investment Partnership (HOME), Emergency Shelter Grant (ESG), and Housing Opportunities for Persons With AIDS (HOPWA), is $18.2 million, a decrease of $0.9 million compared to 2014-15. The termination or reduction of any of these programs could mean curtailment or assumption of these programs by the City.

Erie County Sales Tax

A general sales and compensating use tax of 8.75% is levied on all taxable retail sales in the County. Of the total 8.75% collected by the State, 4.0% is retained as State revenue and 4.75% is returned to the County. Of the County’s 4.75%, 1.75% is retained by the County for County purposes, with one exception. As described below, $12.5 million of the additional 1.00% sales tax imposed by the County is shared with local municipalities pursuant to State legislation. The remaining 3% is distributed among the County, local municipalities and school districts in the County pursuant to the sales tax sharing agreement. The agreement provides that any party may terminate the agreement upon one year’s prior written notice.

From 1985 and through 2006, the County annually received authorization from the State Legislature and Governor to assess an additional one percent sales tax to the base County sales tax of three percent. During that time all of the proceeds of the additional one percent sales tax were retained by the County. In 2006, the County was required by the State Legislature to adopt enabling legislation that shared $12.5 million in revenue from the one percent sales tax with the cities, towns and villages in Erie County starting in 2007. That legislation was renewed by the State Legislature at the request of the County Legislature and County Executive in 2008 and 2010. Furthermore, following legislative changes in 2010, the sharing of $12.5 million in sales tax revenue was made permanent as long as the County maintains a one percent sales tax.

The BFSA Act requires that the City’s share of County sales taxes payable to the City under the foregoing agreement will be paid by the State Comptroller to the BFSA and the City will have no right, title or interest in such revenues. After use of such revenues to pay debt service obligations, if any, and operating expenses of the BFSA and subject to the BFSA’s agreements with the City, such revenues are to be transferred to the City.

For fiscal year 2015-16, the City expects to receive $84.5 million and the Buffalo CSD expects to receive $42.0 million from this source. Pursuant to the BFSA Act, the City’s and the Buffalo CSD’s share of sales tax is required to be received by the BFSA and subsequently forwarded to the City. The City’s share will be reduced by the BFSA operational expenses which are projected to be $0.9 million for 2015-16. For fiscal year 2014-15, the City received $80.4 million and the Buffalo CSD received $37.1 million from this source.

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EXPENDITURES

City expenditures may be categorized as those made for general City services, for grants-in-aid or for operations of related entities and for debt service and certain other costs. City services are provided through numerous departments, as indicated by the following table.

Department

2015-16

Appropriations(1)

Full-Time Funded Positions

Legislative 2,069,941$ 36City Clerk 2,570,711 19Executive 3,474,062 55Audit & Control 3,335,430 49Law 4,027,873 43Assessment 3,950,892 31Management Information Systems 4,388,865 33Administration & Finance 10,702,059 57Parking 2,949,310 43Police 80,322,158 1,013Fire 59,033,960 764Human Resources 5,472,707 20Public Works, Parks & Streets 28,368,255 361Community Services 4,086,637 34Permits & Inspections 5,611,828 93

General City Total 220,364,688 2,651

Division of Water 6,691,909 129Parking 100,115 1Refuse & Recycling 17,532,768 146

Total 244,689,480$ 2,927

_______________________________________________________________________________________ Source: City of Buffalo, Department of Audit & Control, Division of Accounting (1)Appropriations in the 2015-16 Adopted City Budget.

FUNDED ANNUAL / FULL-TIME SALARIED POSITIONS BY MAJOR CITY DEPARTMENT(1)

2005-06 as compared to 2015-16

Number of Number of Number Percentage

Positions Positions Increase Increase

FY 2005-06 FY 2015-16 (Decrease) (Reduction)

Police 948 1,013 65 2.33%

Fire 806 764 (42) (8.30%)

Public Works, Parks & Streets 299 360 61 20.13%___________________________________________________________________________________________________ Source: City of Buffalo Administration, Finance, Policy and Urban Affairs, Division of Budget (1)Funded full-time salaried positions as of December 31, 2015

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Employee Contracts

Employee contracts are in place for the 2015-16 fiscal year with four of the City’s eight bargaining units, as shown in the following table. The contracts with the remaining bargaining units have expired and are currently under negotiation. In the 2015-16 adopted budget, the City has included $9.0 million for union contract settlements.

The City

The following chart describes the City unions, number of employees, when present agreements expire and when past agreements have expired. The number of employees is effective as of December 31, 2015.

UnionsNumber of Employees

Present Agreements

Expire

PBA (Police Officers) 703 6/30/2019Local 282 (Firefighters) 823 6/30/2017Local 264 (Blue Collar) 549 6/30/2011Local 650 (White Collar) 447 6/30/2019

CGA (Crossing Guards) 116(1)

8/31/2015Local 2651 (Building Inspectors) 56 6/30/2012Local 264T (Pipe Caulkers) 31 6/30/2016Local 17 (Operating Engineers) 22 6/30/2013

Source: City of Buffalo, Department of Audit Control, Division of Audit (1)Seasonal Employees, laid –off during Summer Months

The Buffalo CSD

Two employee contracts of the ten bargaining units representing the employees of the Buffalo CSD are in place for the 2015-16 fiscal year. The contracts of two bargaining units have expired as of July 1, 2004, one as of July 1, 2010, one as of July 1, 2012, and three as of July 1, 2013.

The following chart describes the Buffalo CSD unions, approximate number of employees represented, and the present agreement expiration dates. The number of employees is effective as of December 31, 2015.

Unions

Number of

Employees(1)

Present Agreements Expire

BTF (Teachers) 3,487 6/30/2004BCSA (Administrators) 240 6/30/2004PCTEA (White Collar) 421 6/30/2013Local 264 (Blue Collar) 63 6/30/2013Local 264 (Cook Managers) 25 6/30/2017BEST (Teachers Aides & Assistants) 873 6/30/2012SUBSTITUTES UNITED (Substitute Teachers) Variable 6/30/2013TRANSPORTATION AIDES (Bus Aides) Variable 6/30/2018Local 409 (Engineers) 55 6/30/2010Trades 28 N/AExempt (includes Board) 31 N/A

Source: Buffalo CSD, Finance Department. (1)Includes General, Grants and Food Service Funds, as of December 31, 2015

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Pursuant to the BFSA Act, during a Control Period, the BFSA is empowered to impose a wage and/or hiring freeze with respect to employees of the City or any Covered Organization and to review and approve or disapprove any collective bargaining agreement to be entered into by the City or any Covered Organization. In accordance with the foregoing powers, on April 21, 2004, the BFSA adopted a general wage freeze resolution which, as of April 22, 2004, froze the wages of all City employees and employees of any non-exempted Covered Organizations at their current levels. In recognition of the City’s improved fiscal health, the BFSA lifted this wage freeze effective July 1, 2007, which allowed for a one step increase on employees’ salary schedule.

Retirement Benefits

Most City employees who are eligible for pensions under the Retirement and Social Security Law of the State, as well as most civil service employees of the Buffalo CSD, are members of either the New York State and Local Employees’ Retirement System (the “ERS”) or the New York State and Local Police and Fire Retirement System (the “PFRS”). Eligible teachers in the Buffalo public school system are members of the State Teachers’ Retirement System (the “TRS”).

The ERS was established in 1920. In 1967, all police officers and firefighters were transferred into the separate PFRS. Both retirement systems are administered by the State Comptroller. The TRS is separately administered by a ten member board. These retirement systems had been actuarially funded using an aggregate cost valuation method. Under this method, the unfunded cost of retirement benefits of active members was accrued and funded each year as a level percentage of compensation of such members. The aggregate cost valuation method does not develop a separately stated past service liability. In 1990 State laws were enacted to change from the aggregate cost valuation method to a projected unit credit (“PUC”) valuation method.

Local Employees’ Retirement System

The benefit packages available to City and Buffalo CSD employees who are members of ERS depend on the date of their enrollment in the system and/or their classification as first tier, second tier, third tier, fourth tier, fifth tier or sixth tier employees. Benefit packages available are prescribed by the State and are most liberal for first tier and least liberal for sixth tier employees. The followings tables exhibit the member enrollment date, related tier and contribution rate.

City & Buffalo CSD Employee Retirement System (ERS) - Tier Schedule

Enrollment Date NYS Retirement Tier Before July 1, 1973 Tier 1

July 1,1973 Tier 2 July 27, 1976 Tier 3

September 1, 1983 Tier 4 January 1, 2010 Tier 5

April 1, 2012 Tier 6

City & Buffalo CSD Employee Retirement System (ERS) - Employee Contribution Schedule

Tier 1&2 Tier 3&4 Tier 5 Contribution Rate 0.0% 3.0% First 10 years of employment 3.0% For their entire career

Tier 6 Salary Range ≤ $45,000 $45,001-$55,000 $55,001-$75,000 $75,001-$100,000 ≥ $100,001 Contribution Rate 3.0% 3.5% 4.5% 5.75% 6.0%

_________________________________________________________________________________________ Source: City of Buffalo Department of Audit & Control, Division of Accounting & Office of New York State Comptroller

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For the plan year ended March 31, 2015, which was payable December 15, 2014, the required contribution by both the City and by the Buffalo CSD was 27.7% of salary for first tier, 25.3% for the second tier, 20.3% for third and fourth, 16.6% for fifth tier and 10.9% for sixth tier employees. The 2016 invoice, which was paid December 15, 2015, was based on actual March 31, 2015 salaries. The required contribution by both the City and by the Buffalo CSD was 25.2% of salary for first tier, 23.1% for the second tier, 18.8% for third and fourth, 15.5% for fifth tier and 10.5% for sixth tier employees.

Police and Fire Retirement System

City police officers and firefighters who are members of PFRS are divided into five tiers. The followings tables exhibit the member enrollment date, related tier and contribution rate.

Police & Fire Retirement System (PFRS) – Tier Schedule

Enrollment Date NYS Retirement Tier Before July 1, 1973 Tier 1

July 1, 1973 Tier 2 July 1, 2009 Tier 3

January 9, 2010 Tier 5 April 1, 2012 Tier 6

Police & Fire Retirement System (PFRS) – Employee Contribution Schedule

Tier 1&2 Tier 3 Tier 5 Contribution Rate 0.0% 3.0% First 10 years of employment 3.0% For their entire career

Tier 6

Salary Range ≤ $45,000 $45,001-$55,000 $55,001-$75,000 $75,001-$100,000 ≥ $100,001 Contribution Rate 3.0% 3.5% 4.5% 5.75% 6.0%

_________________________________________________________________________________________ Source: City of Buffalo Department of Audit & Control, Division of Accounting & Office of New York State Comptroller

For the plan year ended March 31, 2015, which was payable December 15, 2014, required contributions by the City were 32.9% of salaries for first tier special 20 year plan (384E), 27.6% of salaries for second tier employees, 22.3%% of salaries for tier three employees and 15.6% for tier five employees. The 2016 invoice, which was paid December 15, 2015, was based on actual March 31, 2015 salaries. The required contributions by the City were 30.3% of salaries for first tier special 20 year plan (384E), 25.1% of salaries for second tier employees, 20.4% for tier five employees and 14.5% for tier six employees.

State Teachers’ Retirement System

Contributions for teachers who are members of TRS are made at a rate of salary which is the same for all members. Since July 1, 1976 new members of TRS must make annual contributions of 3.0% of their salaries, similar to third and fourth tier members of ERS. For fiscal year 2015-16, the Buffalo CSD contribution is 13.26% of salaries. Payment is withheld from aid to education payments in the fall of the fiscal year subsequent to which the rate is applicable. The Buffalo CSD records the liability in the year it is incurred, i.e., the year for which the rate is applicable.

Due to the change to the PUC valuation method by the State Retirement System in 1990, the retirement contribution now includes a regular pension estimated contribution, an annual contribution adjustment based on previous year actuals and adjustments based on changes to the retirement system valuation.

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Retirement Contribution Payments

On December 15, 2015, there was a retirement contribution of $10.2 million paid by the City for the ERS and $23.0 million for PFRS. Chapter 49, Laws of 2003 changed the billing cycle and instituted a minimum contribution rate for both ERS and PFRS, which is equal to 4.5% of payroll every year, including years in which the investment performance of the system would make a lower contribution possible. The City has been paying retirement bills in December and does not anticipate amortizing bills. Chapter 94, Laws of 2015 changed the calculation of employer contributions for the funding on the basis of rates determined on known salaries from the prior fiscal year rather than on an estimate of salaries from the incomplete current fiscal year.

There was a retirement contribution of $7.7 million paid by the Buffalo CSD for the fiscal year ended March 31, 2015 for the ERS. In December 2013, the Buffalo CSD elected to participate in the Alternative Contribution Stabilization Program (Chapter 57, Laws of 2013) for payment of retirement contribution whereby they paid the minimum amount due of $5.1 million and amortized $3.4 million over twelve years at 3.76% interest. In December 2015, the current bill plus the amortization amount of $0.4 million was paid.

For the City’s method of recording the estimated unbilled liability see “DISCUSSION OF FINANCIAL OPERATIONS – Basis of Accounting,” herein. Required Buffalo CSD contributions under the ERS follow the same billing and accounting procedures as those of the City.

The following table indicates general fund expenditures recorded by the City for ERS and PFRS for fiscal years 2012 through 2015, total expenditures paid by the Buffalo CSD for ERS and TRS during the fiscal years 2012 through 2015, and budget amounts for 2015-16.

TRS, ERS & PFRS EXPENDITURES Fiscal Year Ended June 30

Actual Actual Actual Actual

Adopted Budget

2012 2013 2014 2015 2016

City (ERS)(1) 7,712,562$ 9,030,752$ 12,000,000$ 11,246,148$ 12,200,000$

City (PFRS) 24,930,521 30,515,685 33,225,000 40,414,089 32,000,000

Board (ERS) 7,129,235 8,421,974 8,571,712 7,695,528 7,283,149

Board (TRS)(2) 33,198,819 28,676,187 30,497,559 42,995,223 46,154,744 _____________________________________________________________________________________________________________________ Source: City of Buffalo, Department of Audit & Control, Division of Accounting & Buffalo CSD, Finance Office. (1)Net of reimbursements received from the Buffalo Society of Natural Sciences, the Buffalo Fine Arts Academy and Enterprise (2) Includes payment for Retirement Incentive Chapter 105, paid entirely by 2012

GASB 45 and Other Post-Employment Benefits (OPEB)

The City and Buffalo CSD provide post-retirement healthcare benefits to former employees. In addition, the City is required to pay the difference in pay between a disabled firefighter’s pension payment and the current salary for a firefighter until the retiree reaches the age of 70. These benefits are both funded on a pay as you go basis. Under the requirements of the Governmental Accounting Standards Board (GASB) Statement No. 45, “Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions” (GASB 45), all governmental entities are required to report the estimated cost of the accrued liability for such post-retirement benefits.

Under GASB 45, based on actuarial valuation, an annual required contribution (ARC) will be determined for each municipality. The ARC is the sum of (a) the normal cost for the year (the present value of future benefits being earned by current employees) plus (b) amortization of the unfunded accrued liability (benefits already earned by current and former employees but not yet provided for), using an amortization period of not more than 30 years. If a municipality contributes an amount less than the ARC, a net OPEB obligation will result, which is required to be recorded as a liability on its financial statements. GASB 45 does not require that the

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unfunded liability actually be amortized nor that it be advanced funded, only that the municipality account for its unfunded accrued liability and compliance in meeting ARC. The City has contracted with an actuary to perform the actuarial calculation. The City’s total actuarial accrued liability as of June 30, 2015 was determined to be $1.4 billion. The City’s ARC is $95.1 million. The Buffalo CSD had an actuarial evaluation performed in accordance with GASB 45 that disclosed an accrued OPEB liability of $1.8 billion as of June 30, 2015. The ARC for the Buffalo CSD is $163.5 million. There is no current requirement to fund the future OPEB obligation; however the Buffalo CSD assigned $38.4 million of fund balance in fiscal year 2014-15 for such obligation.

Actuarial valuations will be required every two years since both the City and Buffalo CSD have OPEB plans with more than 200 members. Should the City and the School District be required to fund their unfunded actuarial accrued OPEB liability, it could have a material adverse impact upon the City’s and the School District’s finances and could force the City and the School District to reduce services, raise taxes or both. At the present time, however, there is no current or planned requirement for the City and the School District to partially fund their actuarial accrued OPEB liability.

Health Insurance

The City provides continuing health insurance coverage for substantially all City employees active and retired. Actual expenditures for 2014-15 totaled $76.8 million which consisted of $31.6 million for active employees and $45.2 million for retired employees. The adopted budget for 2015-16 appropriates $78.9 million for both active and retired employees.

The Buffalo CSD provides continuing health insurance coverage for substantially all Buffalo CSD employees, including certain teachers who have retired from the Buffalo CSD. Since 1989, teachers who have retired with at least 15 years of service are provided with continuing health insurance coverage. It is the Buffalo CSD’s practice to fund these insurance premiums as billed. For the 2014-15 fiscal year the Buffalo CSD paid $124.3 million for both active and retired employees.

Debt Service

In fiscal year 2015-16, capital debt service charges for bond principal and interest and capital lease principal and interest obligations, for both the City and the Buffalo CSD are budgeted at $46.2 million.

Buffalo CSD

The Buffalo CSD General Fund operations are funded primarily from State aid, City appropriations and an allotment from County sales tax revenues. For fiscal year 2014-15, the Buffalo CSD received $661.3 million from State aid, $70.3 million from City Transfers including STAR aid and $40.2 million in sales tax revenues. As a matter of City policy, the Buffalo CSD is credited with the full amount of taxes levied by the City for operating purposes, regardless of any deficiency in tax collections.

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CITY-RELATED ENTITIES

The Buffalo CSD

The Buffalo CSD is dependent on funding from the City, the County, the State and the Federal government. It is governed by an independently elected nine-member Board of Education and operates pursuant to the New York State Education Law. The administration of the schools is the responsibility of the Superintendent of Schools who is appointed by the Board of Education of the Buffalo CSD. The school system operates 16 secondary schools, 38 elementary and intermediate schools, and two special schools. There are 16 charter schools that operate independently from the Buffalo CSD. All Charter Schools receive the same per pupil tuition rate for Buffalo resident pupils, regardless of their location.

The following table sets forth information relating to the size of the school system.

SIZE OF BUFFALO SCHOOL SYSTEM Fiscal Year Ended June 30:

2012 2013 2014 2015 2016Enrollment 32,816 32,765 33,938 34,402 34,174

Schools(1)

69 68 65 62 61

Instructional Staff (2)

3,389 3,403 3,489 3,431 3,487

Administrative Personnel(2)

198 208 240 239 240

Non‑Certified Personnel(2)(3)

1,462 1,454 1,517 1,505 1,496_____________________________________________________________________________________________ Source: Buffalo CSD, Finance Office (1)Includes active schools (with student enrollment), swing schools (with temporary enrollment) and schools under reconstruction (2)Paid from Buffalo CSD General, Grants and Food Service Funds, as of December 31, 2015 (3)Includes clerical, custodial, transportation, maintenance, instructional aides, exempt personnel and other full-time non- certified personnel

Pursuant to the Charter Schools Acts, the Buffalo CSD is required to pay a State-set tuition rate to charter schools that enroll students residing in the City. Charter school enrollment of City resident pupils increased from 3,100 students in the 2003-04 school year to 7,572 in the 2014-15 school year and was projected for budgeting purposes to be 8,025 in 2015-16. The projected enrollment for 2015-16 is now 8,055. The increases have been attributable to new seats made available through a combination of new school openings and continued growth of enrollment in existing charter schools. In 2003-04, the amount of charter school funding was $8,434 per student (including $7,934 for basic tuition, plus an estimated additional $500 for special education funding) for a total of approximately $26.4 million. The current funding rate is $12,897. Total payment were $94.1 million and $98.4 million in fiscal years 2013-14 and 2014-15 respectively. The budgeted amount for fiscal year 2015-16 is $103.5 million, but as of December 31, 2015, total payments are projected to be $103.7 million.

In 2007, the State lifted the statewide cap on the number of charter schools which may be established in the State. Accordingly, enrollment in charter schools is expected to increase through a combination of newly approved schools opening and grade evolution within existing charter schools; however increases may be offset with potential charter closings. New charter schools are not subject to Buffalo CSD approval, and while the cap on the number of charter schools has been raised statewide, additional requirements were added to the charter school approval process. It is unclear how these requirements will be interpreted by the Board of Regents (the body vested with responsibility for determining and formulating State education policy) and what effect such requirements will have on the establishment of additional charter schools.

The Buffalo CSD’s general fund operations, for its 2014-15 fiscal year, were funded 8.9% from the City, 0.1% from the Federal government, 84.0% from State aid, 5.1% from an allotment of County sales tax revenues and 1.9% from other sources of revenue. The Buffalo CSD received $40.2 million in sales tax revenues for 2014-15, and is projected to receive $42.0 million for 2015-16, as of December 31, 2015.

The total amount of State aid the Buffalo CSD received for all funds during the 2014-15 fiscal year was $661.3 million and is projected to receive $684.7 million for 2015-16, as of December 31, 2015.

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Buffalo Municipal Water Finance Authority

The Buffalo Municipal Water Finance Authority (the “Water Authority”) is a public benefit corporation created by the Buffalo Municipal Water Finance Authority Act, constituting Title 2-B of Article 5 of the Public Authorities Law of the State of New York. The Water Authority is administered by a Board of Directors consisting of seven members. Four members of the Board are ex-officio members; two are appointed by the Mayor and subject to confirmation by the City Common Council and one is appointed by the Governor. Pursuant to a Financing Agreement, the Water Authority has entered into an agreement with the Buffalo Water Board (the “Water Board”) and the City to provide for the financing of the acquisition of and capital improvements to the Water System through the issuance of bonds or other obligations of the Water Authority. The Water Authority has the power to issue bonds to finance renovations and improvements to the Water System, require the Water Board to fix rates sufficient to pay the costs of operating and financing the Water System and require the City to adequately maintain the System. The Water Authority issued $17,150,000 in bonds in April 2012 to finance system improvements. The total Water System Revenue bonds outstanding as of March 31, 2016 is $130,835,000. The Water Authority has no taxing power. The City is not liable to repay any debt issued by the Water Authority.

Buffalo Water Board

The Water Board is a corporate municipal instrumentality of the State created by Chapter 368 of the New York Law of 1988. Pursuant to an Acquisition Agreement by and between the Water Board and the City, the Water Board acquired title to the Water System from the City on December 29, 1992.

Pursuant to the operation agreement amendment dated August 22, 1997, the Water Board assumed the responsibility to manage, operate, maintain and repair the water system. The operation of the system includes the engagement of independent contractors for the fulfillment of the Water Board’s duties and obligations with respect to the system. The Water Board has contracted with an independent contractor to manage the system and a Management Agreement is in place which expires on June 30, 2020. The employees of the City of Buffalo, Division of Water continue to operate, maintain, repair and improve the system as provided for in the aforementioned Management Agreement. The Water Board will continue to provide water services for governmental purposes at no charge to the City. (See “REVENUES – Municipally Generated Revenues – Annual Payment from the Water Board,” herein.)

The Water Board is empowered to establish, fix, revise, charge, collect and enforce the payment of all fees, rates, rents and other service charges for the use of or services furnished to the Water System. The Water Board has covenanted to establish and collect rates, fees and charges to provide sufficient funds in each fiscal year to at least equal (a) 115% of estimated debt service on outstanding Water Authority indebtedness, (b) 100% of the operating expenses of the Water System, (c) 100% of Water Authority and Water Board expenses and (d) 100% of amounts necessary to pay other required deposits.

The Water Board consists of seven members who are appointed by the Mayor and subject to confirmation by the City Common Council.

Buffalo Urban Renewal Agency

The Buffalo Urban Renewal Agency (“BURA”) was established under the General Municipal Law of the State in 1966 and is composed of the Mayor and eight other members, including the President of the Common Council, the Chairman of the Urban Renewal Committee of the Council, the Minority Leader of the Council, the Corporation Counsel of the City, the Executive Director of the Mayor’s Office of Strategic Planning, the Commissioner of Administration and Finance of the City, and two residents of the City appointed by the Mayor. The terms of the members expire with the term of the Mayor.

The City’s Office of Strategic Planning is designated as the operating arm of BURA. Historically, BURA was designated by the Common Council as the vehicle through which federal grants for urban renewal to the City are channeled. Effective with 2012-13 fiscal year federal funds were allocated directly to the City. The City has entered into a sub-recipient agreement with BURA to administer some of these activities.

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The Consolidated Plan includes the Community Development Block Grant (CDBG) program, HOME Investment Partnership (HOME), Emergency Shelter Grant (ESG), and Housing Opportunities for Persons with AIDS (HOPWA). In the 2015-16 fiscal year, funds of approximately $17.0 million, of which $12.6 million are Federal CDBG funds have been awarded to the City. A significant portion of these funds have been utilized to fund physical development related to neighborhood and commercial revitalization within the City.

Buffalo Sewer Authority

The Buffalo Sewer Authority (the “Sewer Authority”) is a public benefit corporation created in 1935 under the Public Authorities Law of New York State. The Sewer Authority is responsible for the collection, conveyance and treatment of wastewater generated within the City and several suburban communities in order to eliminate sewage pollution in the Niagara and Buffalo Rivers and Lake Erie. Currently the Sewer Authority operates and maintains 845 miles of sewers in the City. The Sewer Authority also operates the Bird Island Sewage Treatment Plant, which is a 180-million gallon per day treatment facility providing primary and secondary treatment and disinfection.

The Board of the Sewer Authority consists of five members appointed by the Mayor for a term of three years. These appointments are subject to confirmation by the Common Council. The Buffalo Sewer Authority is a separate entity which has the power to raise its own revenues, incur debt, construct facilities and to enforce its rules, regulations and permits. With the consent of the City, the Sewer Authority is authorized to utilize the employees and facilities of the City to carry out its duties and responsibilities. The Sewer Authority utilizes the services of the City’s Law Department, the Department of Audit and Control, the Assessment Department, the Treasury Division and the Water Board. Sewer rent charges based on assessed valuation are mailed with the City tax bills and sewer rents based upon water usage are billed by the Water Board. For all these services, the Sewer Authority paid the City $3.9 million in 2014-15. This charge includes $0.5 million for the Water Board. Additionally, the Sewer Authority paid the Water Board an estimated $0.5 million for water use during 2013-14. Finally, the Corporation Counsel, Comptroller and the Treasurer serve in the same capacity for the Sewer Authority as they do for the City.

The 2015-16 budget for the Sewer Authority totals $54.0 million. There was a $0.9 million increase over the prior year. The major revenues for the Sewer Authority are sewer charges based upon water consumption. The sewer levy, which is a sewer charge based on assessed valuation, was held constant.

The outstanding debt for the Sewer Authority was $43.9 million at June 30, 2015. The bonds were issued by New York State Environmental Facilities Corporation (the “EFC”), in 2003, 2004, 2006 and 2012 (Series 2003A, 2004B, 2004D, 2006C and 2012E).

The Sewer Authority received its final State Pollution Discharge Elimination System (“SPDES”) permit effective July 1, 2004. This permit requires the Sewer Authority to prepare a long term plan to fund and abate CSO (Combined Sewer Overflows) in the City. The project to develop the CSO abatement started in January 2000 and was completed in July 2004 and forwarded to the DEC for review. The Sewer Authority, the DEC and the EPA are in discussions to develop an order of consent, which will detail the specifics of the plan that will be implemented.

Buffalo Municipal Housing Authority

Public housing projects in the City are owned and operated by the Buffalo Municipal Housing Authority (“BMHA”), an independent government agency created in 1934 under the New York State Public Housing Law. The BMHA is administered by a seven-member board; five members are appointed by the Mayor for a five-year term and two members are elected by the tenants. The BMHA makes payments in lieu of taxes to the City on behalf of the low rent housing projects.

Under the State program, the BMHA constructed four projects with 1,934 units between July 1953 and November 1959. Funds for construction were provided through the issuance of State housing bonds. The original State subsidy for construction of these projects was based upon construction costs.

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In March 1961, the BMHA, the City and the State entered into a contract whereby the BMHA receives an annual subsidy from the State and the City. The City is responsible for the annual net operating losses after the State subsidy amount. Currently, two of the projects have been federalized, one is vacant. The City doesn’t anticipate making any further subsidy payments on these projects.

The BMHA constructed 22 federally aided housing projects with a total of 5,223 units between 1937 and 1980. Funds for the construction of these projects were made available through the issuance of public housing bonds by the U.S. Department of Housing and Urban Renewal. These projects have been financially self-supporting and are financed through federal rent subsidies, federal operating subsidies and debt service subsidies. Also, the federal government provides funding for modernization of these projects. Presently, the BMHA maintains 4,295 units. This reduction in units is due in part to demolitions and conversion of units to enhance marketability. In addition, The BMHA administers approximately 1,200 housing choice vouchers under two Section 8 programs.

The BMHA also participates in the implementation of the HOPE VI Grant Program (Homeownership and Opportunity for People Everywhere). This grant enables the demolition of obsolete public housing projects or portions thereof, the revitalization (where appropriate) of sites (including remaining public housing units) on which sites are located, replacement housing which will avoid or lessen concentration of very low-income families, and tenant based assistance in accordance with Section 8 of the United States Housing Act of 1937 for the purpose of providing replacement housing and assisting tenants to be displaced by demolition.

Other Entities

Erie County

The County, in which the City is located, historically has been responsible for the funding and administration of social service programs such as Medicaid, Family Assistance and Safety Net Assistance programs for City residents.

The County operates the former City library system and meets all operating costs of the system. The City is responsible for capital construction costs and all maintenance for any branches located in the City.

The County Department of Central Police Services has responsibility for police recruit training including City police officers, for the police laboratory, for police computer services and for the intake of complaint calls at the 911 communications center.

The amount of County real property taxes that may be levied in any fiscal year, other than for debt service on County indebtedness, is constitutionally limited to 1.5% (subject to an increase up to 2.0% by resolution of the County Legislature) of the average full valuation of taxable real estate for the previous five years. A local law, however, effective January 1, 1979, limits the maximum amount of real property taxes that can be levied other than for debt service to 1.0% of such average full valuation of taxable real property.

Zoological Society of Buffalo

The Buffalo Zoo, located within Delaware Park, is operated under a private management contract with the Zoological Society of Buffalo (the “Zoological Society”). Under provisions set forth within the agreement, the Common Council must approve all fees charged, concession licenses and sub-licenses proposed by the Zoological Society. All capital improvements and/or substantial repairs must be approved by the Department of Public Works. The Zoological Society’s proposed budget must be submitted to the City and all salaries over $20,000 per year must be approved by the Mayor.

Niagara Frontier Transportation Authority

The Niagara Frontier Transportation Authority (the “NFTA”) was created in 1967 as a Public Benefit Corporation in New York State. The NFTA is a multi-modal transportation authority responsible for air and surface transportation in Erie and Niagara Counties. Its Board consists of a chairman and 10 other voting commissioners appointed by the Governor with the confirmation of the State Senate and 1 non-voting commissioner representing the authority’s largest union. There is a financial or operating relationship with the City related to the Board of Education’s payments to cover the cost of transporting school children to and from

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Buffalo CSD schools and the NFTA acts as a pass through of Federal Transit Administration grant funds for projects related to the Buffalo Niagara Medical Campus and Cars Sharing Main Street.

The NFTA operates a unified Metro Bus and Rail system in the two-county area with three transportation centers, the Metropolitan Transportation Center in the city of Buffalo, the Niagara Falls Transportation Center and the Portage Road Transit Center. The Metro Bus system is run by a subsidiary of the NFTA, Niagara Frontier Transit Metro System, Inc. This subsidiary began operations on April 1, 1974. Metros’ fleet includes 330 buses, 62 small buses for fixed route and Paratransit service, five MetroLink Trolleys, and 27 rail cars. The 78 bus routes, traveling 11.7 million miles per year, and the 6.2-mile rail line provide transportation service across the 1,575 square mile service area in Erie and Niagara counties, serving an estimated 28 million passengers a year.

The NFTA also operates the Buffalo Niagara International Airport (BNIA) and the Niagara Falls International Airport (NFIA). The BNIA is a 25-gate facility, which includes a federal inspection service providing accommodations for both domestic and international flights. Major national air carriers, which include Delta, American, Jet Blue, Southwest and United, and their respective regional air carriers service the BNIA. The Niagara Falls International Airport serves as the reliever airport for the area, and presently has commercial, charter and general aviation operations at the airport and a military base and home station for units of both the United States Air Force Reserve and the New York State Air National Guard.

Erie Harbor Development Corporation

Erie Canal Harbor Development Corporation (ECHDC) was formed in 2005 as a subsidiary agency of Empire State Development Corporation, New York State’s chief economic development agency. ECHDC oversees the City’s waterfront projects both on the Inner Harbor, including the Canalside project, and its newly acquired lands on the Outer Harbor. ECHDC’s mission is to revitalize the region’s waterfront and restore economic growth to Buffalo, based on the region’s legacy of pride, urban significance and natural beauty.

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THE BUFFALO FISCAL STABILITY AUTHORITY

In May 2003, the State declared a state of fiscal crisis with respect to the City and on July 3, 2003, the Governor signed into law Chapter 122 of the Laws of 2003 of the State, as amended from time to time (the “BFSA Act”), creating the BFSA. The BFSA is a corporate governmental agency and instrumentality of the State constituting a public benefit corporation with a broad range of financial control and oversight powers over the City. Such oversight includes reviewing and commenting on the terms of any proposed borrowing by the City and certain non-exempted “Covered Organizations” (as defined in the BFSA Act and include, among others, the Buffalo CSD and the JSCB).

The BFSA is governed by a board of nine directors, seven of which are appointed by the Governor of the State. Of the seven directors appointed by the Governor, one must be a resident of the City, one is to be appointed following the recommendation of the State Comptroller, and one is to be appointed on the joint recommendation of the Temporary President of the Senate and the Speaker of the Assembly. The Mayor of the City and the County Executive serve as ex officio directors. The Governor designates the Chairperson and Vice Chair from among the directors. Five directors constitute a quorum.

The BFSA Act provides that the BFSA shall have different financial control and oversight powers depending upon whether the City’s financial condition causes it to be in a “control period” or an “advisory period.” Pursuant to the BFSA Act, an advisory period may not begin until the BFSA has determined that: “(a) for each of the three immediately preceding City fiscal years, the City has adopted and adhered to budgets covering all expenditures, other than capital items, the results of which did not show a deficit, without the use of any BFSA assistance as provided for within the BFSA Act, when reported in accordance with generally accepted accounting principles, and; (b) the Comptroller and the State Comptroller jointly certify that securities were sold by the City during the immediately preceding City fiscal year in the general public market and that there is a substantial likelihood that such securities can be sold by the City in the general public market from such date through the end of the next succeeding City fiscal year in amounts that will satisfy substantially all of the capital and cash flow requirements of the City during that period in accordance with the four-year financial plan then in existence.” On May 29, 2012, the BFSA made a determination that all provisions of the BFSA Act with respect to transitioning into an advisory period had been met and resolved to enter into an advisory period effective July 1, 2012. An advisory period shall continue through June 30, 2037, unless a control period is reimposed.

Under the BFSA Act, the BFSA began its existence during a City control period, which means that the BFSA commenced operation with its maximum authorized complement of financial control and oversight powers, as described below. Under an advisory period the BFSA operates with a reduced set of financial oversight powers and responsibilities. After an advisory period has been established, a control period may be reimposed on the City upon a determination that a fiscal crisis is imminent or that any of the following events has occurred or that there is a substantial likelihood and imminence of its occurrence: (a) the City shall have failed to adopt a balanced budget, financial plan or budget modification as required by Sections 3856 and 3857 of the BFSA Act; (b) the City shall have failed to pay the principal of or interest on any of its bonds or notes when due; (c) the City shall have incurred an operating deficit of one percent or more in the aggregate results of operations of any major fund of the City or a Covered Organization during its fiscal year assuming all revenues and expenditures are reported in accordance with generally accepted accounting principles, subject to the provisions of the BFSA Act; (d) the chief fiscal officer’s certification at any time, at the request of the BFSA or on the chief fiscal officer’s initiative, which certification shall be made from time to time as promptly as circumstances warrant and reported to the BFSA, that on the basis of facts existing at such time such officer could not make the certification described in subdivision one of Section 3851 of the BFSA Act; or (e) the City shall have violated any provision of the BFSA Act.

During an advisory period, the BFSA is empowered, among other things, (i) to review the operation, management, efficiency and productivity of City operations and of any Covered Organization’s operations, and to make reports and recommendations thereon; (ii) to review and comment on the budget, financial plan and

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financial plan modifications of the City and any of the Covered Organizations; (iii) to audit compliance with the City and any of the Covered Organization’s financial plans; (iv) to review and comment on the terms of any proposed borrowing, including the prudence of each proposed issuance of bonds or notes by the City; (v) to assess and comment on the impact of any collective bargaining agreement to be entered by the City; and (vi) to impose a control period upon making one of the statutory findings.

While currently under an advisory period, a control period could be reimposed in the event of the occurrence of certain events as described above. During a control period, the BFSA would be empowered, among other things, (i) to approve or disapprove contracts, including collective bargaining agreements to be entered into by the City or any Covered Organization, binding or purporting to bind the City or any Covered Organization; (ii) to approve or disapprove the terms of borrowings by the City and Covered Organizations; (iii) to approve, disapprove or modify the City’s financial plans and take any action necessary in order to implement the financial plan should the City or any Covered Organization fail to comply with any material action necessary to fulfill the plan, including issuing binding orders to the appropriate local officials; (iv) to set a maximum level of spending for any proposed budget of any Covered Organization; (v) to impose a wage or hiring freeze, or both, with respect to employees of the City or any Covered Organization; (vi) to review the operation, management, efficiency and productivity of the City and any Covered Organization; and (vii) upon a determination that no condition exists which would permit imposition of a control period to terminate the control period.

BFSA Review of Financial Plans and Budgets

The BFSA entered into an advisory period effective July 1, 2012. The BFSA is empowered under an advisory period to review and comment on the budget and financial plans of the City and the Covered Organizations. If the BFSA determines that the financial plan is complete and complies with the standards set forth in the BFSA Act, the BFSA shall make a certification to the City setting forth revenue estimates agreed to by the BFSA in accordance with such determination. In the event the BFSA disagrees with elements of the financial plan as provided for within the BFSA Act, the BFSA shall provide notice thereof to the City, with copies to the Director of the Budget, the State Comptroller, the Chair of the Assembly and Means Committee and the Chair of the Senate Finance Committee, if in the judgment of the BFSA, such financial plan: (i) is incomplete; (ii) fails to contain projections of revenues and expenditures that are based on reasonable and appropriate assumptions and methods of estimation; (iii) fails to provide that the operations of the City and the Covered Organizations will be conducted within the cash resources available; or (iv) fails to comply with the provisions of the BFSA Act or other requirements of law.

BFSA Debt Issuances

The BFSA has the power during a control period to issue bonds and notes for various City purposes, including the restructuring of a portion of the City’s outstanding debt. Pursuant to the BFSA Act, such bonds or notes are payable from City tax revenues, Buffalo CSD tax revenues and State aid revenues. City tax revenues consist of the portion of the net collections from sales and compensating use taxes, penalties and interest authorized by the State and imposed by the County that are payable to the City under the local sales tax agreement among the City, the County and the cities of Lackawanna and Tonawanda authorized by Section 1262(c) of the State Tax Law (a rate of no less than 3% for the period ending June 30, 2037 plus certain additional amounts as provided by law) on the sale and use of tangible personal property and services in the County (see “REVENUES–Erie County Sales Tax”). The Buffalo CSD tax revenues consist of the portion of the County’s net collections from the Local Sales Tax that is payable to the Buffalo CSD by the County pursuant to Section 1262(a) of the State Tax Law. The Buffalo CSD presently receives a pro rata share, on the basis of average daily attendance of public school pupils who are residents of the County, of an amount equal to 29.0% of the net collections from such 3%, which amount is shared among all school districts with territory in the County. State aid revenues consist of all general purpose local government aid, emergency financial assistance to certain cities, emergency financial assistance to eligible municipalities, supplemental municipal aid, and any successor type of aid and any new aid appropriated by the State as local government assistance for

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the benefit of the City, which are paid or payable to the BFSA pursuant to the BFSA Act, except as otherwise prescribed by the State Legislature. BFSA bonds and notes are not secured by or payable from State aid and the BFSA has no lien on or right to receive State aid. The BFSA has issued five series of bonds on behalf of the City and Buffalo CSD in a total aggregate principal amount of $156.6 million. The BFSA issued a refunding bond in December 2015 in the amount of $14,170,000 which refunded the outstanding 2005A and 2006A bonds. As of March 31, 2016, a total of $34.9 million is outstanding. The original bonds (Series 2005A, 2005B&C, 2006A and 2007A) were issued to finance or refinance capital projects for the City and Buffalo CSD. In relation to each of such four series, the City issued and sold to BFSA corresponding general obligation bonds which were purchased by BFSA with the proceeds of its own bonds. (See “CITY INDEBTEDNESS – Debt Limit” – footnote 2 to the STATEMENT OF DEBT CONTRACTING POWER and footnote 1 to the STATEMENT OF DIRECT AND OVERLAPPING INDEBTEDNESS.)

BFSA AMOUNTS BORROWED ON BEHALF OF THE CITY (000’s Omitted)

Calendar Year Issued

Amount Outstanding at March 31, 2016 Series Interest Rate Final Maturity

2005* $0 2005A N/A N/A2005 $4,660 2005B & C 5.0% 2019

2006* $0 2006A N/A N/A2007 $16,095 2007A 4.0 - 5.0% 20232015 $14,170 2015A 3.0 – 5.0% 2025

Source: Buffalo Fiscal Stability Authority *Series 2005A and 2006A were refunded in December 2015 by series 2015A

BFSA Oversight Actions Related to the City’s 2015-16 Fiscal Year

On May 1, 2015, the City submitted to the BFSA the respective 2015-16 budgets and 2016-19 four-year financial plans of the City and Covered Organizations for review and determination that the financial plans were complete and complied with the standards set forth in the Act §3857, subd. 2. On May 20, 2015, the BFSA declared the financial plan to be incomplete with respect to the Buffalo Municipal Housing Authority (“BMHA”) and required a revised financial plan be submitted. The BMHA submitted a revised financial plan on June 4, 2015, but failed to appear at the meeting of the BFSA on June 22, 2015 to clarify the additional information as submitted. On June 22, 2015 the BFSA found that with the exception of the financial plan of the BMHA, the 2016-19 financial plan was complete and compliant with the BFSA Act; attendance by BMHA officials was requested for the BFSA’s July 29, 2015 meeting. On July 29, 2015, an official from the BMHA was present at the meeting and satisfactorily explained and clarified the BMHA’s revised financial plan and the BFSA found the BMHA’s financial plan to be complete and compliant with the BFSA Act.

On July 29, 2015, the BFSA reviewed and commented on the terms of a proposed collective bargaining agreement between the City and the Buffalo Police Benevolent Association, Incorporated, representing approximately 720 sworn law enforcement officers employed by the City; the terms of this labor contract with respect to wage increases and healthcare benefits are also extended by the City to exempt officers. The costs associated with this proposed labor agreement resulted in the submission of a modified financial plan which increased projected expenditures over the financial plan by approximately $16.0 million and is funded through the use of additional unassigned fund balance. Also on July 29, 2015, the BFSA approved the reallocation of approximately $211,000 of New York State Efficiency Grant monies among various previously approved projects.

In accordance with the Act, for so long as an advisory period shall remain in effect, the City and the non-exempted Covered Organizations are required to submit their budget modifications to the BFSA to address changing expenditures and revenue projections.

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On May 1, 2014, the City submitted to the BFSA the respective 2014-15 budgets and 2015-18 four-year financial plans of the City and Covered Organizations for review and determination that the financial plans were complete and complied with the standards set forth in BFSA Act §3857, subd. 2. On May 14, 2014, the BFSA found the financial plan to be incomplete and required additional information be submitted by the Buffalo Municipal Housing Authority (“BMHA”) and a revised financial plan be submitted by the Buffalo Urban Renewal Agency (“BURA”). The BFSA also requested that the Buffalo CSD specifically delineate those potential actions to close the budget gaps as projected over the 2015-18 financial plan by prioritizing such potential actions, as soon as practical. The Buffalo CSD did not submit a delineated plan to close the projected budget gaps.

The City submitted a revised budget for 2014-15 and the related four-year financial plan to the BFSA for review on June 10, 2014. On June 12, 2014, BURA submitted a revised financial plan to the BFSA. The Buffalo CSD and the BMHA did not submit a revised financial plan. On June 18, 2014, the BFSA determined that the 2015-18 financial plan was complete and complied with the standards set forth in the BFSA Act. On March 11, 2015, the BFSA passed a resolution requiring certain detailed information be submitted with the upcoming Buffalo CSD financial plan in order for the financial plan to be deemed complete pursuant to the provisions of the BFSA Act.

On December 3, 2014, the BFSA reviewed two proposed collective bargaining agreements between the Buffalo CSD and the American Federation of State, County and Municipal Employees, Local 264, AFL-CIO, representing both the Food Service Workers and the Summer Food Service Workers. In connection with this review, the BFSA also reviewed a budget modification for the Buffalo CSD’s Food Service Fund for increased costs associated with these labor agreements which appropriated an additional $221,000 from fund balance. On March 11, 2015, the BFSA reviewed a proposed labor agreement between the City and the American Federation of State, County and Municipal Employees, AFL-CIO, Local 650, representing approximately 399 white collar employees; in addition the terms of this contract with respect to wage increases and the provision of healthcare benefits is extended by the City to exempt employees. No budget modification was deemed necessary. Also on March 11, 2015, the BFSA reviewed a modification to a collective bargaining agreement between the Buffalo CSD and the Buffalo Council of Supervisors and Administrators, representing the administrators; the modification represented a retirement incentive provided to membership. No budget modification was deemed necessary.


On May 1, 2013, the City submitted to the BFSA the respective 2013-14 budgets and 2014-17 four-year financial plans of the City and Covered Organizations for review and determination that the financial plans were complete and complied with the standards set forth in BFSA Act §3857, subd. 2. On May 15, 2013, the BFSA declared the financial plan to be incomplete with respect to the Covered Organizations and required a revised financial plan to be submitted. On June 11, 2013, the City submitted a revised budget for 2013-14 and the related revised four-year financial plan for 2014-17 to the BFSA; the Buffalo CSD submitted a revised 2013-14 budget and 2014-17 four-year financial plan to BFSA on May 31, 2013; the Buffalo Municipal Housing Authority (“BMHA”) submitted a revised 2013-14 budget and 2014-17 four-year financial plan to the BFSA on June 11, 2013; and, the Buffalo Urban Renewal Agency (“BURA”) submitted a revised 2013-14 budget and 2014-17 financial plan on June 10, 2013. On June 19, 2013, the BFSA determined that, subject to reservations stated (as noted below), that the four-year financial plans of the City and Covered Organizations for fiscal years 2014-17 were complete and complied with the standards set forth in the BFSA Act.

With respect to the financial plan of the Buffalo CSD, the BFSA found that: (1) the Buffalo CSD faces a structural imbalance over the financial plan in that there are rapidly increasing costs mandated by state law and lagging state financial assistance; (2) the Buffalo CSD’s final four-year financial plan is balanced for fiscal year 2014, but depends upon the use of reserves, staffing reductions, closing of two charter schools, and unspecified program cuts to achieve balance in fiscal years 2015, 2016 and 2017 ("the out years"); (3) the

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Buffalo CSD’s actions to close the budgetary gaps in the out years includes actions that are undefined as they are based on studies to be performed in the upcoming year and it is therefore unclear if such savings can be realized; (4) such actions could have a devastating impact on the Buffalo CSD and such potential impact should be evaluated with respect to the potential effects of such actions on the educational achievement of the Buffalo CSD’s students; and (5) there is a significant risk that the Buffalo CSD will encounter a fiscal crisis at some time during the out years, and may be unable to preserve essential services, maintain programs mandated by the state and federal law, and ensure the availability of a sound basic education to all of the children of the City. On March 26, 2014, the BFSA reviewed a financial plan update as provided by the Buffalo CSD and subsequently passed a resolution requiring certain detailed information be submitted with the subsequent year’s financial plan in order for the financial plan to be deemed complete pursuant to the provisions of the BFSA Act.

On June 19, 2013, the BFSA reviewed and commented on the terms of a proposed collective bargaining agreement between the City and the Buffalo Professional Firefighters Association, Local 282, AFL-CIO, representing approximately 655 members. On March 26, 2014, the BFSA reviewed a budget modification for the Buffalo CSD appropriating an additional $1.8 million from fund balance to be used for the settlement of a long outstanding legal claim. Also on March 26, 2014, the BFSA reviewed and commented on the terms of a proposed collective agreement between the City and the International Brotherhood of Teamsters Local 264, representing approximately 25 caulkers. Additionally the BFSA reviewed budget modifications for the City totaling $3.4 million, consisting of the appropriation of an additional $2.6 million from restricted fund balance for the purchase of police vehicles ($1.1 million) and demolitions ($1.5 million), and the appropriation of an additional $800,000 from unassigned fund balance for the purchase of road salt due to the cold winter ($400,000) and for renovations to the City’s cafeteria ($400,000). The City made budget modifications to appropriate $6.3 million of unassigned fund balance to meet additional costs of the above-mentioned collective bargaining agreement with the Buffalo Professional Firefighters Association, Local 282, AFL-CIO and for additional costs for police salaries, and an additional $2.5 million was appropriated from restricted fund balance for the settlement of a legal claim; contrary to the BFSA’s Act, the City did not submit those modifications to the BFSA for review. On June 5, 2014, the BFSA reviewed and commented on the terms of a tentative collective bargaining agreement between the Buffalo CSD and the American Federation of State, County & Municipal Employees Local 264, AFL-CIO, representing approximately 31 cook managers. On August 4, 2014, the BFSA reviewed a budget modification to the BMHA’s 2013-14 budget in the amount of $2.4 million for unanticipated overages in various operating accounts.


On May 1, 2012, the City and the non-exempted Covered Organizations submitted to the BFSA their respective 2012-13 budgets and 2013-16 four-year financial plans for review and approval. On May 8, 2012 and also on May 23, 2012, the City submitted a revised budget for 2012-13 and the related revised four-year financial plan for 2013-16 to the BFSA for approval. The Buffalo CSD submitted a revised 2012-13 budget and 2013-16 four-year financial plan to BFSA on May 16, 2012. The Buffalo Municipal Housing Authority (“BMHA”) also submitted a revised 2012-13 budget and 2013-16 four-year financial plan to the BFSA on May 31, 2012. The Buffalo Urban Renewal Agency (“BURA”) did not submit a revised budget. The BFSA approved such budgets and financial plans for the City and the Covered Organizations on June 4, 2012.

The BFSA entered into an advisory period on July 1, 2012. In July 2012, the Buffalo CSD submitted a budget modification appropriating an additional $2.6 million from fund balance to be used for the settlement of a labor contract. On September 29, 2012, the BFSA reviewed and commented on the terms of a collective bargaining agreement between the Buffalo CSD and the American Federation of State, County and Municipal Employees (“AFSCME”) Local 264 representing approximately 76 blue-collar employees; the Buffalo CSD had previously approved this collective bargaining agreement on July 11, 2012. On December 5, 2012, the BFSA reviewed and commented on the terms of a collective bargaining agreement between the City and the Crossing Guards union. On March 13, 2013, the BFSA reviewed and commented on the terms of a collective bargaining agreement between the BMHA and the International Union of Operating Engineers, Local 17-17S,

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AFL-CIO representing approximately 12 operating engineers. On May 15, 2013, the BFSA reviewed a budget modification for the City in the amount of $4.1 million related to a legal settlement.


On May 2, 2011, the City and the non-exempted Covered Organizations submitted to the BFSA their respective 2011-12 budgets and 2012-15 four-year financial plans for review and approval. On June 10, 2011, the City submitted a revised budget for 2011-12 and the related four-year financial plan for 2012-15 to the BFSA for approval. The Buffalo CSD submitted a revised 2011-12 budget and 2012-15 four-year financial plan to BFSA on May 31, 2011 based upon the 2011-12 budget adopted by the Board of Education. The BURA also submitted a revised 2011-12 budget and 2012-15 four-year financial plan to the BFSA on June 9, 2011. The BMHA did not submit a revised budget. The BFSA approved such budgets and financial plans for the City and the three Covered Organizations on June 15, 2011. On October 3, 2011, the BFSA approved a budget modification for the City in the amount of $1.8 million for the construction of a Court detention facility, to be funded from reserved fund balance for capital outlays, and a budget modification for the Joint Schools Construction Board in the amount of $8.7 million related to the Phase III reconstruction work. On such date, the BFSA also approved a collective bargaining agreement between the City and Local 17 Operating Engineers, representing approximately 23 individuals City-wide. Also on October 3, 2011, the BFSA approved a collective bargaining agreement between the Buffalo CSD and the AFSCME Local 264, representing approximately 119 Food Service Workers and Summer Food Service Workers. On December 7, 2011, the BFSA approved a request by the City to redesignate efficiency incentive grant funding to new projects, which redesignation resulted in a modification to the financial plan with respect to the three out-years and affected the City’s anticipated programs to eliminate the budget gap by $2.0 million. Also on December 7, 2011, the BFSA approved (i) the issuance and sale by the BMHA of senior housing revenue bonds for various purposes related to a low-income senior housing facility located in the City of Buffalo, and (ii) a collective bargaining agreement between the Buffalo CSD and the Professional, Clerical, and Technical Employees’ Association, representing approximately 450 filled positions. This collective bargaining agreement required both a budget modification and financial plan modification as costs for the collective bargaining agreement were not reflected in the original budget or related four-year financial plan. The BFSA approved the budget modification in the amount of $5.7 million for 2011-12 to be funded from Assigned Fund Balance, and for an additional $12.5 million in the remaining three out-years of the Financial Plan. On March 14, 2012, the BFSA approved (i) the City’s 2012-2016 capital improvement program budget, and (ii) the 2012 capital borrowing proposed by the City of Buffalo in an amount not to exceed $27.0 million. On May 14, 2012, the BFSA approved a retirement incentive which had been negotiated between the Buffalo CSD and the Buffalo Teachers Federation. On May 29, 2012, the BFSA determined that the provisions of the BFSA Act with respect to transitioning from a control period to an advisory period had been met and resolved to enter into an advisory period effective July 1, 2012. On June 4, 2012, the BFSA approved the 2011 and 2012 capital fund program budgets of the BMHA.

Litigation Regarding Wage Freeze Imposed by BFSA

As a result of the fiscal-related actions taken by the BFSA, a number of affected collective bargaining units representing employees of the City and certain non-exempted Covered Organizations initiated legal proceedings in federal and state courts challenging certain of the BFSA actions, including the BFSA’s imposition of the wage freeze on April 21, 2004. These bargaining units sought reversal of those actions, in particular the imposition of the wage freeze. These challenges were litigated by the bargaining units and were ultimately unsuccessful. On June 5, 2007, the BFSA adopted a resolution lifting the wage freeze effective July 1, 2007. By the same resolution, the BFSA approved the City’s and Buffalo CSD’s financial plan providing a one-step increase on employees’ salary schedules effective July 1, 2007. Certain bargaining units challenged this action, claiming entitlement to three additional steps as of July 1, 2007; i.e., the three additional salary steps employees would have received but for the wage freeze. On March 29, 2011, the New York State Court of Appeals, the State’s highest Court, ruled in favor of the BFSA, the City, and the Buffalo CSD. In June 2011, the Buffalo Teachers Federation moved in Federal District Court to reopen the case in which the wage

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freeze had been found to be constitutional. The motion was a result of the decision by the Court of Appeals of New York finding that the steps and increments did not accrue during the wage freeze. BFSA opposed the motion which was denied on February 8, 2012. The Buffalo Teachers Federation appealed, and on March 18, 2013 the Second Circuit affirmed the decision of the District Court denying the motion to reopen the decision finding the wage freeze constitutional. The Union representing the Police commenced an action in Federal District Court on July 21, 2011 seeking a declaration that the statute creating the BFSA is unconstitutional based upon the imposition of the freeze and the lifting of the freeze. Both BFSA and the City moved to dismiss the complaint and the motion was granted on May 22, 2012. The Police Union did not file a notice of appeal and the action is concluded. On July 15, 2011, the Buffalo Professional Firefighters Association, Inc. brought a proceeding to declare a resolution enacted by the BFSA on May 11, 2011 to be invalid. The resolution ordered the City of Buffalo to not pay any increases in wages or benefits provided under a recent arbitration award for the period beginning July 1, 2002 through June 30, 2004. BFSA and the City moved to dismiss the proceeding, the motion was granted on January 12, 2012, and a notice of appeal was filed by the Buffalo Professional Firefighters Association, Inc. On April 26, 2013, the Fourth Department affirmed the dismissal of the proceeding. Within a subsequent collective bargaining agreement executed in June 2013, the Buffalo Professional Firefighters Association, Inc. agreed to withdraw from this litigation. (See “LITIGATION” herein.)

The BFSA has provided the information contained in this section of the Official Statement entitled “THE BUFFALO FISCAL STABILITY AUTHORITY.” The BFSA has not reviewed nor makes no representation as to the accuracy, completeness or fairness of any other information included in this Official Statement.

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CITY INDEBTEDNESS

At March 31, 2016, the City had outstanding general obligation serial bonds of $239.2 million. Real property within the City is subject to assessment and taxation for City debt, as well as debt of the Sewer Authority and a proportionate share of County debt.

Certain Features of Debt Authorization

In general, the State Legislature has empowered the City to borrow and incur capital indebtedness by the enactment of the Local Finance Law, subject to certain constitutional provisions and to limitations imposed on the City by the BFSA Act. The City is prohibited from giving or loaning any money or property to or in aid of any individual or private corporation or private undertaking or giving or loaning its credit to or in aid of any of the foregoing or any public corporation. The City may contract indebtedness only for City purposes. The City generally authorizes construction and financing of facilities which are of service to its citizens on a City-wide basis. The City finances and maintains refuse services, streets and schools, City-owned buildings and several parks and playgrounds, all of which necessitate a regular capital improvement program. Capital projects are normally planned and proposed to the Common Council by the City Administration. Certain capital projects are subject to regulation and approval of applicable commissions and agencies. In addition, the City is authorized to issue bonds to pay judgments and claims.

Each bond resolution requires approval by the Mayor within ten days after its passage or, if disapproved by the Mayor, must be passed again by three-fourths vote of the Common Council. Generally, each adopted bond resolution is thereafter subject to petition for repeal during the thirty-day period following its adoption. Each petition must be signed by electors of the City who were registered at the last preceding general election equal in number to at least 10% of registered voters in the City for such election. If a petition for repeal is filed, and such bond resolution is not repealed by the Council, it must be submitted to referendum for approval or disapproval by the electorate. Assuming no petition is presented and no referendum is required on the resolution, such resolution takes effect upon expiration of the thirty-day period.

The Local Finance Law also provides a twenty-day statute of limitations after publication of an adopted bond resolution together with a statutory form of notice which, in effect, stops legal challenges to the validity of obligations authorized by such bond resolution, except for alleged constitutional violations. The City followed this procedure for all of the bond resolutions adopted to authorize issuance of the Bonds and Bond Anticipation Notes.

The City is authorized by the State Constitution to contract debt for objects or purposes which the State Legislature has determined to have a “period of probable usefulness” and the maximum maturity of such debt may not exceed the period of probable usefulness of the object or purpose as determined by statute or, in the alternative, the weighted average period of probable usefulness of the several objects or purposes for which it is contracted. Serial bonds mature in annual installments and may be issued to finance any object or purpose for which a “period of probable usefulness” has been determined by the State Legislature. With the exception of serial bonds issued under certain housing and urban renewal programs, no annual installment of a serial bond may be more than 50% in excess of the smallest prior installment unless the Common Council provides for substantially level or declining debt service in the manner prescribed by the State Legislature. Except for certain short-term indebtedness contracted in anticipation of taxes or to be paid within three fiscal-year periods, indebtedness shall be paid in annual installments commencing no later than two years after the date such indebtedness shall have been contracted and ending no later than the expiration of the period of probable usefulness of the object or purpose determined by statute.

Each bond resolution usually authorizes the construction, acquisition or installation of the object or purpose to be financed, sets forth the plan of financing and specifies the maximum maturity of the bonds subject to the legal (constitutional, Local Finance Law and case law) restrictions relating to the period of probable usefulness with respect thereto.

A condition precedent to the incurrence of capital indebtedness to be financed by borrowing is the adoption of a bond resolution in conformity with the provisions of the Local Finance Law, which law requires that the City

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estimate the maximum cost of, and amount to be expended for, the particular object or purpose to be financed. Except for financings prior to July 15, 2015, Section 107.00 (d)(9) of the Local Finance Law requires that the City provide a percentage of the cost to be financed from current funds, either budgeted or received from proceeds of capital note issues. In addition, there is no requirement for a current fund down payment with respect to projects having a useful life not in excess of five years, capital improvements estimated to be self-sustaining, improvements to docks, wharves, and piers, and certain other types of improvements.

In general, the Local Finance Law contains similar provisions providing the City with power to issue general obligation revenue and tax anticipation notes, budget and capital notes. The Common Council has delegated its power with respect to the issuance and sale of bonds and notes to the Comptroller, the chief fiscal officer of the City under its Charter.

All indebtedness contracted by the City pursuant to the Local Finance Law constitutes a general obligation of the City. As required by the State Constitution and applicable law, the City pledges its faith and credit for the payment of the principal of and interest on all City indebtedness.

Debt Limit

The State Constitution limits the amount of indebtedness, both funded and short-term, which the City may incur. In accordance with the BFSA Act, debt issued by the BFSA is not subject to the City’s debt limit. The State Constitution provides that the City may not contract indebtedness in an amount greater than 9% of the average full value of taxable real property in the City for the most recent five years. Certain indebtedness is excluded in ascertaining the City’s authority to contract indebtedness within the constitutional limits; accordingly, debt of this kind, commonly referred to as “excluded debt”, may be issued without regard to the constitutional limits and without affecting the City’s authority to issue debt subject to the limit. Such exclusions are authorized by the Constitution and include the following:

(i) tax anticipation notes, revenue anticipation notes and budget notes, to the extent such obligations are retired within five years of their original issuance;

(ii) indebtedness (commonly referred to as “self-sustaining debt”) contracted for public improvements or services which provide sufficient annual revenue after paying annual operating expenses of the improvement or service, to pay at least 25% of the annual interest and principal installments due on such indebtedness (the indebtedness is excluded after approval by the State Comptroller in a proportion equal to the proportion of annual debt service covered by net revenues of the improvement or service for which it was contracted, and under State law, the revenues from such improvement or service, for the period of the exclusions, must be used solely for debt service on the excluded indebtedness, operating and other costs of the improvement or service, or deposited in a special account to be used for such purposes); and

(iii) indebtedness contracted for supply of water.

The City received from the State Comptroller a renewal certificate stating that the City, in computing its debt contracting power pursuant to Article 8 of the Constitution of the State and Section 123.00 of the Local Finance Law, may exclude 100% of the principal amount of outstanding bonds heretofore issued for the construction of public parking facilities in the City which are operational, it having been shown during the fiscal year ended June 30, 2015 that the net revenues of the facilities are sufficient to pay 100% of the debt service on the respective issues of outstanding bonds. This certificate expires on October 1, 2016. Authorized but unissued debt is not charged against the debt limit.

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The following table shows the debt-incurring power of the City within the debt limit as of March 31, 2016.

CITY OF BUFFALO STATEMENT OF DEBT CONTRACTING POWER

March 31, 2016(1) (2)

Amount Percent

Average Full Valuation of Taxable Real Property and Special

Franchises as Determined by the Last Completed Assessment

Roll and the Four Preceding Rolls (per 15/16 recommended budget) $6,725,765,082

Debt Contracting Limitation: Nine Percent of Average Full

State of New York 605,318,857$ 100.00%

Gross Indebtedness:

Borrowings:

Serial Bonds 239,214,033$

Bond Anticipation Note -

Total Gross Debt 239,214,033

Exclusions:

Exempt Debt:

Water Supply Bonds (319,619)

Parking Facilities Bonds (6,510,000)

Reserve to Pay Non-Exempt Debt (6,305,210)

Appropriation in Current Budget to Pay

Non-Exempt Debt Maturing during

Remainder of FY (12,398,985)

Total Exclusions (25,533,814)$

Net Indebtedness 213,680,219 35.3%

Debt-Contracting Margin 391,638,638 64.7%

Less Authorized But Unissued Non-Exempt Debt (12,405,874) 2.0%

Effective Borrowing Capacity 379,232,764$ 62.7%

Valuation - Article VIII, Section 4, of the Constitution of the

_____________________________________________________________________________________________________________________ Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management (1)Computation of debt-contracting limitation, see Table of Constitutional Tax Levying and Debts Contracting Limitation under “Property Taxes,” herein (2)Included within debt amount are bonds of the City in the amount of $30,010,048 sold to the BFSA

Debt Statement

The following table, showing all outstanding direct general obligation indebtedness to which the City has pledged its faith and credit for payment of principal and interest, indicates the net amount of debt which is actually serviced from general City revenues, and includes that portion of the debt of the Municipal Bond Bank Agency, of the County and the Sewer Authority for which the real property taxpayers of the City are responsible. No authorized but unissued debt has been included.

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CITY OF BUFFALO STATEMENT OF DIRECT AND OVERLAPPING INDEBTEDNESS

March 31, 2016

DIRECT DEBT

Bonded Debt:

General Purpose(1) 165,533,414$

School(1) 66,851,000 Off-Street Parking Facilities(2) 6,510,000

Water(1)(3) 319,619

Total Bonded Debt 239,214,033$

Other Debt:Bond Anticipation Note -

Municipal Bond Bank Agency(4) 12,730,000 Capital Lease Obligations -

Total Other Debt: 12,730,000

GROSS DIRECT DEBT 251,944,033

Deductions: Self-Supporting debt Off-Street Parking Facilities (6,510,000)

Water(3) (319,619)

Total Deductions (6,829,619)

NET DIRECT DEBT 245,114,414$

OVERLAPPING DEBT Outstanding City Share % City Share

Erie County 428,745,000 (5) 13.6% (6) 58,309,320 Buffalo Sewer Authority 43,045,033 73.8% (7) 31,767,234 NET OVERLAPPING DEBT 90,076,554$

NET DIRECT AND OVERLAPPING DEBT 335,190,968$

____________________________________________________________________________________________________________ Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management. (1)Included within debt amount are bonds of the City sold to BFSA (total for each bonded debt, General Purpose - $26,984,429; School -

$2,706,000; and Water - $319,619) (2)Pursuant to lease agreements between the City and various non-profit private parking operators, the City receives rentals from leased parking

facilities in an annual amount sufficient to defray a significant amount of the principal and interest requirements on the City parking bonds which financed such facilities. The costs of operation, maintenance and repairs of such facilities are borne by the private operators. During the 2014-15 fiscal year, net revenues received by the City from rental payments were $7,719,498 or over 100% of the $2,563,125 for 2015-16 debt service budgeted to be paid on the City parking bonds that were eligible for debt exclusion. Only those bonds that have financed parking facilities which are operational and either partially or fully self-sustaining are eligible for exclusion.

(3)Exempt in full pursuant to Local Finance Law. The Water Board has covenanted with the City and the Water Authority to establish rates sufficient to cover all City-issued debt for water purposes.

(4)On or before April 1, under the State Aid Trust Agreement amongst the Buffalo CSD and Manufacturers Traders & Trust Co., as Depository Bank, a wire transfer of State Aid intercepted funds is submitted to MBBA.

(5)Excludes County general obligations sold for sewer districts in the County payable from assessments on property outside the City. Such debt is paid from annual benefit assessments in each district by various fees and charges.

(6)Ratio of City to total County full valuation for 2015, as equalized by the County Commissioner of Finance (publication dated July 1, 2015). (7)Within the City, approximately 22.8% of the operating fund revenue of the Sewer Authority is derived from a sewer rent on the assessed value

of real property, and 51.0% of the revenue is received from a sewer rent based on water usage, which total 73.8%.

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Debt Ratios

The following table sets forth certain debt ratios based upon the City’s Statement of Direct and Overlapping Indebtedness as of March 31, 2016.

AmountPer

Capita

Ratio to Assessed Value

of Taxable Property

Ratio to Estimated Full

Value of Taxable Property

Gross Direct Debt 251,944,033$ 964$ 3.84% 3.58%

Net Direct Debt 245,114,414 938 3.74% 3.48%

Net Direct & Overlapping Debt 335,190,968 1,283 5.11% 4.76%

Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management (1)The population of the City determined by estimates made by the U.S. Bureau of the Census for 2010 is 261,310 (2)The taxable assessed valuation of the City for the 2015-16 fiscal year is $6,556,659,039 (3)The full valuation of the City for the 2015-16 fiscal year based on the Special Equalization Ratio of .9310 established by the State Board of

Equalization and Assessment is $7,042,598,323

Debt Service Requirements

The following table shows the debt service requirements to maturity on the City’s outstanding general obligation bonded indebtedness as of March 31, 2016.

ANNUAL DEBT SERVICE REQUIREMENTS Maturing During Fiscal Year Ending June 30:

Year Principal Interest Total

2016 12,398,985$ 4,045,302$ 16,444,287$

2017 34,137,963 9,241,601 43,379,564

2018 29,474,359 7,953,980 37,428,339

2019 29,550,562 6,726,879 36,277,440

2020 29,494,103 5,450,154 34,944,257

2021 27,066,891 4,181,550 31,248,441

2022 24,434,585 3,131,389 27,565,974

2023 23,783,964 2,160,908 25,944,872

2024 13,810,163 1,179,065 14,989,228

2025 9,167,458 635,286 9,802,744

2026 5,490,000 257,650 5,747,650

2027 405,000 13,163 418,163

239,214,033$ 44,976,926$ 284,190,959$

_______________________________________________________________________________________ Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management

Rate of Principal Retirement

The following table presents the amount and percentage of principal of general obligation long-term debt excluding the new issue to be retired over the following respective periods.

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Fiscal Years Percentage of Total

Ending June 30: Amount Principal Amount Retired

2016-2020 135,055,972$ 56.5%

2021-2025 98,263,062 41.1%

2026-2027 5,895,000 2.5%

239,214,034$ 100.0%

_______________________________________________________________________________________ Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management

CITY OF BUFFALO, NEW YORK TREND OF BONDED INDEBTEDNESS

LAST TEN FISCAL YEARS

Fiscal Year

Ended June 30:

Gross Bonded Debt

2006 392,710,245$

2007 383,728,748

2008 347,525,258

2009 364,760,253

2010 326,118,021

2011 313,957,579

2012 328,629,413

2013 288,134,741

2014 275,738,853

2015 266,986,629 ________________________________________________________________________________________________________ Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management

Short-Term Indebtedness

Imbalances in the City’s cash flow throughout the year may necessitate the issuance of short-term indebtedness for operating needs. In accordance with the BFSA Act, debt issued by the City is subject to the review of the BFSA. (See “THE BUFFALO FISCAL STABILITY AUTHORITY” herein.) The following information describes the characteristics of each major type of short-term debt obligation that the City is authorized to issue.

Revenue Anticipation Notes

Revenue anticipation notes may be issued in any fiscal year in anticipation of the collection of estimated taxes (other than real property taxes), monies estimated to be received from the State and federal governments and certain other types of income which are due and payable in such fiscal year. Generally, such notes must mature within one year after the date of issuance and may be renewed from time to time for periods of up to one year in an amount not exceeding such uncollected revenue; however, the maturity of such notes, including renewals, may not extend beyond the end of the second fiscal year following the fiscal year in which such notes were originally issued. Interest on revenue anticipation notes is provided for by appropriation in the City budget. If such notes, including renewals, have not been redeemed by their final maturity, monies for the redemption thereof may be provided for either by the revenues in anticipation of which the original notes were issued, or by appropriations in the City budget and from the proceeds of obligations issued in anticipation of revenue receipts budgeted to finance such appropriations.

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The following table sets forth the principal amounts of revenue anticipation notes issued by the City in the last 10 fiscal years.

Fiscal Year Ended June 30:

Revenue Anticipation Notes

Total Issued

BFSA Seasonal

Borrowings

2006 - $90,000,000

2007 - 60,000,000

2008 - -

2009 - -

2010 - -

2011 - -

2012 - -

2013 - -

2014 - -

2015 - -_____________________________________________________________________________________________________________________ Source: City of Buffalo, Department of Audit and Control, Division of Cash and Debt Management

Tax Anticipation Notes

Generally, tax anticipation notes may be issued by the City during a fiscal year in anticipation of the collection of real property taxes levied for such fiscal year. The notes must mature within one year from the date of their issuance. If the taxes against which such notes are issued remain uncollected, such notes may be renewed from time to time for periods of up to one year in an amount not exceeding the amount of such uncollected taxes. Such notes, including renewals, must be redeemed not later than five years from the date of original issuance. Payment of interest on such notes is provided by appropriation in the City budget. If such notes, including renewals, have not been redeemed from real property taxes within five years from the date on which the original notes were issued, monies for the redemption thereof must be provided by appropriation in the City budget. The proceeds of such notes may be used for any purpose for which the tax receipts against which such notes were issued could be used. The City has not issued tax anticipation notes since 1982.

Bond Anticipation Notes

Bond anticipation notes may be issued for any purpose for which bonds may be issued. Such notes must be redeemed either from the proceeds of the bonds in anticipation of which they were issued or from City appropriations. The proceeds of such notes may be used only for the same object or purpose for which the proceeds of the bonds in anticipation of which such notes have been issued may be used. Such notes may be renewed from time to time provided, however, that a portion thereof must be redeemed no later than two years after the date on which the original notes were issued and the final maturity thereof may not exceed five years from the original date of issuance of such notes. In no event, however, may such notes be renewed after receipt by the City of proceeds from the sale of the bonds in anticipation of which the notes were issued. Payment of interest on such notes is provided by appropriation in the City budget. There are no bond anticipation notes outstanding; the last notes matured on April 29, 2015.

Budget Notes

Budget notes generally may be issued for the purpose of covering expenditures for which an insufficient provision or no provision has been made in the City budget. In general, the maximum principal amount of budget notes which may be issued in any fiscal year may not exceed approximately 5% of the City budget; however, budget notes may also be issued in unlimited amounts for certain specified purposes. Budget notes must mature not later than the close of the fiscal year following the year in which they are issued and must be redeemed from taxes levied for the fiscal year of maturity or from other available revenues. However, if the budget notes are authorized subsequent to the adoption of the budget, such notes may mature at the end of the

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second year succeeding the year in which issued. Both principal and interest are provided by appropriation in the City budget in the year in which they mature. The City has not issued budget notes since 1992.

Deficiency Notes

The City may issue deficiency notes during any fiscal year to finance a deficiency in any fund or funds arising from revenues being less than the amount estimated in the budget for such current fiscal year. The City has not issued and currently does not anticipate the issuance of such debt.

Urban Renewal Notes

The City may issue urban renewal notes in anticipation of the receipt of monies for an urban renewal projects under certain State and federal programs and from the sale of property acquired in connection with such projects. The City has not sold urban renewal notes since 1967 and does not currently anticipate the issuance of such debt. (See “CITY-RELATED ENTITIES – Buffalo Urban Renewal Agency” herein.)

Capital Notes

Capital notes may be issued to finance all or part of the costs of any object or purpose for which serial bonds may be issued. The City has not sold capital notes since 1970 and does not currently anticipate the issuance of such debt.

Prospective Long-Term Indebtedness of the City

As of March 31, 2016, the City had authorized but unissued general obligation debt in the amount of $12.4 million. In addition on December 14, 2015, the 2016 Capital Improvement Budget totaling $36.5 million was adopted, of which $33,333,235 has been authorized through adopted resolutions which will be legally effective on April 7, 2016. After issuance of the Bonds, the City will have remaining authorized but unissued general obligation debt of $17.9 million.


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PROPERTY TAXES

The City derives its power to levy an ad valorem real property tax from Article 8, Section 10 of the State Constitution. The City is responsible for levying taxes for City and Buffalo CSD purposes. The City’s property tax levying powers, other than for debt service and certain other purposes, are limited by the State Constitution to 2% of the most recent five-year average full valuation of taxable real property of the City. (See “REVENUES – Municipally Generated Revenues - Real Property Tax” herein.) On June 24, 2011, the Tax Levy Limitation Law was enacted, which imposes a tax levy limitation upon the municipalities, school districts and fire districts in the State, including the City, without providing an exclusion for debt service on obligations issued by municipalities and fire districts, including the City. See “Tax Levy Limitation Law,” herein.

Tax Levy Limitation Law

On June 24, 2011, Chapter 97 of the Laws of 2011 was signed into law by the Governor (the “Tax Levy Limitation Law”). The Tax Levy Limitation Law applies to virtually all local governments, including school districts (with the exception of New York City, Yonkers, Syracuse, Rochester and the Buffalo CSD). It also applies to independent special districts and to town and county improvement districts as part of their parent municipalities tax levies.

The Tax Levy Limitation Law restricts, among other things, the amount of real property taxes (including assessments of certain special improvement districts) that may be levied by or on behalf of a municipality in a particular year, beginning with fiscal years commencing on or after January 1, 2012. It expires on June 15, 2016 unless extended. Pursuant to the Tax Levy Limitation Law, the tax levy of a municipality cannot increase by more than the lesser of (i) two percent (2%) or (ii) the annual increase in the consumer price index ("CPI"), over the amount of the prior year’s tax levy. Certain adjustments would be permitted for taxable real property full valuation increases or changes in physical or quantity growth in the real property base as defined in Section 1220 of the Real Property Tax Law. A municipality may exceed the tax levy limitation for the coming fiscal year only if the governing body of such municipality first enacts, by at least a sixty percent vote of the total voting strength of the board, a local law (resolution in the case of fire districts and certain special districts) to override such limitation for such coming fiscal year only. There are exceptions to the tax levy limitation provided in the Tax Levy Limitation Law, including expenditures made on account of certain tort settlements and certain increases in the average actuarial contribution rates of the New York State and Local Employees’ Retirement System, the Police and Fire Retirement System, and the Teachers’ Retirement System. Municipalities are also permitted to carry forward a certain portion of their unused levy limitation from a prior year. Each municipality prior to adoption of each fiscal year budget must submit for review to the State Comptroller any information that is necessary in the calculation of its tax levy for each fiscal year.

The Tax Levy Limitation Law does not contain an exception from the levy limitation for the payment of debt service on either outstanding general obligation debt of municipalities or such debt incurred after the effective date of the tax levy limitation provisions.

Article 8 Section 2 of the State Constitution requires every issuer of general obligation notes and bonds in the State to pledge its faith and credit for the payment of the principal thereof and the interest thereon. This has been interpreted by the Court of Appeals, the State’s highest court, in Flushing National Bank v. Municipal Assistance Corporation for the City of New York, 40 N.Y.2d 731 (1976), as follows:

“A pledge of the city’s faith and credit is both a commitment to pay and a commitment of the city’s revenue generating powers to produce the funds to pay. Hence, an obligation containing a pledge of the City’s “faith and credit” is secured by a promise both to pay and to use in good faith the city’s general revenue powers to produce sufficient funds to pay the principal and interest of the obligation as it becomes due. That is why both words, “faith” and “credit”, are used and they are not tautological. That is what the words say and that is what courts have held they mean.”

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Article 8 Section 12 of the State Constitution specifically provides as follows:

“It shall be the duty of the legislature, subject to the provisions of this constitution, to restrict the power of taxation, assessment, borrowing money, contracting indebtedness, and loaning the credit of counties, cities, towns and villages, so as to prevent abuses in taxation and assessments and in contracting of indebtedness by them. Nothing in this article shall be construed to prevent the legislature from further restricting the powers herein specified of any county, city, town, village or school district to contract indebtedness or to levy taxes on real estate. The legislature shall not, however, restrict the power to levy taxes on real estate for the payment of interest on or principal of indebtedness theretofore contracted.”

On the relationship of the Article 8 Section 2 requirement to pledge the faith and credit and the Article 8 Section 12 protection of the levy of real property taxes to pay debt service on bonds subject to the general obligation pledge, the Court of Appeals in the Flushing National Bank case stated:

“So, too, although the Legislature is given the duty to restrict municipalities in order to prevent abuses in taxation, assessment, and in contracting of indebtedness, it may not constrict the city’s power to levy taxes on real estate for the payment of interest on or principal of indebtedness previously contracted….While phrased in permissive language, these provisions, when read together with the requirement of the pledge of faith and credit, express a constitutional imperative: debt obligations must be paid, even if tax limits be exceeded”.

In addition, the Court of Appeals in the Flushing National Bank case has held that the payment of debt service on outstanding general obligation bonds and notes takes precedence over fiscal emergencies and the police power of municipalities.

Therefore, while the Tax Levy Limitation Law may constrict an issuer’s power to levy real property taxes for the payment of debt service on debt contracted after the effective date of said Tax Levy Limitation Law, it is clear that no statute is able (1) to limit an issuer’s pledge of its faith and credit to the payment of any of its general obligation indebtedness or (2) to limit an issuer’s levy of real property taxes to pay debt service on general obligation debt contracted prior to the effective date of the Tax Levy Limitation Law. Whether the Constitution grants a municipality authority to treat debt service payments as a constitutional exception to such statutory tax levy limitation outside of any statutorily determined tax levy amount is not clear.

It is possible that the Tax Levy Limitation Law will be subject to judicial review to resolve the constitutional issues raised by its adoption. Although courts in New York have historically been protective of the rights of holders of general obligation debt of political subdivisions, the outcome of any such legal challenge cannot be predicted.


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COMPUTATION OF REAL ESTATE TAX LEVYING LIMITATION(1) for the 2015-16 Fiscal Year

Two Per Centum of Five-Year Average Full Valuation 134,515,302$ EXCLUSIONS ADDED THERETOGross Debt Service 46,616,546$ Resources Applied to Debt (8,597,815) Interfund Transfers -

Net Debt Service(2) 38,018,731 Appropriation for capital project account reserve 400,000 Appropriation for objects or purposes for which a

period of probable usefulness is provided bySection 11.00 of Local Finance Law 7,514,166

Total Exclusions 45,932,897$ MAXIMUM TAXING POWER 180,448,199 REAL ESTATE TAX LEVY 137,030,000 TAX LEVYING MARGIN 43,418,199$

_____________________________________________________________________________________________________ Source: City of Buffalo Administration, Finance, Policy and Urban Affairs, Division of Budget (1)As of July 1, 2015, first day of the proposed 2015-16 Fiscal Year Budget (2)Excludes Enterprise Fund – Water

The State Board of Equalization and Assessment annually establishes State Equalization Ratios for the City and all localities in the State which are determined by statistical sampling of market sales/assessment studies. The equalization ratios are used in calculation and distribution of certain State aid and are used by many localities in the calculation of debt contracting and real property taxing limitations. The debt contracting and real property taxing limitations are based on a percentage amount of average full valuation. The City determines the assessed valuation for taxable real properties. The State Board of Equalization determines the assessed valuation of special franchises and the taxable ceiling of railroad property. Special franchises include assessments on certain specialized equipment of utilities under, above, upon or through public streets or public places. Assessments are made on certain properties which are taxable for school purposes, but which the City exempts for general municipal purposes.

In response to the Hurd decision, the State Legislature authorized special equalization ratios to be used in the computation of tax levying and debt contracting limitations for those affected entities. Such State Equalization Ratios are based upon a trend of market sales/assessment studies which lag current data by approximately three years. The following table indicates the recent five-year trend of assessed valuations, the State special equalization ratios assigned to the City by the State and full valuations.


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COMPUTATION OF CONSTITUTIONAL TAX LEVYING AND DEBT CONTRACTING LIMITATION

For the 2015-16 Fiscal Year

Fiscal Year Assessed State Special Equalization Full

Ended June 30: Valuation(1) Ratio(2) Valuation(3)

2012 6,405,793,577$ 0.9877 6,485,566,039$

2013 6,438,116,744 0.9856 6,532,180,138

2014 6,497,954,476 0.9723 6,683,075,672

2015 6,516,347,518 0.9464 6,885,405,239

2016 6,556,659,039 0.9310 7,042,598,323

Total Five-Year Full Valuation 33,628,825,411$

Five-Year Average Full Valuation 6,725,765,082

Tax Levying Limitation: 2% of Average Full Valuation 134,515,302

Debt Contracting Limitation: 9% of Average Full Valuation 605,318,857 _________________________________________________________________________________________ Source: City of Buffalo Administration, Finance Policy and Urban Affairs, Division of Budget (1)Includes: (a) property of veterans exempt for general City purposes but taxable for school purposes pursuant to Section 458 of Real Property Tax Law; (b) property owners 65 years of age or over with children attending public schools exempt for general City purposes but taxable for school purposes pursuant to Section 467 of the Real Property Tax Law; and (c) Special Franchises (2)Special Equalization Ratios established by State Board of Equalization and Assessment in January 2015 (3)Determined by dividing Assessed Valuation by State Special Equalization Ratio

Preparation of the City assessment roll is the statutory responsibility of the City under the Real Property Tax Law of the State. The Assessment Department of the City undertakes regular inspections of properties to ensure that new construction or improvements or demolitions are reflected in the annual roll of taxable properties

The County, in a joint effort with the New York State Division of Equalization and Assessment and the Erie County Assessors Association, initiated a reassessment of all real properties within the County in order to eliminate inequities among taxing districts within the County. The City’s Assessment Department adopted the results of the County reassessment program with minor revisions for the purpose of its own assessment roll, commencing with the City’s 1987-88 fiscal year. The City has undertaken a reassessment of all properties in the City and has used the results of the reassessment commencing with the City’s 1993-94 fiscal year. Effective with fiscal year 2011-12, the mayor instituted a freeze on re-assessments. Currently, the City’s Assessed Valuation has increased by $150.9 million or 2.4%, since 2012. The City has commenced a reassessment of all properties.

The following table indicates the composition of total valuation of all properties in the City for the last five fiscal years and depicts the trend of taxable valuations by major category, tax-exempt properties by major category, and special franchises. The categories of property owned by veterans and senior citizens are partially exempt for real property tax purposes.


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COMPOSITION OF REAL PROPERTY for the Fiscal Year Ended June 30

2012 2013 2014 2015 2016

TOTAL ASSESSED REAL ESTATE 9,656,860,002$ 9,729,535,195$ 9,733,239,182$ 9,733,810,344$ 9,918,460,512$ Special Franchise Assessment (3) 379,674,935 379,674,935 386,755,201 378,939,027 346,254,297

TOTAL ASSESSED VALUATION 10,036,534,937 10,109,210,130 10,119,994,383 10,112,749,371 10,264,714,809 Non-Taxable Real Estate (3,650,324,862) (3,693,192,335) (3,628,375,420) (3,628,375,420) (3,735,815,552) Railroad Exemption (68,926,129) (63,661,175) (57,782,394) (50,851,697) (51,751,425)

TOTAL TAXABLE FOR GENERAL CITY PURPOSES 6,317,283,946 6,352,356,620 6,433,836,569 6,433,522,254 6,477,147,832 Veteran/Senior Citizen Exemptions subject to School Tax 88,509,631 85,760,124 83,115,237 82,825,264 79,511,207

TOTAL TAXABLE FOR SCHOOL PURPOSES 6,405,793,577$ 6,438,116,744$ 6,516,951,806$ 6,516,347,518$ 6,556,659,039$

TAX BASE FOR GENERAL CITY PURPOSES

Homestead 4,192,173,859$ 4,190,369,014$ 4,196,455,323$ 4,207,632,886$ 4,221,366,061$ Commercial 1,322,248,153 1,359,604,604 1,416,244,314 1,396,028,168 1,466,778,620 Industrial 153,709,600 151,151,530 158,095,105 168,198,020 162,353,577 Utilit ies(1) 164,678,045 164,395,611 163,608,905 161,513,728 160,448,540 Railroad(2) 48,375,983 53,598,187 57,782,394 66,219,012 65,602,884 Vacant Land 56,423,371 53,562,739 54,895,327 54,991,413 54,343,853 Special Franchise Assessment (3) 379,674,935 379,674,935 386,755,201 378,939,027 346,254,297

TOTAL TAX BASE FOR GENERAL CITY PURPOSES 6,317,283,946$ 6,352,356,620$ 6,433,836,569$ 6,433,522,254$ 6,477,147,832$

TAX BASE FOR SCHOOL PURPOSES

Homestead 4,279,730,633$ 4,275,252,120$ 4,278,791,092$ 4,289,575,513$ 4,300,072,065$ Non-Homestead 2,126,062,944 2,162,864,624 2,219,163,384 2,226,772,005 2,256,586,974

TOTAL TAX BASE FOR SCHOOL PURPOSES 6,405,793,577$ 6,438,116,744$ 6,497,954,476$ 6,516,347,518$ 6,556,659,039$

_____________________________________________________________________________________________________________________ Source: City of Buffalo, Department of Assessment. (1)Land and buildings. Pipes, conduits, wires, etc. through public streets assessed as special franchises. The characterization of real property as commercial or utility is not uniform from year to year. (2)Taxable ceiling and extent of exemption established annually by State Board of Equalization and Assessment. (3)Right, authority or permission to construct, maintain or operate in, under, above, upon or through any public street, highway, or other public place including water mains, pipes, tanks, conduits, wires for transformers. Assessment determined annually by State Board of Equalization and Assessment.

In addition to the partial property tax exemptions granted to veterans and senior citizens, both the City and the County have adopted policies for providing property tax exemptions to attract new business, residential development and industry in the City and surrounding areas. For 2015-16, $740.2 million will be exempted by these policies as compared to $620.4 million in 2014-15 and $640.0 million in 2013-14.

The City receives payments in lieu of taxes, which in fiscal year 2015-16 is budgeted for $6.5 million as compared to $6.6 million in 2014-15 and $4.8 million in 2013-14. As the tax exemptions granted under the City and County policies expire, the related property is placed on the tax rolls.

Tax Levy

The amount of real property tax that is annually levied by the City is raised for City and Buffalo CSD operating purposes (within the taxing limitations described above), for capital debt service (the portion of capital debt service for Buffalo CSD purposes not being constrained by the tax levying limitation) and includes the amounts required to balance the City and Buffalo CSD budgets after other revenue sources have been taken into account. Other taxing districts which levy taxes or charges on real property in the City are the Sewer Authority and the County.

As a matter of City policy, the Buffalo CSD is credited with the full amount of taxes levied by the City for school general operating purposes regardless of any deficiency in tax collections.

The following table indicates the total real property tax rates levied within the City for the last five fiscal years.

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Table of Tax Rates Per $1,000 of Assessed Valuation(1)

Fiscal Year Ended June 30:

2012 (Homestead) $ 5.20 $ 4.10 $ 7.40 $ 1.30 $ 18.00 $ 5.50 $ 1.70 $ 25.20 2012 (Non-Homestead) 9.00 7.10 13.10 2.40 31.60 5.50 1.70 38.80 2013 (Homestead) 4.80 4.20 7.60 1.40 18.00 5.40 1.70 25.10 2013 (Non-Homestead) 7.60 6.70 12.40 2.30 29.00 5.40 1.70 36.10 2014 (Homestead) 4.80 4.10 7.70 1.40 18.00 5.40 1.70 25.10 2014 (Non-Homestead) 7.50 6.30 12.10 2.20 28.10 5.40 1.70 35.20 2015 (Homestead) 5.12 3.68 7.67 1.39 17.86 5.40 1.70 24.96 2015 (Non-Homestead) 7.82 5.62 11.94 2.10 27.48 5.40 1.70 34.58 2016 (Homestead) 5.52 3.26 7.69 1.40 17.87 5.40 1.70 24.97 2016 (Non-Homestead) 8.26 4.88 11.72 2.13 26.99 5.40 1.70 34.09

Total

OverlappingPurposes Purposes Entities

Operations

Capital Debt

Service Operations

Capital Debt

ServiceTotal

City/School

County of

Erie(2)

Buffalo Sewer

Authority

General City School

__________________________________________________________________________________________ Source: City of Buffalo, Department of Audit & Control, Division of Accounting, County of Erie, and Buffalo Sewer Authority (1)Tax rates reflect full value reassessment (2)Erie County has a January 1 through December 31 fiscal year. Rate is based on Equalized Full Valuation for year 2015

Tax Collection Procedure and History

The ad valorem real property tax rate is established as part of the City’s budget process to balance total appropriations and estimated revenues. (See “DISCUSSION OF FINANCIAL OPERATIONS – Budget Process” herein.) Real property taxes become payable upon levy of such taxes by the Common Council. The taxes are collected by the City Treasury. The total amount of the taxpayer’s bill is due and payable on July 1; however, the first half may be paid without penalty on or before July 31 and the second half on or before December 31. No discounts for prepayment are allowed. Penalties are assessed for delinquencies at an effective rate of 18% per annum.

Special assessments (for sidewalks, demolitions, lot clearance) on benefited property are due and payable on the date of the first publication of the special assessment notice and may be paid before the expiration of one month from such date without additions. At the expiration of one month, 1% per month is added to all past due and unpaid special assessments. Each year on March 1 the amount of all past due and unpaid special assessments and the interest accrued thereon is added to the real property tax roll for the succeeding fiscal year. Such special assessments are payable with the first half installment of real property taxes and subject to the same additions for non-payment that apply to the first half installment.

Real estate for which taxes remain unpaid as of May 25 is subject to the sale of a tax sale certificate, giving the purchaser a claim to the property. Within two years from the date of sale of the tax sale certificate, the property may be redeemed by the payment of the face amount of the tax sale certificate with interest at the rate of 1% per month. After the redemption period of two years, conveyance of the property may be secured or foreclosure proceedings instituted. Previously, such tax sale certificates were sold to private buyers; however, for many years the City has found no private bidders for the tax liens, and the City has itself acquired all tax liens. Consequently, the City has elected not to hold a sale of tax sale certificates since July 1, 1977. The City is empowered to seek personal judgment against the property owners. (See “PROPERTY TAXES – Real Property Tax Delinquencies” herein.)

The City does not collect real property taxes levied by the County and is not responsible for delinquencies of County taxes levied against City properties.

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The following table shows the recent trend of current property tax levies as adjusted during the year, unpaid special assessments added to annual tax bills, collection of the total current levy, and total collections (i.e., including collections of delinquent taxes), all as of June 30 of the fiscal year indicated.

Table of Real Property Tax Levies and Collections (000’s Omitted)

PercentAmount of Percent of Total

Fiscal Total of Total Collection CollectionsYear Total Current Current Interest Final Tax of to TotalEnded Current Levy Levy Added to Levy for Delinquent Total Current

June 30 Levy Collected Collected Levy(3)

Fiscal Year Taxes Collections Levy

2006 $129,260 (1)(2) $121,415 93.93% $1,413 $130,673 $7,857 $129,272 98.93%

2007 129,631 (1)(2) 121,849 94.00% 1,401 131,032 7,933 129,782 99.05%

2008 130,108 (1)(2) 123,394 94.84% 1,209 131,317 6,600 129,994 98.99%

2009 128,689 (1)(2) 121,873 94.70% 1,227 129,916 6,753 128,626 99.01%

2010 126,219 (1)(2) 119,932 95.02% 1,260 127,479 7,110 127,042 99.66%

2011 129,069 (1)(2) 122,281 94.74% 1,224 130,293 6,875 129,156 99.13%

2012 128,090 (1)(2) 122,089 95.32% 1,191 129,281 6,399 128,488 99.39%

2013 123,947 (1)(2) 117,559 94.85% 1,159 125,106 6,143 123,702 98.88%

2014 124,087 (1)(2) 117,480 94.68% 1,203 125,290 5,223 122,703 97.94%

2015 122,333 (1)(2) 116,451 95.19% 1,107 123,440 330 116,781 94.61%___________________________________________________________________________________________ Source: City of Buffalo, Department of Audit & Control, Division of Accounting (1)Total current levy includes assessment adjustments processed during the year of $0.6 million for fiscal year ended June 30, 2006, $1.0 for

fiscal year ended June 30, 2007, $1.6 million for fiscal year ended June 30, 2008, $1.2 million for fiscal year end June 30, 2009, $0.3 million for fiscal year end June 30, 2010, $0.4 million for fiscal year end June 30, 2011, $0.5 million for fiscal year ended June 30, 2012, $0.7 million for fiscal year ended June 30, 2013, $1.0 million for fiscal year ended June 30, 2014 and $1.1 million for fiscal year ended June 30, 2015.

(2)Total current levy was reduced by the New York State Enhanced Star Exemption for the fiscal years ended June 30 as follows; 2006 - $17.7 million; 2007 - $17.9 million; 2008 - $18.1 million; 2009 - $16.2 million; 2010 - $16.4 million; 2011 - $15.7 million; 2012 - $15.4 million; 2013 - $15.4 million; 2014 - $15.2 million and 2015 - $13.2 million.

(3) Interest of 18.0% for one year is added to tax levy for all properties not paid in current year.

Real Property Tax Delinquencies

As of June 30, 2015, cumulative real property tax delinquencies were $15.6 million. The City reserved $6.6 million as uncollectible at June 30, 2015. It is the City’s policy to write off as uncollectible property taxes which have been delinquent for more than five years.

The primary mechanism for recovery of delinquent taxes has been tax foreclosure. Until June 22, 1975, the City foreclosed on properties following four years of tax delinquency. On June 23, 1975, the City enacted a two-year foreclosure law. The City began a one year foreclosure option on October 26, 1998 as a result of State legislation which was enacted as of January 1, 1995. The effective annual penalty rate for late payment is 18% per annum. This was increased effective July 1, 1992.

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Major Taxpayers

The following table of the fifteen largest taxpayers indicates the distribution of taxable properties in the City. As indicated, two utilities are liable for approximately 6.3% and 3.0%, respectively, of the total tax levy for fiscal year 2015-16 and no other taxpayer individually accounts for more than 2.0% of the tax levy.

CITY OF BUFFALO FIFTEEN LARGEST PAYERS OF CITY REAL PROPERTY TAXES(1)(2)(3)

Fiscal Year Ending June 30, 2016

Rank Taxpayer Nature of Business Net Assessed

Valuation

Real Property

Tax Levied

Ratio of

Tax to Tax

Levy

1 National Grid, PLC Utility $313,541,824 $8,635,904 6.29%

2 National Fuel Fas Corp. Utility 151,498,382 4,172,730 3.04%

3 Verizon Communication, Inc. Telecommunications 50,500,044 1,390,926 1.01%

4 Consolidated Rail Corp. Shipping/Transportation 79,374,074 1,389,347 1.01%

5 Manufacturers and Trust Co.(4)

Bank 49,312,200 1,358,209 0.99%

6 Acquest Government Leases, LLC Property Management 55,000,000 1,136,152 0.83%

7 Seneca One Realty, LLC Property Management 26,600,000 732,646 0.53%

8 Violet Realty, Inc. Retail Mall 21,000,000 578,404 0.42%

9 LCO Building, LLC Property Management 32,552,000 575,120 0.42%

10 Government Properties Income Trust Property Management 14,500,000 399,375 0.29%

11 Norfolk Southern Corp. Shipping/Transportation 26,385,835 380,293 0.28%

12 WNY Lodging, LLC Hotel/Hospitality 12,500,000 344,288 0.25%

13 General Mills, Inc. Commercial Foods 9,400,800 258,927 0.19%

14 Main-Seneca Corp. Property Management 8,470,000 233,290 0.17%

15 The Buffalo News, Inc. Newspaper 8,356,700 230,169 0.17%

Total for Top Fifteen Taxpayers 21,815,780 15.90%

Total Real Property Tax Levy 137,230,000$ 100.00%

____________________________________________________________________________________________ Source: City of Buffalo, Department of Audit & Control, Division of Investment & Debt Management (1)Based on assessed values greater than $100,000 (2)Does not inlcude those properties which are exempt from taxes and are making Payments In-Lieu of Taxes (PILOT) (3)Based on a non-homestead tax rate of $26.99 per thousand

(4)Taxes on bank property only. Does not include taxes paid as mortgagee.

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ECONOMIC AND DEMOGRAPHIC FACTORS

The City was incorporated in 1832. It is the second largest city in the State, encompassing a land area of 42 square miles with a 2010 population of 261,310. The City is located in Erie County in western New York State on the eastern shore of Lake Erie.

Employment

The economy of the Buffalo area underwent a transition in the decade from 1980 to 1990. Traditionally dominated by heavy manufacturing and petrochemical industries, the area lost manufacturing jobs in part from the decline in steelmaking employment at both Bethlehem Steel and Republic Steel. However, these losses were offset by increases in employment in trade, government, services, finance, insurance and real estate and contract construction.

While total employment declined from 2000 through 2010, growth in government, services, financial and insurance sectors helped compensate for reductions in manufacturing and trade. Statistically, the Buffalo area’s job categories compare well with the U.S. average in the year 2010 with slight variances in two categories – finance/insurance and mining/construction.

The City remains committed to its downtown development strategy as a means of further diversifying its employment base. (See “ECONOMIC AND DEMOGRAPHIC FACTORS – Development Activity” herein.)

Major employers in the Buffalo area include the State, University of Buffalo, the U.S. Government, Kaleida Health, the County, Buffalo CSD, Catholic Health Systems and Manufacturers and Traders Trust Company.

TRENDS IN EMPLOYMENT BY CATEGORY IN THE BUFFALO METROPOLITAN STATISTICAL AREA (“MSA”) 2000-2015

(000’s Omitted)

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

C a te g o ry ( 2 )

Manufac turing 83.0 17,263.0 49.6 11,528.0 50.7 12,006.0 52.3 12,185.1 52.5 12,317.3 Trade , Trans po rta tio n & Utilities 109.3 26,225.0 97.8 24,636.0 101.1 25,870.0 102.3 26,383.2 102.9 26,920.0 Re ta il Trade 65.8 15,279.8 60.8 14,440.4 62.4 15,076.6 62.9 15,357.3 63.0 15,641.1 Who les a le Trade 23.9 5,933.2 21.1 5,452.1 21.7 5,746.8 22.2 5,813.4 22.2 5,875.3 Go vernement 90.7 20,790.0 95.0 22,490.0 90.6 21,864.0 89.1 21,881.8 88.5 22,006.8 Service P ro viding 455.3 107,232.0 469.7 112,166.0 478.0 117,668.0 480.1 119,731.7 486.3 122,281.6 Other Services 23.1 5,168.0 23.4 5,331.0 23.9 5,464.0 24.6 5,567.1 24.8 5,625.3 F inance & Ins urance 23.2 5,772.8 24.2 5,761.0 25.3 5,877.8 25.6 5,930.9 26.2 6,037.9 Mining & Lo dging 20.8 599.0 18.9 705.0 19.2 868.0 20.4 890.5 22.9 819.8

895.1 204,262.8 860.5 202,509.5 872.9 210,441.2 879.5 213,741.0 889.3 217,525.1

2 0 0 0 2 0 10 2 0 13 2 0 14 2 0 15 ( 1 )

______________________________________________________________________________________________ Source: U.S. Department of Labor - Bureau of Labor Statistics Data, February 2016 (1) Includes preliminary figures for the month of December 2015 (2) Does not include all categories of employment

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Total Non-Agricultural Employment by Category 2000-2015

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

B uffa lo M S A

Unite d S ta te s

C a te g o ry ( 2 )

Manufac turing 9.3% 8.5% 5.8% 5.7% 5.8% 5.7% 5.9% 5.7% 5.9% 5.7%Trade , Trans po rta tio n & Utilities 12.2% 12.8% 11.4% 12.2% 11.6% 12.3% 11.6% 12.3% 11.6% 12.4%Reta il Trade 7.4% 7.5% 7.1% 7.1% 7.1% 7.2% 7.2% 7.2% 7.1% 7.2%Who les a le Trade 2.7% 2.9% 2.5% 2.7% 2.5% 2.7% 2.5% 2.7% 2.5% 2.7%Go vernement 10.1% 10.2% 11.0% 11.1% 10.4% 10.4% 10.1% 10.2% 10.0% 10.1%Service P ro viding 50.9% 52.5% 54.6% 55.4% 54.8% 55.9% 54.6% 56.0% 54.7% 56.2%Other Services 2.6% 2.5% 2.7% 2.6% 2.7% 2.6% 2.8% 2.6% 2.8% 2.6%Finance & Ins urance 2.6% 2.8% 2.8% 2.8% 2.9% 2.8% 2.9% 2.8% 2.9% 2.8%Mining & Lo dging 2.3% 0.3% 2.2% 0.3% 2.2% 0.4% 2.3% 0.4% 2.6% 0.4%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

2 0 0 0 2 0 10 2 0 13 2 0 14 2 0 15 ( 1 )

______________________________________________________________________________________________ Source: U.S. Department of Labor - Bureau of Labor Statistics Data, February 2016 (1) Includes preliminary figures for the month of December 2015 (2) Does not include all categories of employment

Unemployment Rates

The following table indicates that the City’s rate of unemployment is higher than the State and national percentages. City data in the table were determined by using the Census share methodology, which is based on the ratio of the City to the County with respect to employment figures. The 2006-2010 data for the City is based on the City’s population data from the 2000 Census. The 2011-2015 data for the City is based on the 2010 Census.

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UNEMPLOYMENT RATES (1)

Year CityBuffalo MSA NY State

United States

2006 6.1% 5.0% 4.6% 4.6%

2007 5.9% 4.8% 4.6% 4.6%

2008 7.0% 5.9% 5.5% 5.8%

2009 9.9% 8.3% 8.4% 9.3%

2010 10.8% 8.6% 8.6% 9.6%

2011 10.6% 8.2% 8.3% 8.9%

2012 10.9% 8.5% 8.4% 8.1%

2013 9.7% 7.6% 7.5% 7.4%

2014 7.9% 6.2% 6.2% 6.2%2015(2) 6.9% 5.5% 5.4% 5.3%

Source: U.S. Department of Labor, Bureau of Labor Statistics, February 2016 (1)Total employment by place of residence (2) Includes preliminary figures for the month of December 2015 for City, Buffalo MSA and NY State only

Population

The 2010 Census revealed that the City’s population declined from 292,648 in 2000 to 261,310 in 2010. The most recent estimate provided by the U.S. Department of Commerce, Bureau of the Census has the City of Buffalo with a population of 258,703 for 2014.

POPULATION TREND 1980-2010

_____________________________________________________________________________________________ Source: U.S. Department of Commerce, Bureau of the Census

CITY OF BUFFALO HOUSING CHARACTERISTICS

1980-2010

_____________________________________________________________________________________________ Source: U.S. Department of Commerce, Bureau of the Census

1980 1990 2000 2010

Buffalo 357,870 328,123 292,648 261,310

Erie County 1,015,472 968,532 950,265 919,040

Buffalo MSA 1,242,573 1,189,288 1,170,111 1,135,509

New York State 17,355,668 17,990,455 18,976,457 19,378,102

United States 225,234,182 249,632,692 281,421,906 308,745,538

1980 1990 2000 2010

Year Round Housing Units 156,393 151,971 145,574 139,174

Occupied Housing Units 140,954 136,436 122,720 112,844

Persons Per Household 2.41 2.33 2.29 2.26

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Development Activity

Buffalo’s economy continues to build momentum, with major construction projects, primarily on the waterfront and the Buffalo Niagara Medical Campus, as well as a $5.8 billion solar panel production facility that is expected to be completed in the third quarter of 2017. Since 2011, nearly $11.2 billion in construction projects in Buffalo are either completed, underway, or in the planning stages, according to Buffalo Business First, a business newspaper. That number climbs to more than $19.5 billion when including projects from the surrounding communities.

Buffalo RiverBend

The solar panel production facility, known as RiverBend, includes a $5.0 billion investment from SolarCity, coupled with a $750.0 million investment from the State. Upon completion, the 1.2 million square-foot facility will be the largest solar manufacturing facility in the western hemisphere, and have the ability to expand five-fold to accommodate future growth. The 88-acre site is currently under construction and will create 3,000 permanent new jobs.

Information Technology

While RiverBend is the signature project in Governor Andrew Cuomo’s pledge to invest $1.0 billion in State funds to spur economic development in Buffalo, the “Buffalo Billion” also led to a commitment by IBM to bring 500 jobs to a new, 100,000-square-foot, state-owned computer information technology center in Downtown Buffalo to train future and current industry workers and to create cutting-edge software for energy, health, defense and other industries.

Buffalo Niagara Medical Campus

The “Buffalo Billion” has also led to critical State investments at the Buffalo Niagara Medical Campus (BNMC), a consortium of the region’s top health care, education, and research institutions. The 120-acre site adjacent to downtown is home to the Roswell Park Cancer Institute, Buffalo General Hospital, the Hauptman-Woodward Medical Research Institute, and the recently completed $291.0 million facility that is home to the Kaleida Health Gates Vascular Institute and the University at Buffalo’s Clinical and Translational Research Center. Currently there are more than 12,000 employees at the BNMC today, up from 7,000 in 2002. By 2017, there is expected to be more than 17,000 employees at the BNMC, due to the completion of several major projects at the campus:

• The University at Buffalo’s $375.0 million new medical school, with more than a half-million square feet of space, which broke ground in 2013 and will be completed by 2016.

• Kaleida Health’s Oishei Women & Children’s Hospital, a $272.0 million, 12-story, 250,000 square foot facility, which broke ground in 2014 is expected to be completed by 2017.

• A $50.0 million expansion of Roswell Park Cancer Institute, including an 11-story, 142,000 square foot Clinical Sciences Center, which is under construction and expected to be completed by 2016.

• Conventus, a $110 million medical office facility, opened in 2015.

• A $105 million genomic and supercomputing center at the campus was announced in 2014.

Just a few blocks from the campus, Catholic Health System opened a newly constructed $51.0 million, six-story, 140,000-square-foot headquarters in 2014.

Education

The construction of the University at Buffalo’s new medical school at the BNMC is part of the “UB2020” plan, a comprehensive growth strategy to increase jobs, enrollment, and research funding at the school, the largest public university in New York State, with more than 28,000 students across 3 campuses. UB2020 is expected to create more than 1,000 jobs at the university, in addition to 2,000 private-sector research jobs and 1,600 construction jobs.

In addition to the University at Buffalo, the area is home to 20 other colleges & universities (State University College at Buffalo, Niagara University, Canisius College, D’Youville College, Daemen College, Erie County

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Community College, etc.), for a total of 110,000 students and 32,000 employees in higher education, creating a $3.2 billion economic impact.

Waterfront Development

Capitalizing on its Lake Erie shoreline and historic significance as the western terminus of the Erie Canal, Buffalo has recently made great strides in developing its waterfront. The centerpiece of this effort is the Canalside project, which has blended public access with private development to create a destination in the heart of downtown.

The initial phases of the project included more than $100.0 million in renovations to the waterfront, including a central wharf, a navigable commercial slip, the excavation of historic streets and buildings, a pedestrian bridge, a new building housing a restaurant and a museum, an amphitheater, a public park, and One Canalside, formerly the Donovan State Office Building, which recently completed a $30.0 million renovation including office space, retail and a 96-room Marriott hotel.

The most recently completed phase of the Canalside project, which includes the construction of replica canals and bridges at the site of the former Memorial Auditorium, is an all-season attraction with ice skating in the winter and paddleboats in the summer. Three new buildings at Canalside, including the $12.0 million Explore and More Children’s Museum, are also planned.

The public investment at Canalside has spurred more than $250.0 million in private investment surrounding the site.

Adjacent to Canalside is HarborCenter, where the Buffalo Sabres have completed a $200.0 million hockey-themed project, which includes a 20-story facility with two ice rinks, a 200-room Marriott hotel, retail space, and a high-end sports bar known as “716”. Connected to the Sabres’ arena, the First Niagara Center, HarborCenter is expected to draw 500,000 visitors annually, creating 350 full time jobs and generating $4.1 million in state and local taxes.

Waterfront development has also spread past downtown, with major public access developments on the Outer Harbor and the Buffalo River. Major improvements have been made at Gallagher Pier on the Outer Harbor portion of the Lake Erie shoreline, including a new pier and boardwalk, a small boat/personal watercraft launch, beach access, bike paths, and a playground. Another new waterfront park on the Outer Harbor, Wilkeson Pointe, opened in 2013 and includes wind sculptures, beach volleyball, and boat docking. The 2014 transfer of Outer Harbor land from the Niagara Frontier Transportation Authority to two state entities – the Erie Canal Harbor Development Corporation and the Office of Parks, Recreation, and Historic Preservation – will help to accelerate the waterfront development currently underway.

On the Buffalo River shoreline is the $5.0 million Buffalo Riverfest Park, which features a wharf, a boardwalk, boat docking, trails, gardens, an amphitheater, a concession building and interpretive signage. Upstream is the Mutual Riverfront Park, a multi-million project that includes a museum, a public park, a boardwalk promenade, a river overlook, and a boat launch with a storage facility. Another Buffalo River attraction, Buffalo Riverworks, opened in 2015, a $15.0 million project that converted a grain elevator into a waterfront recreational facility with two ice rinks, a beer garden, boat docks and a performing arts space.

Infrastructure

An $11.0 million investment in Ohio Street converted the formerly industrial street into a bicycle and pedestrian-friendly parkway that connects attractions at Canalside, the Buffalo River, and the Outer Harbor.

The Cars Sharing Main Street project continues to bring vehicular traffic back to Main Street, while preserving the light rail system on the thoroughfare. With the 600 and 700 block of Main Street completed, and 500 block currently under construction, the project is already fulfilling its goal of increasing economic development and activity on the street. An additional $18 million in federal Transportation Investment Generating Economic Recovery (TIGER) grant funding for the project was announced in October 2015 and will be used for the portion of Main Street in the Canalside area, between Exchange and Scott Streets.

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Housing

With the Buffalo Niagara Medical Campus and Canalside being located on the city’s Metro Rail subway system, $91 million is being invested in real estate projects, primarily housing, near the subway stations. The city expects to approve 800 to 900 new housing units along the subway by 2016, with as many as 2,000 to 3,000 more in later years.

Kaleida Health announced in November 2013 a $63.0 million plan for reuse for the site of the former Millard Fillmore Gates Circle Hospital, including a $28.0 million 55-unit continuing care retirement community for elderly residents, as well as a $35.0 million plan for more than 500 condominiums and market-rate apartments.

Buffalo has seen a dramatic increase over the past decade in the number of residential units being developed in the downtown core. Approximately 1,000 new units have come online within the past five years, with the majority a result of renovating and repurposing existing structures. According to a 2011 study, 4,225 households comprise the potential downtown residential market, significantly higher than the 1,315 households identified in a 2004 study. Over the next five years, it is estimated that between 160 and 320 new units can be absorbed annually. Demographic trends and lifestyle preferences indicate that downtown residential markets will continue to gain strength into the foreseeable future.

Data from research firm Clear Capital, published in the January 2014 issue of Kiplinger’s Personal Finance magazine, shows Buffalo prices are up 16 percent since May 31, 2006 – highest among the nation’s 100 largest metro areas. Home prices in some City of Buffalo neighborhoods increased as much as 43 percent during this period. In 2013, home prices in the Buffalo area rose 6.9 percent.

Hospitality

The hotels at HARBORCenter and One Canalside will soon be joined by another project that includes hotel space, Ellicott Development Company’s “The Carlo,” a 14-story, $75.0 million mixed-use complex to be located near the Erie Basin Marina. These new builds are in in addition to five other new hotels recently completed or planned in Buffalo that rehabilitate historic buildings. The Hotel @ the Lafayette a $46.0 million project, and the Webb Building, a $9.0 million project, were completed in 2012. Construction is completed on the Tishman Building, a $40.0 million project that includes a 123-room Hilton Garden Inn, and the Curtiss Building, an $20.0 million 68-room luxury hotel. Initial work has also begun on the historic Richardson Olmsted Complex, which will renovate H.H. Richardson’s architectural masterpiece into a 90-room, $56.0 million boutique hotel and high-tech conference center.

Finance & Corporate Headquarters

Buffalo is the home to the corporate headquarters of two banks, M&T Bank and First Niagara Bank. M&T Bank, founded in Buffalo in 1856, is one of the nation’s largest 20 banks, with $81.0 billion in assets and more than 15,000 employees, a third of which are located in the Buffalo area. M&T’s footprint includes 750 branches in New York, Maryland, Pennsylvania, Virginia, Washington, D.C., West Virginia, Delaware, New Jersey, and Florida. First Niagara Bank is one of the nation’s largest 40 banks, with $33.0 billion in assets and more than 5,000 employees, most of which are located in the Buffalo area. First Niagara’s footprint includes 450 branches in New York, Pennsylvania, Connecticut, and Massachusetts. First Niagara has reportedly agreed to a merger into Key Bank with a likely reduction in the number of employees in the Buffalo area

HSBC bank has a major back-office presence in Buffalo, with more than 3,000 employees located in the area. Key Bank, Bank of America, Citizens Bank, and several local banks also have a major branch presence in the region.

Buffalo is home to the headquarters of several major corporations, including Rich Products, Labatt USA, the New Era Cap Company, Sorrento Lactalis, and Delaware North Companies. Construction is nearing completion on Delaware North’s new headquarters, an $110.0 million, 12-story tower with a 120-room hotel. The company has moved its offices into the nearly completed facility.

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Automotive Industry

More than $1 billion has been invested or are slated to be invested in automotive factories in the Buffalo area. $825 million was invested in the General Motors engine plant, which added 113 jobs in 2013, for a total of 1,902 jobs at the facility. Ford is currently implementing $150 million in new investments to its stamping plant. The investments have led to 230 new jobs, for a total workforce of 1,950 employees, with more jobs expected when the investments are completed.

Entertainment and Culture

Downtown Buffalo is also the regional hub of Western New York entertainment, drawing approximately seven million visitors per year. The largest draw is special events, which attract 1.3 million visits per year for the Taste of Buffalo, Canalside Summer Music Series, the M&T Lunchtime concert series, the National Buffalo Wing Festival, and other events. Sporting events draw 1.2 million visits for hockey, baseball and lacrosse, while some 700,000 patrons enjoy Theatre District events. The City’s vibrant arts community and world-renowned architecture are also major tourism draws.

The long term future of the National Football League’s Buffalo Bills was ensured with the purchase of the franchise for $1.4 billion by Buffalo Sabres owner Terry Pegula, who has committed to keeping the team in the region for the foreseeable future. Pegula has also committed to building a new stadium for the Bills, which could potentially be located in the City of Buffalo.

Buffalo is also home to the Buffalo Sabres of the National Hockey League (NHL), and the Buffalo Bisons baseball team, the Triple-A affiliate of the Toronto Blue Jays.

A $40 million expansion of the Buffalo Creek Casino was announced in 2015. The two-story expansion will include 360 new slot machines, 10 table games, a performance stage, and a high-end restaurant.

The City of Buffalo is the home of numerous institutions devoted to the arts, including the world famous Albright-Knox Art Gallery and Kleinhans Music Hall, the home of the Buffalo Philharmonic Orchestra.

Buffalo’s historic theater district provides the stage for legitimate theater with the largest concentration of theaters in New York State outside of New York City. Shea’s Buffalo Theater, 710 Main Theatre, Alleyway Theatre, and the Irish Classical Theatre anchor the City’s downtown theatre district.

The City is also the location of the Buffalo Museum of Science, the Buffalo and Erie County Historical Museum, the Buffalo Zoo, and the Botanical Gardens of Buffalo and Erie County.

Library services are provided through the Buffalo and Erie County Public Library Systems with 218 employees, circulating over 7.6 million items at 37 branches located throughout Erie County.

Canadian Impact

Buffalo’s proximity to Canada has resulted in retail growth with Canadian shoppers taking advantage of lower sales tax. Canadian travelers have also been credited with the rapid increase in passengers at the Buffalo Niagara International Airport. Canadians are estimated to make up 40% of the recorded 5.1 million passengers that used the airport in 2013, supporting 17,000 jobs with $1.1 billion economic impact.

The impact of Canadians on the local economy is expected to increase as the “Golden Horseshoe” region of Southern Ontario (Toronto-Niagara Falls-Hamilton area) is projected to grow from 8.8 million people today to 11.5 million by 2031. An expanded Peace Bridge Plaza is currently under construction aimed at strengthening the region’s ties with Southern Ontario by making border crossings quicker and easing congestion on the bridge. The plan also includes $2.0 million for improvements to the surrounding neighborhood.

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Transportation

Buffalo is located in the center of a complex transportation network of truck, rail, highway, water and air facilities. The Peace Bridge Authority has begun a full EIS (Environmental Impact Statement) process to study location, size and design of one or two bridges and an associated plaza.

The Port of Buffalo is eighth in size of the 54 Great Lakes ports and twenty-ninth in size of the 40 major U.S. ports. The Port’s terminal facilities encompass 185,000 square feet of enclosed storage space for marine cargo and approximately 200 acres of open storage space. On May 28, 1976 a Foreign Trade Zone (the “FTZ”) began operation at the Port of Buffalo. Imported goods may be processed in the FTZ, sorted, stored and repackaged without payment of any duties until the goods are actually sold to importers in the United States or elsewhere. A total of 153 acres at the former Bethlehem Steel Plant has been designated as the FTZ and approximately 31 companies occupy the FTZ at the relocated Port of Buffalo.

Truck service is provided in the Buffalo area by various transcontinental, international and common carriers. Several freight and passenger lines, including Conrail, Amtrak and Canadian National Railways, provide rail service.

The Buffalo Niagara International Airport (BNIA), operated by the Niagara Frontier Transportation Authority (NFTA) is a regional airport serving the Buffalo-Niagara Metropolitan Area providing approximately 110 daily flights. The following table sets forth the trend in passenger volume at the Buffalo Niagara International Airport from 2006 through 2015.

Buffalo-Niagara International Airport Passenger Volume Trend

Year Passenger Volume

% Change from Prior Year

2006 5,063,884 4.0% 2007 5,335,394 5.4% 2008 5,526,301 3.6% 2009 5,334,232 -3.5% 2010 5,203,104 -2.5% 2011 5,194,162 -0.2% 2012 5,177,913 -0.3% 2013 5,134,925 -0.8%

2014 4,750,643 -7.5%

2015 4,679,070 -1.5%

Source: Niagara Frontier Transportation Authority, February 2016

BUFFALO CSD SCHOOL FACILITIES RECONSTRUCTION PROJECT

Pursuant to special State legislation enacted as Chapter 605 of the Laws of 2000, as amended (the “Buffalo School Act”), the Buffalo CSD has undertaken a multi-phase comprehensive redevelopment program to finance the renovation and building of public school buildings in the City (the “Program”).

The Joint Schools Construction Board, or the JSCB, was created by resolutions of the Buffalo CSD Board of Education and the City Common Council and by amendment of the City Charter, and was granted additional powers with respect to construction of new school buildings by the Buffalo Schools Act, as well as certain limited functions with respect to the reconstruction of existing school buildings. The JSCB has been authorized under the Buffalo Schools Act to manage the acquisition, design, construction, reconstruction, renovation and financing of new public educational facilities in the City, and to create, coordinate efforts to enable compliance with, monitor and report on, a program-wide diversity plan for the Program. The JSCB has

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been authorized, by resolution of the Board of Education, to assist in the acquisition, renovation, reconstruction, improvement, equipping and furnishing of public educational facilities in the City.

Upon the voluntary resignation by the New York State Regent for the Eight District of the City, the JSCB by-laws were amended October 2013, to remove the ex-officio, non-voting appointed position from the JSCB to prevent the appearance of a conflict of interest. The JSCB is now comprised of the Mayor, the Comptroller, the Buffalo CSD Superintendent of Schools, a designee of the Common Council of the City and two designees of the Board of Education of the Buffalo CSD.

The Ciminelli Construction Companies, including LP Ciminelli, Inc. and its affiliated companies (the “Program Provider”) are the largest construction group in Western New York and consist of a team of specialists versed in all aspects of the construction industry. The Program Provider was selected by the JSCB to implement the Program through provision of program management, construction management, general contracting, design/build, consulting and related services. Such selection has been ratified by the Buffalo CSD by its entering into master construction agreements with the Program Provider.

Pursuant to agreement with the JSCB, the Program Provider is obligated to prepare and submit all necessary or appropriate reports to the State Department of Education including all filings to maximize State Building Aid reimbursement to the Buffalo CSD with regard to the Program.

Pursuant to the Buffalo Schools Act and commencing in September 2003, the ECIDA has issued several series of its School Facility Revenue Bonds (City School District of the City of Buffalo Project) to fund five phases of the Program. As of June 30, 2015, the aggregate outstanding principal amount of such bonds totals $908.4 million. These bonds are special limited obligations of the ECIDA secured by annual payments of State aid to education appropriated and made available to the Buffalo CSD.

The ECIDA has issued refunding bonds in July 2011, April 2012, April 2013 and June 2015 to refund the outstanding School Facility Revenue Bonds, Series 2003, 2004, a portion of 2009 and 2007/2008 respectively.

LITIGATION

The City and the Buffalo CSD, and their respective officers and employees, are defendants in a number of lawsuits. The City, in common with other municipalities, receives numerous notices of claims for money damages deriving generally from sidewalk falls, park accidents, school accidents, City vehicle accidents, police arrests and various other negligence and personal injury claims. The City (as well as the Buffalo CSD) self insures for tort claims. Budgetary reserves for such claims and payouts for such claims over the last few years are as set forth at the end of this section below.

The Department of Law of the City, headed by the Corporation Counsel, has determined that there are no pending lawsuits which will have the potential for an expenditure or exposure of more than $5,000,000 in excess of any amounts provided for in budgetary or self insurance reserves, except as noted immediately below.

1. There is pending litigation against the City and its Police department stemming from an alleged shooting incident in which an individual was wounded. If liability is found against the City, the total exposure of the case, while difficult to pinpoint and certainly in dispute, is potentially in the range of up to approximately $4,500,000 to $6,500,000.

Tax Certiorari Proceedings

In common with other municipalities, the City receives numerous real property tax certiorari petitions contesting the validity of tax assessments. The City’s 2015-16 adopted budget included $100,000 for tax certiorari-related claims and judgments with $26,833 having been paid out as of December 31, 2015. The City expensed $102,747 and $25,781 for tax certiorari-related claims or judgments for fiscal year ended June 30, 2015 and June 30, 2014, respectively.

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Provision for Judgments and Claims

The City’s 2015-16 budget, as revised, included $2.1 million for judgments and claims and $4.4 million for workers compensation claims, of which $1.1 million and $2.2 million respectively had been paid out as of December 31, 2015. The City expensed $3.5 million for judgments and claims and $4.3 million for workers compensation claims for fiscal year ended June 30, 2015. The City expensed $4.1 million for judgments and claims and $4.6 million for workers compensation claims for fiscal year ended June 30, 2014.

APPENDIX B

CITY OF BUFFALO, NEW YORK BASIC FINANCIAL STATEMENTS AND REQUIRED SUPPLEMENTARY INFORMATION AS OF

AND FOR THE YEAR ENDED JUNE 30, 2015 AND INDEPENDENT AUDITOR’S REPORT

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APPENDIX C

BUFFALO CSD COMPONENT FINANCIAL STATEMENTS

June 30, 2015

AUDITED BASIC FINANCIAL STATEMENTS

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK A COMPONENT UNIT OF THE CITY OF BUFFALO, NEW YORK

JUNE 30, 2015

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK

TABLE OF CONTENTS

Independent Auditor's Report

SECTION A FINANCIAL SECTION

Management's Discussion and Analysis

Basic Financial Statements:

Statement of Net Position

Statement of Activities

Balance Sheet - Governmental Funds

Reconciliation of the Statement Balance Sheet of Governmental Funds to the Statements of Net Position

Statement of Revenues, Expenditures and Changes in in Fund Balances - Governmental Funds

Reconciliation of Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities

Statement of Net Position - Fiduciary Funds

Statement of Changes in Net Position - Fiduciary Fund

Notes to Basic Financial Statements

Required Supplementary Information:

Schedule of Funding Progress for Retiree Health Plan

Budgetary Comparison Schedule for the General Fund

Schedule of District's Proportionate Share of Net Pension Asset (Liability) - ERS and TRS

Schedule of District's Pension Contributions - ERS

Schedule of District's Pension Contributions - TRS

1-3

4-17

A1

A2

A3

A4

A5-A6

A7

A8

A9

A10-A34

A35

A36-A37

A38

A39

A40


TABLE OF CONTENTS (Continued)

SECTION B SUPPLEMENTAL SCHEDULES

Combining Balance Sheet - Non-Major Governmental Funds

Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Governmental Funds

Schedule of Change from Adopted Budget to Amended Budget -General Fund

Schedule of Project Expenditures - Capital Projects Fund

Schedule of Net Investment in Capital Assets

SECTION C SUPPLEMENTARY INFORMATION

FEDERAL FINANCIAL ASSISTANCE

Schedule of Expenditures of Federal Awards

Notes to Schedule of Expenditures of Federal Awards

SECTION D INTERNAL CONTROL AND COMPLIANCE

Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Independent Auditor's Report on Compliance For Each Major Federal Program; and Report on Internal Control Over Compliance Required by OMB Circular A-133

Schedule of Findings and Questioned Costs

Schedule of Prior Year Findings and Questioned Costs

SECTION E EXTRACLASSROOM ACTIVITY

Independent Auditor's Report on the Statement of Cash Receipts, Disbursements and Changes in Cash Basis Net Position of the Extraclassroom Activity Funds

Statement of Cash Receipts, Disbursements and Changes in Cash Basis Net Position of the Extraclassroom Activity Funds

Note to Financial Statement

B1

B2-B3

B4

B5

B6

C1-C3

C4

D1-D2

D3-D4

D5

D6

E1-E2

E3-E4

E5

SECTION A

FINANCIAL SECTION

a FreedMaxick'cPAS,PC. INDEPENDENT AUDITOR'S REPORT

The President and Members of the Board of Education of Board of Education, City of Buffalo, New York Buffalo, New York

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities and each major fund and the aggregate remaining fund information of the Board of Education, City of Buffalo, New York (the Board) , a component unit of the City of Buffalo, New York, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Board, as of June 30, 2015 and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As stated in Note 1, the Board adopted Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reponing for Pensions - An amendment of GASB Statement No. 27; Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date; and Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of funding progress for retiree health plan, budgetary comparison schedule, schedule of Board's proportionate share of net pension asset (liability) and schedules of Board's pension contributions on pages 4-17 and A35-A40 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Board's basic financial statements. The combining and individual non-major fund financial statements; schedule of change from adopted budget to amended budget - general fund; schedule of project expenditures - capital projects fund; schedule of net investment in capital assets; and the schedule of expenditures of federal awards, as required by the Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining and individual non-major fund financial statements; schedule of change from adopted budget to amended budget - general fund; schedule of project expenditures - capital projects fund; schedule of net investment in capital assets; and the schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion the combining and individual non-major fund financial statements; schedule of change from adopted budget to amended budget - general fund; schedule of project expenditures - capital projects fund; schedule of net investment in capital assets; and the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

2

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 23, 2015 on our consideration of the Board's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Board's internal control over financial reporting and compliance.

~ J11~ CflAs/ !.~. Buffalo, New York October 23, 2015

II FreedMaxickCPAs,PC. 3

Management's Discussion and Analysis Board of Education, City of Buffalo, New York

Fiscal Year ended June 30, 2015

As management of the Board of Education, City of Buffalo, New York (the "Board") we offer readers of the Board's financial statements this narrative discussion and analysis of the Board's financial performance during the fiscal year ended June 30, 2015.

Financial Highlights

The 2014-15 fiscal year ended with an operating deficit in the general fund for the fourth consecutive year. General fund revenues increased but those increases were not enough to offset expenditure increases such as mandated salary step increases, employee benefits and charter school expenses.

• Total fund balance for all funds decreased $51.0 million to $261.1 million, with the most significant contributing factors being: the JSCB debt refinancing, which consumed $41.8 million in Debt Service reserves; capital outlay in the Joint Schools Construction Board ("JSCB") fund which consumed $3.8 million; while the general fund had an operating deficit of $2.7 million.

• Total fund balance in the general fund was $191.0 million at June 30, 2015, down $2.7 million from the prior year. Unassigned Fund Balance in the general fund was $52.1 million at June 30, 2015, an increase of $0.2 million.

• Total State operating aid increased $23.8 million mainly due to increases in state foundation aid. The forced reduction of State foundation aid, known as the Gap Elimination Adjustment totaled $4.3 million, down $9.6 million from $13.9 million in the prior year.

• Tuition payments to charter schools increased $4.3 million in 2014-15 to $98.4 million. The increase was due mainly to an increase in charter school students during the 2014-15 year.

• Total employee benefit expenditures grew by $12.0 million to $183.4 million in 2014-15 as health insurance and pension costs continued to increase.

• Total expenditures in the Special Aid fund were relatively flat, increasing $0.7 million to $119.8 million in 2014-15.

• Debt service expenditures increased $45.0 million as $41.8 million in Debt Service reserves were used to refinance existing JSCB debt of $272.2 million with new lower rate debt of $237.0 million.

• Capital assets, net of accumulated depreciation, decreased $56.7 million to $1,095.7 million mainly due to the depreciation of existing assets. Net investment in capital assets (Capital assets less outstanding debt) amounted to $149.5 million at June 30, 2015.

• Capital outlay in the JSCB fund declined $17.1 million in 2014-15 compared to 2013-14 as JSCB Phase V (the final phase) wound down, while capital outlay in the Capital Projects fund increased $7.0 million as funds available through prior years' refunding of debt were redeployed to building improvements.

• School food service expenditures increased $1.4 million as the District continued to implement healthier but more costly meal options for students.

• Government-wide net position improved by $11.1 million to negative ($486.6) million, representing all changes in the assets and liabilities of the Board, including long-term assets and liabilities such as other post employment benefits (OPEB). The increase was due to the adoption of Government Accounting Standards Board (GASB) Statement No. 68 - Accounting and Reporting for Pensions during 2014-15.

4

Overview of the Financial Statements

This annual report consists of three parts: management's discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the Board:

• The first two statements are government-wide financial statements that provide both short-term and long-term information about the Board's overall financial status.

• The remaining statements are fund financial statements that focus on individual parts of the Board, reporting the Board's operations in more detail than the government-wide statements.

• The governmental funds statements tell how basic services such as regular and special education were financed in the short term as well as what remains for future spending.

• Fiduciary funds statements provide information about the financial relationships in which the Board acts solely as a trustee or agent for the benefit of others.

The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the Board's budget for the year. Figure A-1 shows how the various parts of this annual report are arranged and related to one another.

Figure A-1 Organization of Board of Education, City of Buffalo, New York's Annual Financial Report

Management's Discussion

And Analysis

Government-wide Financial

Statements

Basic Financial Statements

Fund Financial

Statements

5

Required Supplementary

Information

Notes to the Financial

Statements

Figure A-2 summarizes the major features of the Board's financial statements, including the portion of the Board's activities they cover and the types of information they contain. The remainder of this overview section of management's discussion and analysis highlights the structure and contents of each of the statements.

FigureA-2 Major Features of the Government-wide and Fund Financial Statements

Fund Financial Statements Government-wide Governmental Funds Fiduciary Funds Statements

Scope Entire Board The activities of the Instances in which the Board (except Board that are not administers resources on Fiduciary funds) proprietary or fiduciary, behalf of someone else, such

such as special as scholarship programs and education and building student activities monies maintenance

• Statement of • Balance Sheet • Statement of Fiduciary Net Required financial Net Position Position statements • Statement of

• Statement of Revenues, • Statement of Changes in Activities Expenditures, and Fiduciary Net Position

Changes in Fund Balances

Accounting basis Accrual accounting Modified accrual Accrual accounting and and and economic accounting and current economic resources focus measurement resources focus financial focus focus Type of asset! All assets, deferred Generally assets and All assets and liabilities, both liability outflows, liabilities, deferred outflows short-term and long-term; information and deferred expected to be used up funds do not currently contain

inflows both and liabilities and capital assets, although they financial and deferred inflows that can capital, short-term come due during the and long-term year or soon thereafter;

generally no capital assets or long-term liabilities included

Type of All revenues and Revenues for which All additions and deductions inflow/out- expenditures during cash is received during during the year, regardless of flow information year, regardless of or soon after the end of when cash is received or paid

when cash is the year; expenditures received or paid when goods or services

have been received and the related liability is due and payable

6

Government-wide Statements

The government-wide statements report information about the Board as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the Board's assets and liabilities. All of the current year's revenues and expenditures are accounted for in the statement of activities regardless of when cash is received or paid.

The two government-wide statements report the Board's net position and how it has changed. Net assets - the difference between the Board's assets and liabilities - is one way to measure the Board's financial health or position.

• Over time, increases or decreases in the Board's net position are an indicator of whether its financial position is improving or deteriorating, respectively.

• To assess the Board's overall health, you need to consider additional non-financial factors such as the financial condition of the State, changes in the City's property tax base, and the condition of school buildings and other facilities.

In the government-wide financial statements, the Board's activities are shown as governmental activities. Most of the Board's basic services are included here, such as regular and special education, transportation and administration. Property taxes and state aid finance most of these activities.

Fund Financial Statements

The fund financial statements provide more detailed information about the Board's funds, focusing on its most significant or "major" funds - not the Board as a whole. Funds are accounting devices the Board uses to keep track of specific sources of funding and spending on particular programs:

• Some funds are required by state law.

• The Board establishes other funds to control and manage money for particular purposes (such as repaying its long-term debts) or to show that it is properly using certain revenues (such as Federal grants).

The Board has two types of funds:

• Governmental Funds: All of the Board's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed shortterm view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Board's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, additional information reported on the Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position explains the relationship (or differences) between them.

• Fiduciary Funds: The Board is the trustee, or fiduciary, for assets that belong to others, such as scholarship funds and the student activities funds. The Board is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The Board excludes these activities from the government-wide financial statements because it cannot use these assets to finance its operations.

7

Financial Analysis of the Board as a Whole

As previously noted, over time, net position may serve as a useful indicator of a government's financial position. The Board's net position was ($486.6) million at the close of the most recent fiscal year, compared to ($497.7) million in the prior year, for an increase of $11.1 million in the current year.

The largest portion of the Board's net position, an amount totaling $149.5 million reflects its investment in capital assets (e.g. land, buildings, building improvements) less any outstanding debt used to acquire those assets. The Board uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Board's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The second largest portion of the Board's net position, totaling $34.5 million is restricted for debt service. $25.0 million of the Board's net position are subject to external restrictions or State law. The remaining negative balance for unrestricted net position of ($696.2) million shows that excess funds are not currently available to meet the Board's ongoing and long term obligations such as OPEB liability.

Current and other assets $ 412,783 $ 435,329 -5.2% Capital assets not being depreciated 17,812 13,656 30.4% Capital assets, net of accumulated depreciation 1,077,858 1,138,749 -5.3% TRS pension asset 188,878 100.0%

Total assets 1,697,331 1,587,734 6.9%

Deferred outflow of resources 62,256 850 100.0%

Other liabilities 159,374 132,599 20.2% Long-term liabilities 1,952,038 1,953,655 -0.1% ERS liability 4,813 100.0%

Total liabilities 2,116,225 2,086,254 1.4%

Deferred inflow of resources 129,976 100.0%

Net investment in capital assets 149,543 156,982 -4.7% Restricted for:

Capital development fund 203 202 0.5% Debt service 34,469 76,891 -55.2% Endowments 515 520 -1.0% Joint Schools Construction Board projects 126 3,965 -96.8% Judgments and claims 17,750 21,250 -16.5% Stabilization 3,822 3,820 0.1% Unemployment Insurance 3,156 3,156 0.0%

Unrestricted (deficit) (696,198l (764,456l 8.9% Total net position $ (486,614l $ (497,67Ol 2.2%

8

Current and other assets decreased $22.5 million from June 30, 2014 to June 30, 2015. The main driver of the decrease was the usage of $41 .8 million in Debt Service cash reserves for the refunding of $272.2 million in existing debt with lower rate debt for $237.0 million. Offsetting this decrease was an increase in cash held by the City of Buffalo of $5.7 million due primarily to an increase in unspent cash balances in the general fund. Additionally, State and Federal Aid receivables increased $14.7 million due to outstanding Federal aid receivable on the Title I grant at June 30, 2015.

Capital assets being depreciated decreased $60.9 million due mainly to current year depreciation as JSCB Phase V has been substantially completed as of June 30, 2015. Capital assets not being depreciated increased $4.1 million as a result of an increase in construction in process in the current year.

The TRS Pension Asset of $188.9 million is related to the adoption of GASB 68 and is the Board's proportionate share of the total TRS System net asset.

Deferred outflow of resources increased by $61.4 million mainly due to the $47.0 million deferred outflows on pensions recognized with the adoption of GASB 68. Additional increases were due to $14.4 million deferred outflows on debt refundings in the current year.

Other liabilities increased $26.8 million in 2014-15. The main reason for the increase was due to a $21 .6 million increase in the Due to the City of Buffalo related to funds used by the special aid fund in advance of receipt of State and Federal aid. Additional increases resulted from $3.0 higher Accounts Payable balances related to the final JSCB project liabilities, which were accrued at June 30, 2015 and a $3.0 million increase in amounts due to retirements systems for higher rates in effect during 2014-15.

Long term liabilities decreased $1 .6 million in the current year. OPEB liabilities increased $89.8 million due to the continued amortization of the unfunded actuarial accrued liability along with the increasing healthcare cost trend, while bond premiums increased $5.3 million. Offsetting these increases, serial bonds and other long term obligations decreased by $96.7 million, due mainly to $50.7 million in regular payments for bonded and other debt, along with a $44.3 million net pay down in JSCB debt through a refunding .

The ERS Pension Liability of $4.8 million is related to the adoption of GASB 68 and is the Board's proportionate share of the total ERS System net liability.

In considering the viability of the Board, it is important to consider that 86% of all revenues come from formula based state aid and operating and capital grants and contributions. Therefore, continued support from these sources is critical to the financial and educational success of the Board. 82% of all expenses are directed to instruction.

Total revenues of $930.7 million in 2014-15 increased $15.6 million from $915.1 million in 2013-14. Unallocated state and federal aid of $659.9 million increased $20.4 million in 2014-15, mainly due to a $10.8 million increase in foundation aid, and a $9.6 million reduction in the State imposed Gap Elimination Adjustment. Total program revenues, which consist of operating grants and revenues along with charges for services decreased $6.5 million to a more normalized $146.7 million in 2014-15.

9

Revenues: Contributions from City of Buffalo $ 56,996 $ 55,426 2.8% School tax relief reimbursement 13,327 14,897 -10.5% Non-property taxes 40,168 40,104 0.2% Charges for services 2,314 2,467 -6.2% Operating grants and contributions 144,421 150,761 -4.2% Use of money and property 1,056 968 9.1% Miscellaneous 12,525 10,981 14.1% State and federal aid, unallocated 659,864 639,464 3.2%

Total revenue 930,671 915,068 1.7%

Expenses: General support 82,210 87,419 -6.0% Instruction - regular 692,461 738,774 -6.3% Instruction - charter school payments 98,415 94,081 4.6% Pupil transportation 50,918 52,666 -3.3% Community service 157 158 -0.6% Debt service 41,719 49,333 -15.4% Capital outlay 587 187 213.9%

Total expenses 966,467 1,022,618 -5.5%

Changes in net position (35,796) (107,550) -66.7%

Restatement - GASB Statement No. 68 46,852 100.0%

Net position-beginning of year (497,670) (390,120) 27.6%

Net position - end of year $ {486,614} $ {497,670} -2.2%

Total expenses of $966.5 million in 2014-15 decreased $56.2 million from $1,022.6 million in 2013-14. Debt service expenditures decreased $7.6 million due in large part to the interest expense savings from the debt refinancing activity that has occurred in the last several years. General support and regular instruction expenditures decreased $5.2 million and $46.3 million, respectively, as allocations related to the adoption of GASB 68 decreased in the current year. Charter school tuition increased $4.3 million due to higher student counts at charter schools in 2014-15.

The adoption of GASB 68 in 2014-15 resulted in a restatement of $46.9 million, which is included as an increase in net position.

10

FigureA-5 Revenues for Fiscal Year 2015

State and federal aid, unallocated - - --- -....--- - - ----

70.9%

Miscellaneous ----------=......, 1.4%

Use of money and property

0.1%

FigureA-5

Operating grants and contributions

15.5%

Charges for services

0.3%

Revenues for Fiscal Year 2014

State and federal aid, unallocated

69.9% ~-.--~---- - -

Miscellaneous __ - -----, 1.2%


0.1%

Operating grants and contributions

16.5%

11


0.3%

Contributions from City of Buffalo

6.1%

Sehool tax relief reimbursement

1.4%

Non-property taxes 4.3%

Contributions from City of Buffalo

6.1%

School tax relief reimbursement

1.6%

Non-property taxes 4.4%

FigureA-6

FigureA-6

Expenses for Fiscal Year 2015

Instruction -regular 71.6%

General support 8.6%

Instruction regular 72.2%

General support 8.6%

4.3%

Pupil transportation

5.3%

Expenses for Fiscal Year 2014

Debt sennce 4.8%

12

Pupil transportation

5.2%

Instruction -charter school

payments 10.2%

Instruction -charter school

payments 9.2%

Financial Analysis of The Board's Funds

The General Fund is the chief operating fund of the Board. At the end of 2014-15, the Board had an unassigned fund balance of $52.1 million and a total fund balance of $191.0 million. Total fund balance decreased $2.7 million during 2014-15, which is equal to the general fund operating deficit in 2014-15. As a measure of liquidity, it may be useful to compare the fund balances to the total General Fund expenditures. The unassigned portion of fund balance represents 6.7% of the current year expenditures (unchanged from the previous year), while the total fund balance is 24.5% of the current year expenditures (a decrease of 0.4% from previous year). The Board has assigned $56.7 million for prior year claims related to state aid ($3.0 million) and for settlements with unions whose contracts have expired ($53.7 million). This amount is $4.8 million less than the prior year as that amount was reallocated to avoid layoffs and balance the 2015-16 budget. In total, $8.4 million of fund balance, a decrease of $1.8 million from the prior year, is appropriated for the 2015-16 budget, while another $38.4 million is assigned for OPEB and other employee benefits and $7.2 million is assigned for capital projects and repairs.

The fund balance in the Joint Schools Construction Board Fund decreased $3.8 million to $0.1 million due to the completion of the schools in JSCB Phase V as of June 30, 2015. The fund balance in the Debt Service Fund decreased $42.4 million due to debt refunding activity in 2014-15. The fund balance in the Capital Funds decreased $1.5 million to $14.5 million. The School Lunch fund balance increased $0.6 million from previous year, while the Special Aid fund balance was unchanged. These fund balances must be used for the specific purpose of the respective fund and cannot be transferred to the General Fund for general use.

General Fund $ 787,576 $ 790,231 $ 191,018 Special Aid Fund 119,808 119,808 Joint Schools

Construction Board Fund 1 3,841 70 Debt Service Fund 379,505 421,927 34,469 Capital Projects Fund 15,428 16,972 14,489 School Food Service Fund 27,689 28,248 20,571 Special Activities Fund 6 5 186 Permanent Fund 6 329

2014 Revenues Expenditures Fund Balances

I

General Fund $ 764,035 $ 778,655 $ 193,673 Special Aid Fund 119,131 119,131 Joint Schools

Construction Board Fund 7,597 20,915 3,910 Debt Service Fund 106,432 107,309 76,891 Capital Projects Fund 18,030 10,189 16,033 School Food Service Fund 27,917 26,792 21,130 Special Activities Fund 13 40 185 Permanent Fund 5 335

13

General Fund Budgetary Highlights

The General Fund ended 2014-15 with a $2.7 million operating deficit, which follows a $14.6 million deficit in 2013-14. This was the fourth straight year of such deficits. An operating deficit of $10.1 million had been budgeted originally, but tight cost controls and conservative budgeting reduced this deficit.

Within the General Fund, there was an overall unfavorable revenue budgetary variance of $21.8 million. The largest variance, appropriated fund balance, appears as a $12.9 million unfavorable budget variance, when including the $2.7 million appropriated for carry over encumbrances. The remaining $10.2 million was appropriated for 2014-15 operations These are not true revenues, but are budgeted with the anticipation of an operating loss, which ultimately would decrease fund balance on the balance sheet. State aid, including formula based aid and lottery aid was $3.9 million under budget. Miscellaneous local sources had a $2.6 million unfavorable variance due to less interfund and miscellaneous revenues being received than budgeted for. Interfund transfers was unfavorable by $0.4 million due to less JSCB local share and expenditure reimbursements being received than originally projected. Sales tax revenue had a small unfavorable variance of $0.4 million in Erie County sales tax. Federal revenue was $1.9 million under budget due to a decline in the amount of Medicaid reimbursement received in 2014-15.

The Board had favorable budgetary variances within the General Fund expenditures of $16.2 million. Employee benefits had a favorable variance of $5.2 million, which included $2.4 million of favorable variances for employee and retiree medical insurance, $1.9 million in favorable variances for Social Security and employee retirement system payments due to vacant positions throughout the year. Unemployment had favorable variance totaling $0.9 million.

Regular instruction had a favorable variance of $5.8 million due mainly to vacant positions during the year. Charter school tuition payments were equal to the revised budget.

Central services had a favorable variance of $2.1 million. Favorable budget variances were spread out among several accounts including salaries due to vacancies, overtime, contract services, utilities, fuel and software costs.

Transportation had a favorable variance of $2.1 million mainly due to savings in fuel costs and reduced expenditures for public transportation.

Interfund transfers were $1.7 million over budget mainly due to timing of interfund transfers to the special aid fund related to the general fund contribution payable upon closing certain projects.

Smaller favorable expenditure variances in other areas were generally the result of cost controls which resulted in staffing vacancies and reduced spending on supplies and contracted services.

14

Capital Asset and Debt Administration

Capital Assets

The Board's investment in capital assets (net of accumulated depreciation) for its governmental funds totaled $1,095.7 million as of June 30, 2015. This investment in capital assets includes land, buildings and building improvements, land improvements and equipment. The net decrease from the previous fiscal year was $56.7 million. This was mainly due to the depreciation expense of $78.1 million and net disposals of $0.9 million offset by additions of $22.3 million.

Land $ 3,007 $ 3,424 -12.2% Construction work in process 14,805 10,232 44.7% Land improvements 1,246 1,341 -7.1% Buildings 1,069,866 1,129,596 -5.3% Equipment 6,746 7,812 -13.6%

Total $ 1,095,670 $ 1,152,405 -4.9%

15

Long-Term Debt

Total long-term debt outstanding at June 30, 2015 totaled $1,952.0 million, of which $998.9 million pertained to bonded debt. During the year, normal principal payments on bonded debt totaled $50.0 million. Other post employment benefits, primarily health insurance, increased $89.8 million, while other long term obligations decreased $2.4 million, due to reductions in workers compensation liability, compensated absences and the lottery advance payable to New York State. Bond premiums increased $5.2 million as $36.8 million in new premiums on refunded debt were offset by $31 .5 million in amortization, bringing their carrying value up to $104.6 million.

Additional information on the Board's long-term debt can be found in Note 2 to the financial statements on pages A28-A31 of this report.

Due to City of Buffalo Debt Service Fund $ 77,793 $ 89,761 -13.3% Revenue bonds payable 12,730 13,305 -4.3% JSCB bonds payable 908,360 990,125 -8.3% Post employment benefits 770,325 680,531 13.2% Other long-term obligations 78,200 80,575 -2.9% Bond premiums 104,630 99,358 5.3%

Total $ 1,952,038 $ 1,953.655 -0.1%

16

Factors Bearing on the Board's Future

The 2015-16 Adopted General Fund Budget totaled $825.8 million, an increase of $19.2 million from the prior year. The budget includes an increase of 260 full time equivalent positions including teachers, school administrators and teacher aides. Major expense increase are $12.1 million for employee compensation, $5.3 million increase in employee health insurance costs, $4.1 million in retiree health insurance costs and $5.5 million in charter school tuition. Offsetting this increase is a $7.2 million decrease in pension contributions due to lower rates in effect in 2015-16. Total budgeted revenues are expected to increase $19.2 million, including an increase of $20.6 million in State Aid. To close the 2015-16 deficit, the Board has appropriated $8.4 million in fund balance, a decrease of $1.8 million compared to the prior year.

The Board continues to face structural deficit drivers that include increased charter school expenditures. Additionally, annual increases in employee and retiree health insurance and mandatory step increases for teachers and administrators continue to be payable under their expired labor contracts. Pension rates have declined in 2015-16 after years of increases offering some relief; however, the Board has little control over revenues, of which 83% in the general fund come from the State.

Contacting the Board's Financial Management

This financial report is designed to provide the Board's citizens, taxpayers, customers, and investors and creditors with a general overview of the Board's finances and to demonstrate the Board's accountability for the money it receives. If you have' questions about this report or need additional financial information, contact the Office of the Chief Financial Officer, Buffalo City School Board, 708 City Hall, Buffalo, New York 14202.

17

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK STATEMENT OF NET POSITION

ASSETS: Cash and cash equivalents Cash held by the City of Buffalo Cash with fiscal agent Cash and cash equivalents - restricted Accounts receivable State and federal aid receivable Due from other govemments Inventory Capital assets not being depreciated Capital assets, net of accumulated depreciation TRS pension asset

Total assets

DEFERRED OUTFLOWS OF RESOURCES:

Deferred pension outflows

JUNE 30,2015

Deferred pension outflows, contributions subsequent to measurement date Deferred outflows on advance refunding

Total deferred outflows of resources

LIABILITIES: Accounts payable Interest payable Accrued liabilities Due to fiduciary funds Due to City of Buffalo Due to other govemments Due to retirement systems Long-term liabilities:

Due and payable within one year Due and payable after one year:

Other ERS pension liability

Total liabilities

DEFERRED INFLOWS OF RESOURCES: Deferred pension inflows

NET POSITION: Net investment in captital assets Restricted for:

Capital development fund Debt service Endowments Joint Schools Construction Board projects Judgment and claims Stabilization Unemployment insurance

Unrestricted (deficit)

$ 271,919 277,706,604

21,613,770 17,508,216

1,951,464 86,717,740

5,657,138 1,356,360

17,811,502 1,077,858,120

188,878,283 1,697,331,116

1,281,212 45,766,245 15,208,646 62,256,103

36,939,457 7,723,813

14,948,876 567,099

49,736,303 1,432,981

48,025,266

80,515,244

1,871,522,275 4,813,758

2,116,225,072

129,976,451

149,542,698

202,732 34,469,402

515,123 126,213

17,750,000 3,821 ,650 3,156,044

(696,198,166) Total net position $=========(~4~86~,6~1~4,~3~04~)

See notes to basic financial statements. A1

Governmental activities: General support Instruction - regular Instruction - charter school payments Pupil transportation Debt service Home and community services Capital outlay

Total governmental activities

BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK

$

$

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30. 2015

Program Revenues

Charges for Ex~enses Services

82,209,435 $ - $ 692,461,487 2,313,638 98,415,397 50,917,682 41,719,404

157,079 586,768

966,467,252 $ 2,313,638 $

General revenues: Contribution from City of Buffalo School tax relief reimbursement Non-property taxes Use of money and property State aid - basic formula State aid - lottery Other miscellaneous revenues

Total general revenues

Change in net position

Operating Grants and

Contributions

3,809,072 138,394,519

2,217,706

144,421,297

Net position - beginning of year, as previously stated

Restatement of net position - see note 8

Net position- beginning of year, as restated

Net position - end of year


$

Net (Expense) Revenue and Changes in Net Position

(78,400,363) (551,753,330) (98,415,397) (48,699,976) (41,719,404)

(157,079) (586,768)

(819,732,317)

56,995,611 13,327,147 40,167,930

1,056,248 573,328,178

86,535,760 12,525,015

783,935,889

(35,796,428)

(497,670,378)

46,852,502

(450,817,876)

$ (486,614,304)

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK BALANCE SHEET - GOVERNMENTAL FUNDS

JUNE 30, 2015

Non-Major Total Governmental Governmental

General ~ecialAid Debt Service Funds Funds ASSETS:

Cash and cash equivalents $ $ 85,975 $ $ 185,944 $ 271,919 Cash held by City of Buffalo 243,093,600 34,613,004 277,706,604 Cash with fiscal agent 551,303 21,062,467 21,613,770 Cash and cash equivalents - restricted 583,471 13,406,935 3,517,810 17,508,216 Accounts receivable 1,432,941 472,732 45,791 1,951,464 Due from other funds 1,050 1,050 State and federal aid receivable 27,812,500 56,731,515 2,173,725 86,717,740 Due from other governments 5,657,138 5,657,138 Inventory 554,052 802,308 1,356.360

Total assets $ 279,686,055 $ 57,290,222 $ 34,469,402 $ 41,338,582 $ 412,784,261

LIABILITIES AND FUND BALANCES: Accounts payable $ 27,833,622 $ 3,852,607 $ - $ 5,253,228 $ 36,939,457 Accrued liabilities 10,808,479 3,701,312 439,085 14,948,876 Due to other funds 568,149 568,149 Due to City of Buffalo 49,736,303 49,736,303 Due to other governments 1,432,981 1,432,981 Due to retirement systems 48.025.266 48.025.266

Total liabilities 88,668.497 57.290.222 5.692.313 151.651.032

FUND BALANCES: Non-spendable 554,052 1,126,308 1,680,360 Restricted 24,727,694 34,469,402 520,068 59,717,164 Assigned 113,628,925 33,999,893 147,628,818 Unassigned 52,106,887 52,106,887

Total fund balances 191 ,017,558 34,469,402 35,646,269 261 ,133.229

Total liabilities and fund balances $ 279,686,055 $ 57,290,222 $ 34,469,402 $ 41,338,582 $ 412,784,261


BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS

TO THE STATEMENT OF NET POSITION JUNE 30.2015

Amounts reported for governmental activities in the statement of net position are different because:

Total fund balances - governmental funds

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. The cost of the assets are $1,765,686,316 and the accumulated depreciation is $670,016,694.

Pension assets (TRS) used in governmental activities are not financial resources and therefore are not reported in the funds

Post employment benefit liability not due and payable in the current period and therefore not reported in the funds.

Long-term liabilities, including bonds payable, compensated absences, judgment & claims, and amounts due to the City of Buffalo for debt not due and payable in the current period and therefore are not reported in the funds.

To recognize interest accrual on long-term debt.

Deferred outflows of resources associated with advance refunding are reported as expenditures in the governmental funds.

Bond premiums are recorded as revenues in the governmental funds. The premium is $227,109,605 and the accumulated amortization is $122,479,756.

Pension deferred outflows and inflows are not due and payable in the current period and therefore are not reported in the funds.

Pension liabilities (ERS) are not due and payable in the current period and therefore are not reported in the funds.

Total net position - governmental activities


$ 261,133,229

1,095,669,622

188,878,283

(770,325,000)

(1,077,082,669)

(7,723,813)

15,208,646

(104,629,850)

(82,928,994)

(4,813,758)

$ ===::::l(=48=6:::.;,6=1=4,~30=4~)


STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS FOR YEAR ENDED JUNE 30. 2015

Non-Major

Governmental

General ~ecialAid Debt Service Funds

REVENUES:

Contribution from City of Buffalo $ 56,995,611 $ - $ - $ -School tax relief reimbursement 13,327,147

Non-property taxes 40,167,930

Charges for services 1,695,938 617,700

Use of money and property 124,274 922,629 9,345

Sale of property and compensation for loss 116,611

Miscellaneous local sources 12,333,954 5,657,466 74,450

State sources 661,278,387 35,888,711 769,065

Federal sources 902,738 73,884,882 25,903,986

Total revenues 786,942,590 115,431.059 922.629 27,374.546

EXPENDITURES:

General support 62,653,974 3,211,236 1,151,488

Instruction - regular schools 274,006,296 87,330,829 24,403,359

Instruction - charter school 98,415,397

Pupil transportation 46,971,122 1,797,093

Home and community services 107,135 10,837

Employee benefits 183,353,190 27,468,381 2,470,922

Debt service:

Principal and interest 133,909,806

Capital outlay 20.812,417

Total expenditures 665,507,114 119.807.539 133,909,806 48,849,023

See notes to basic financial statements.

A5

Total

Governmental

Funds

$ 56,995,611

13,327,147

40,167,930

2,313,638

1,056,248 116,611

18,065,870

697,936,163 100,691,606

930,670.824

67,016,698

385,740,484

98,415,397

48,768,215 117,972

213,292,493

133,909,806

20,812,417

968,073,482


STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FUND BALANCES-

Excess (deficit) of revenues over expenditures

OTHER FINANCING SOURCES (USES):

Proceeds from bond issues

Premium on refunding bonds

Payment to refunded bond escrow agent

Transfer to City of Buffalo debt service fund

I nterfund transfers in

I nterfund transfers out

Total other financing sources (uses)

Net change in fund balances

Fund balances - beginning

Fund balances - ending

GOVERNMENTAL FUNDS FOR YEAR ENDED JUNE 30, 2015

(Continued)

General Special Aid

121,435,476 (4,376,480)

(15,210,410)

632,823 4,376,480

(109.513,685)

(124,091,2722. 4,376,480

(2,655,796)

193.673.354

$ .~ "~' 1 Q1 ()17.558 $ $

See notes basic financial statements.

A6

Non-Major

Governmental

Debt Service Funds

(132,987,177) (21,474,477)

236,975,000

36,801,089

(272,186,249)

104,806,944 15,750,835

(15,831 ,360) (222.037)

90,565,424 15,528,798

(42,421,753) (5,945,679)

76.891.155 41 ,591 ,948

34,469,402 $ 35.646.269

Total

Governmental

Funds

(37,402,658)

236,975,000

36,801,089

(272,186,249)

(15,210,410)

125,567,082

(125.567,082)

(13,620,570)

(51,023,228)

312.156,457

$ 261,133,229

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK RECONCILIATION OF GOVERNMENTAL FUNDS, STATEMENT OF

REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2015

Amounts reported for governmental activities in the statement of net position are different because:

Net change in fund balances - total governmental funds

Governmental funds report capital outlays as expenditures. However, in the statement of activities, assets with an initial, individual cost of more than $5,000 are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period, net of related losses on disposal of capital assets.

Capital outlays $ 22,279,138 Depreciation expense (78,159,367)

(Increase) decrease in proportionate share of net pension asset (liability) reported in the statement of net position do not provide for or require the use of current financial resources and therefore are not reported as revenues or expenditures in the governmental funds (ERS - $1,625,296, TRS - $178,121 ,265)

(Increase) decrease in proportionate share of net deferred inflow and outflow reported in the statement of net position for the difference during the measurement period between the District's contributions and its proportionate share of total contributions to the pension systems subsequent to the measurement date do not provide for or require the use of current financial resources and therefore are not reported as revenues or expenditures in the governmental funds (ERS - $1,284,192, TRS - $(126,747,724))

In the statement of activities, the gain/loss on the disposal of assets is reported as an increase/decrease in the financial resources. Thus the change in net position differs from the change in fund balance by the net book value of the assets disposed.

The governmental funds report bond proceeds and other long-term debt as an other financing source, while repayment of bond principal is reported as an expenditure. Also, governmental funds report the effect of premiums when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities . Interest is recognized as an expenditure in the governmental funds when it is due. In the statement of activities, interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of general obligation bonds and related items is as follows :

Refunding bond proceeds Repayment of Joint School Construction Board debt Bond premium Deferred outflow on advance refunding Repayment of bond principal (due to City of Buffalo) Repayment of due to other governments Repayment of revenue bonds payable Repayment of Joint School Construction Board debt Interest expense - general obligation bonds Amortization of bond premium

$ (236,975,000) 281,295,000 (36,801 ,089) 14,358,465 11,968,083

713,332 575,000

37,445,000 1,703,420

31 .528.761

In the statement of activities, certain operating expenses - compensated absences (vacation & sick leave), amounts due to retirement systems, judgment and claims and workers' compensation - are measured by the amounts accrued or earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). The net effect of these differences is as follows:

Worker's compensation Retirement system deferral Compensated absences Net other post employment benefits expense

Change in net position of governmental activities

See notes to basic financial statements A7

$ 702,564 231,025 728,384

(89.794.000)

$ (51.023,228)

(55,880,229)

179,746,561

(125,463,532)

(854,945)

105,810,972

(88,132,027)

$ (35.796,428)

BOARD OF EDUCATION 1 CITY OF BUFFAL01 NEW YORK STATEMENT OF NET POSITION-

FIDUCIARY FUNDS JUNE 3~. 2015

Private Purpose

Trust Agency

ASSETS: Cash and cash equivalents $ $ 33,096 Cash and cash equivalents - restricted 5,978 840,482 Due from other funds 568,149

Total assets $ 5,978 $ 1,441,727

LIABILITIES: Employee benefits $ $ 568,149 Extraclassroom activity balances 840,482 Due to other funds 1,050

Total liabilities 1,409,681

NET POSITION: Reserved for agency 32,046 Reserved for scholarships 5,978

Total net position 5,978 32,046

Total liabilities and net position $ 5,978 $ 1,441,727


ADDITIONS: Interest

Change in net position

Net position - beginning

Net position - ending

BOARD OF EDUCATION, CITY OF BUFFALO. NEW YORK STATEMENT OF CHANGES IN NET POSITION

FIDUCIARY FUND FOR THE YEAR ENDED JUNE 30. 2015


Private Purpose

Trust

$ ______ 3_

3

5,975

$====5=,=97=8=

~THIS PAGE INTENTION ALL Y LEFT BLANK"

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK NOTES TO BASIC FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The basic financial statements of Board of Education, City of Buffalo, New York (the Board), a component unit of the City of Buffalo, New York, have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the Board's accounting policies are described below.

A. REPORTING ENTITY

The Board is a unit of local government created under the Constitution of the State. The Board is financially dependent upon the City and other governments and has no independent authority to contract bonded indebtedness or levy taxes, with the exception of the Special Program Revenue Bonds issued by the State of New York Municipal Bond Bank Agency (see Note 2., H., 5).

The Board is governed by the Education Law and other laws of the State of New York. The Board of Education is an independent entity consisting of nine members.

The scope of activities included within the accompanying financial statements are those transactions which comprise Board operations and are governed by, or significantly influenced by, the Board of Education. Essentially, the primary function of the Board is to provide education for pupils. Services such as transportation of pupils, administration, finance, and plant maintenance support the primary function. The financial reporting entity includes all funds, account groups, functions and organizations over which the Board officials exercise oversight responsibility.

The reporting entity of the Board is based upon criteria set forth by the Governmental Accounting Standards Board. The financial reporting entity consists of the primary government, organizations fDr which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete.

The accompanying financial statements present the activities of the BDard. The Board is a component unit of the City of Buffalo. The decision to include a potential component unit in the Board's reporting entity is based on several criteria including legal standing, fiscal dependency, and financial accountability. Based on the applicatiDn of these criteria, the fDllowing is a brief descriptiDn of certain entities included in the Board's repDrting entity.

Included in the Reporting Entity

The Extraclassroom Activity Funds of the Board represent funds of the students within the BDard. The Board of Education exercises general oversight of these funds. The Extraclassroom Activity Funds are independent Df the Board with respect to financial transactions and designation of student management. The BDard accounts for assets held as an agent for variDus student DrganizatiDns in the Agency Fund Df the Board.

B. BASIS OF PRESENTATION

1. Government-wide statements:

The Statement of Net Position and the Statement of Activities present financial informatiDn abDut the Board's governmental activities. These statements include the financial activities Df the overall BDard in its entirety, except those that are fiduciary. Eliminations have been made to minimize the double counting of internal transactions. GDvernmental activities generally are financed through property taxes, State aid, intergDvernmental revenues, and Dther exchange and nonexchange transactions. Operating grants include specific operating and discretionary (either operating Dr capital) grants.

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Board's governmental activities. Direct expenses are those that are specifically associated with and are clearly identifiable to a particular function. Indirect expenses, principally employee benefits, are allocated to functional areas in proportion to the payroll expended for those areas. Program revenues include charges paid by the recipients of goods or services offered by the programs, and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including the City contribution, are presented as general revenues.

2. Fund financial statements:

The fund financial statements provide information about the Board's funds, including fiduciary funds. Separate statements for each fund category - governmental and fiduciary, are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. Major individual governmental funds are reported as separate columns in the fund financial statements.

The Board reports the following major governmental funds:

General Fund: This is the Board's primary operating fund. It accounts for all financial transactions that are not required to be accounted for in another fund.

Special Aid Fund: This fund accounts for the proceeds of specific revenue sources, such as Federal and State grants that are legally restricted to expenditures for a specified purpose. These legal restrictions may be imposed either by governments that provide the funds or by outside parties.

Debt Service Fund - The debt service fund is used to account for payments made on the Board's long-term debt, except for amounts held by the City. Those payments are recorded in the general and capital funds as transfers to the City of Buffalo.

The Board reports the following governmental funds as non-major governmental funds:

Joint Schools Construction Board (JSCB) Fund - The JSCB fund is used to account for transactions associated with the design, construction, reconstruction, and financing of public educational facilities in the City. The JSCB is authorized to act as an agent to enter into contracts on behalf of the Board and the Common Council of the City of Buffalo, New York (the Council) for the construction of new educational facilities in accordance with applicable state and local laws.

Capital Projects Fund - This fund is used to account for the financial resources used for acquisition, construction, or major repair of capital facilities.

School Food Service Fund - This fund is used to record the Board's breakfast, lunch, summer food, and Root Culinary programs.

Special Activities Fund - This fund is used to account for transactions that support the Board's regular programs. The proceeds are legally restricted to expenditures for specified purposes.

Permanent Fund - This fund is used to report resources, that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the Board's programs.

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Additionally, the Board reports the following fund types:

Fiduciarv Funds: These funds are used to account for fiduciary activities. Fiduciary activities are those in which the Board acts as trustee or agent for resources that are the property of others. These activities are not included in the government-wide financial statements, because their resources are not the property of the Board, and are not available to be used. There are two classes of fiduciary funds:

Private Purpose Trust Funds: These funds are used to account for trust arrangements in which principal and income benefits annual third party awards and scholarships for students. Established criteria govern the use of the funds and members of the Board or representatives of the donors may serve on committees to determine who benefits from these trust agreements.

Agency Funds: These funds are strictly custodial in nature and do not involve the measurement or results of operations. Assets are held by Board as agent for various student groups or extraclassroom activity funds and for payroll or employee with holdings.

During the course of operations the Board has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities (i.e., the governmental funds) are eliminated so that only the net amount is included as internal balances.

Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included.

C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING

The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements.

The government-wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of the timing of related cash flows. Nonexchange transactions, in which the Board gives or receives value without directly receiving or giving value in exchange, includes grants or donations. Revenue from grants and similar items are recognized in the fiscal year in which all eligibility requirements imposed by the provider have been satisfied.

The governmental fund statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available.

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BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK NOTES TO BASIC FINANCIAL STATEMENTS


Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Board considers revenues to be available if they are collected within one year of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in the governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources.

Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within one year of year end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within one year of year end). All other revenue items are considered to be measurable and available only when cash is received by the Board.

D. BUDGETARY INFORMATION

1. BUDGET POLICIES

Prior to May 1, the Board submits to the Mayor of the City its budget request and financial plan for the fiscal year beginning July 1. On or before May 1, the Mayor submits to the Council a complete operating plan which includes the Board's estimated revenues and proposed expenditures. The Council then acts upon the Mayor's recommended Board budget and may make additions or deletions within its authority as provided by the City Charter. The Board's budget, as approved by the Council, is limited to total estimated revenues and proposed expenditures.

A formal annual budget for the General Fund is adopted on a basis consistent with accounting principles generally accepted in the United States of America except that the encumbrances are treated as budgeted expenditures in the year of incurrence of the commitment to purchase. Encumbrances outstanding at year-end are accounted for by an assignment of fund balance under GAAP.

Program budgets are adopted for Special Aid Fund related grants and the School Food Service Fund at the program's inception and lapse upon completion of the program. These grant programs do not necessarily coincide with the Board's fiscal year.

Capital projects are subject to project budgets determined primarily by the City's bonding authorization used to fund a particular project rather than annual budgetary appropriations. These budgets do not lapse at year-end; rather, they lapse upon completion of the project.

2. BUDGET BASIS OF ACCOUNTING

Budgets are adopted annually on a basis consistent with accounting principles generally accepted in the United States of America. Appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior year.

The General Fund is the only fund with a legally approved budget for the fiscal year ended June 30, 2015, and therefore, is the only fund presented on the Budgetary Comparison Schedule.

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Appropriations in all budgeted funds lapse at the end of the fiscal year even if they have related encumbrances. Encumbrances are commitments related to unperformed (executory) contracts for goods or services (i.e., purchase orders, contracts, and commitments). Encumbrance accounting is utilized to the extent necessary to assure effective budgetary control and accountability and to facilitate effective cash planning and control. While all appropriations and encumbrances lapse at year end, valid outstanding encumbrances (those for which performance under the executory contract is expected in the next year) are re-appropriated and become part of the subsequent year's budget pursuant to state regulations.

Appropriations authorized for the current year are increased by the planned use of specific reserves, and budget amendments approved by the Board of Education as a result of selected new revenue sources not included in the original budget (when permitted by law). These supplemental appropriations may occur subject to legal restrictions if the Board approves them because of a need that exists was not determined at the time the budget was adopted.

The capital projects fund is appropriated on a project-length basis. Other special revenue funds and the permanent fund do not have appropriated budgets since other means control the use of these resources (e.g., grant awards and endowment requirements) and sometimes span a period of more than one fiscal year.

E. ASSETS. LIABILITIES. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES. AND NET POSITION/FUND BALANCE

1. CASH AND CASH EQUIVALENTS

The Board's cash and cash equivalents consist of cash on hand, demand deposits, and shortterm investments with original maturities of three months or less from date of acquisition.

2. RESTRICTED ASSETS

Certain assets are classified on the balance sheet as restricted because their use is limited. Donations to be used towards scholarships in the Private Purpose Trust Fund and funds supporting extraclassroom activities in the Agency Fund, are restricted specifically for those purposes. Certain proceeds from serial bonds and bond anticipation notes, as well as resources set aside for their repayment, are classified as restricted assets in the government-wide financial statements and their use is limited by applicable bond covenants.

3. ACCOUNTS RECEIVABLE

Accounts receivables are carried at their net realizable value. Accounts are written-off as uncollectible after the likelihood of payment is considered remote by management. No allowance for uncollectible accounts has been established by management since management believes all accounts receivable to be fully collectible.

4. INVENTORY

a. Inventories of food and/or supplies in the General and School Food Service Funds are recorded at cost on a first-in, first-out basis or, in the case of surplus food, at stated value which approximates market. Purchases of inventoriable items in other funds are recorded as expenditures at the time of purchase and are considered immaterial.

b. These assets are classified as nonspendable to signify that portion of fund balance that is not in a spendable form.

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5. CAPITAL ASSETS

Capital assets are reported at actual cost for acquisitions subsequent to June 30, 2002. For assets acquired prior to June 30, 2002, estimated historical costs, based on appraisals conducted by independent third-party professionals were used. Donated assets are reported at estimated fair market value at the time received.

Capitalization thresholds (the dollar value above which asset acquisitions are added to the capital asset accounts), depreciation methods, and estimated useful lives of capital assets reported in the government-wide statements are as follows:

Buildings Building improvements Land improvements General Equipment Computer, business machine, and

audio visual equipment Automotive

6. INSURANCE

Capitalization Threshold

$ 5,000 5,000 5,000 5,000

5,000 5,000

Depreciation Method

straight-line straight -line straight-line straight-line

straight-line straight-line

Estimated Useful Life

50 years 20 years 20 years 10 years

5 years 7 years

The Board insures against liability for most risks including, but not limited to, property damage and personal injury liability. Judgments and claims are recorded when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated.

7. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES

In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Board has three items that qualify for reporting in this category. First is the deferred charge on refunding reported in the government-wide Statement of Net Position. A deferred charge on refunding results from the excess of the reacquisition price of refunded debt over its carrying amount. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. The remaining two items relate to pensions reported in the district-wide Statement of Net Position. See details of deferred pension outflows in Note 2.E.

In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Board has one item that qualifies for reporting in this category. This item is related to pensions reported in the government-wide Statement of Net Position. See details of deferred pension inflows in Note 2.E.

8. COMPENSATED ABSENCES

Sick leave eligibility and accumulation is specified in negotiated labor contracts, and in individual employment contracts. Sick leave use is based on a last-in first-out (LIFO) basis. Upon retirement, reSignation or death, employees may receive a payment or a credit to be used towards health insurance based on unused accumulated sick leave, based on contractual provisions.

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Board employees are granted vacation in varying amounts, based primarily on length of service and service position. Some earned benefits may be forfeited if not taken within varying time periods.

Consistent with GASB Statement No. 16, Acco'unting for Compensated Absences, an accrual for accumulated sick leave is included in the compensated absences liability at year end. The compensated absences liability is calculated based on contractually negotiated rates in effect at year end.

In the governmental fund statements only, the amount of matured vacation time is accrued within the General Fund based on expendable and available financial resources. Sick time is expensed on a pay-as-you-go basis.

9. ACCRUED LIABILITIES AND LONG-TERM LIABILITIES

Payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. In the governmental funds, payables and accrued liabilities are paid in full from current financial resources. Claims and judgments and compensated absences that will be paid from governmental funds, are reported as a liability in the governmental funds financial statements only to the extent that they are due for payment in the current year. Bonds and other long-term obligations that will be paid from governmental funds are recognized as a liability in the governmental fund financial statements when due.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of the debt issued is reported as Other Financing Sources - proceeds from bond issues, while premiums on the debt are reported as Other Financing Sources - premiums on bond issuance, and discounts on debt issuances are reported as Other Financing Uses - discount on bond issuance. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

Bond premiums are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount.

Long-term obligations represent the Board's future obligations or future economic outflows. The liabilities are reported as due in one year or due within more than one year in the Statement of Net Position.

10. POST EMPLOYMENT BENEFITS

The Board provides post employment benefits in the form of health insurance. The obligation of the Board and its retirees to contribute to the cost of providing these benefits has been established pursuant to Board resolution and various collective bargaining agreements. Payments are budgeted annually without accrual and are based on the pay-as-you go method (see Note 2., F.).

11. NET POSITION FLOW ASSUMPTION

Sometimes the Board will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied.

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BOARD OF EDUCATION. CITY OF BUFFALO, NEW YORK NOTES TO BASIC FINANCIAL STATEMENTS


It is the Board's policy that the Chief Financial Officer, or their designee will assess the current financial condition of the Board and then determine the order of application of expenses to which restricted and unrestricted net position will be applied.

12. FUND BALANCE FLOW ASSUMPTIONS

Sometimes the Board will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied.

The Board has adopted a formal spending policy, under the provisions of under GASB Statement No. 54, stating the Board will assess the current financial condition of the Board and then determine the order of application of expenditures to which fund balance classifications will be charged.

13. FUND BALANCE POLICIES

Fund balance of the Board's funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The Board itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance).

The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the Board's highest level of decision-making authority. The Board of Education is the highest level of decision-making authority for the Board that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation .

Amounts in the assigned fund balance classification are intended to be used by the Board for specific purposes but do not meet the criteria to be classified as committed. The Board of Education has by resolution authorized the Chief Financial Officer, or their designee, to assign fund balance. The Board of Education may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year's appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment.

F. PROGRAM REVENUES

Amounts reported as program revenues include 1) charges to tax payers or others who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. All other internally dedicated resources are reported as general revenues rather than as program revenues.

G. USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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H. FUTURE ACCOUNTING PRONOUNCEMENT

During the fiscal year ended June 30, 2015, the Board adopted the provisions of Governmental Accounting Standards Board (GAS B) Statement No. 68, Accounting and Financial Reponing for Pensions - An amendment of GASB Statement No. 27; Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date; and Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.

The primary objective of Statement No. 68 and No. 71 is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. These Statements result from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for pensions with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency.

The GASB has issued the following new statements:

• Statement No. 72, Fair Value Measurement and Application, which will be effective for the year ending June 30, 2016; and

• Statement No. 75, Accounting and Financial reponing for Postemployment Benefits Other than Pensions, which will be effective for the year ending June 30, 2018.

The Board is currently reviewing these statements and plans on adoption, as required.

NOTE 2 - DETAIL NOTES ON ALL ACTIVITIES AND FUNDS

A. DEPOSITS AND INVESTMENTS

The Board's investment policies are governed by State statutes. In addition, the Board has its own written investment policy. The Board funds must be deposited in FDIC insured commercial banks or trust companies located within the State. Permissible investments include demand accounts and certificates of deposit, obligations of the U.S. Treasury and U.S. Agencies, repurchase agreements, and obligations of New York State or its localities.

Collateral is required for demand deposits, time deposits and certificates of deposit not covered by Federal Deposit Insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the State and its municipalities and school Boards.

The Board's aggregate bank balances were fully collateralized at June 30, 2015.

Restricted cash represents cash and cash equivalents where use is limited by legal requirements. These assets represent amounts required by statute or contract to be reserved for various purposes.

Cash with Fiscal Agent - General Fund The joint account held in trust with the Buffalo Teachers' Federation in relation to a Teachers' Settlement had a balance of $551,303 as of June 30, 2015.

Cash with Fiscal Agent - Debt Service Fund In accordance with the Indenture Trust Agreement, an amount of the Series 2008, 2009, 2011, 2012 and 2013 bond proceeds is to be deposited and maintained by the trustee in the Debt Service Fund.

Restricted Cash - General Cash is restricted to support obligations related to workers' compensation claims.

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NOTE 2 - DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued)

Restricted Cash - JSCB Fund Proceeds from Series 2009, 2011, 2012, 2013 and 2015 bonds, held in trust, and can only be utilized for approved project costs.

Restricted Cash - Debt Service Fund In accordance with the Local Share Trust and Depository Agreement, the local share contribution is to be held in trust and can only be disbursed as specified by the aforementioned agreement.

Cash held by City of Buffalo Amounts on deposit with the City on behalf of the Board total $277,706,604. Cash held by the City of Buffalo represents cash held in the City's bank accounts. The cash is an asset of the Board and is specifically designated for Board purposes. These deposits are subject to applicable city and state investment and collateralization policies. The City has also advanced $49,736,303 of certain Board funds, as discussed in Note 7.

Extraclassroom Activity Cash Deposits totaled $840,482 and were fully collateralized at June 30, 2015.

Investment and Deposit Policy The Board implemented Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures.

The Board follows an investment and deposit policy, the overall objective of which is to adequately safeguard the principal amount of funds invested or deposited; conformance with federal, state and other legal requirements; and provide sufficient liquidity of invested funds in order to meet obligations as they become due. Oversight of investment activity is the responsibility of the Finance Department.

Interest Rate Risk Interest rate risk is the risk that the fair value of investments will be affected by changing interest rates. The Board's investment policy does not limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.

Credit Risk The Board's policy is to minimize the risk of loss due to failure of an issuer or other counterparty to an investment to fulfill its obligations. The Board's investment and deposit policy authorizes the reporting entity to purchase the following types of investments:

• Interest bearing demand accounts. • Certificates of deposit. • Obligations of the United States Treasury and United States agencies. • Obligations of New York State and its localities.

Custodial Credit Risk Custodial credit risk is the risk that in the event of a failure of a depository financial institution, the reporting entity may not recover its deposits. In accordance with the Board's investment and deposit policy, all deposits of the Board including interest bearing demand accounts and certificates of deposit, in excess of the amount insured under the provisions of the Federal Deposit Insurance Act (FDIC) shall be secured by a pledge of securities with an aggregate value equal to 102% of the aggregate amount of deposits. The Board restricts the securities to the following eligible items:

• Obligations issued, fully insured or guaranteed as to the payment of principal and interest, by the United States Treasury and United States agencies.

• Obligations issued or fully insured or guaranteed by New York State and its localities.

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B. RECEIVABLES

Significant revenues accrued by the Board include the following:

Accounts receivable consist of the following at June 30, 2015:

General Fund: Health Services Tuition billing Miscellaneous revenues

$ 402,056 694,971 335,914

$ 1 432941

State and federal aid receivable, consist of the following at June 30, 2015:

General Fund: State Aid - basic State Aid - excess

Special Aid Fund: Federal and State Grants

School Food Service: Federal and State

Reim bu rsements

Total

*Amount reported net of unearned revenue.

$ 11 ,482,761 16,329,739 27,812,500

56,731,515*

2,173,725

$ 86717 740

Due from other governments which represents amounts due primarily from Erie County consist of the following at June 30, 2015:

C. CAPITAL ASSETS

General Fund: Erie County Sales Tax Due from City to Buffalo

Total

$ 4,681,168 975,970

$ 5657138

Capital asset balances and activity for the year ended June 30, 2015 were as follows:

Balance 7/01/14 Increases Decreases

Governmental activities: Governmental activities:

Capital assets that are not depreCiated: Land $ 3,424,003 $ - $ 417,303 Construction in progress 10,231 ,998 11 ,392,890 6,820,086 Capital assets, not being

depreciated 13,656,001 11,392,890 7,237,389

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Balance 6/30/15

$ 3,006,700 14,804,802

17,811,502



D.

E.

Balance Balance 7/01/14 Increases Decreases 6/30/15

Capital assets that are depreciated: Land improvements 5,689,833 147,147 5,542,686 Buildings and building

improvements 1 ,705,694,583 16,479,483 4,577,406 1,717,596,660 Equipment 23.804.049 1.226.851 295.432 24.735.468

Capital assets, being depreciated 1.735.188.465 17.706.334 5.019.985 1.747,874.814

Less accumulated depreciation: Land improvement 4,348,811 95,341 147,147 4,297,005 Buildings and building

improvements 576,098,493 75,782,376 4,150,436 647,730,433 Equipment 15,992,366 2,281,651 284,761 17,989,256 Total accumulated depreciation 596,439,670 78,159,368 4,582,344 670,016,694 Total capital assets being

depreciated, net 1,138,748,795 (60,453,034) 437.641 1.077,858,120 Governmental activities capital

assets, net $ 1 152 404 796 $ (49 060 144) $ 7 675 030 $ 1 095 669 622

ACCRUED LIABILITIES

Accrued liabilities reported by the Board at June 30, 2015, were as follows :

General Special Aid School Fund Fund Food Service Total

Accrued payroll $ 7,666,529 $ 3,593,241 $ 393,053 $ 11,652,823 Termination accrual 1,608,485 1,608,485 Miscellaneous 1,533,465 108,071 46,032 1,681,568

$ 10808479 $ 3701312 $ 439085 $ 14948876

PENSION OBLIGATIONS

New York State and Local Employees' Retirement System (ERS) and the New York State Teachers' Retirement (TRS) (the Systems).

PLAN DESCRIPTIONS AND BENEFITS PROVIDED

Teachers' Retirement System (TRS) The Board participates in the New York State Teachers' Retirement System (TRS). This is a costsharing mUltiple-employer retirement system. The System provides retirement benefits as well as, death and disability benefits to plan members and beneficiaries as authorized by the Education Law and the Retirement and Social Security Law of the State of New York. The System is governed by a 10 member Board of Trustees. System benefits are established under New York State Law. Membership is mandatory and automatic for all full-time teachers, teaching assistants, guidance counselors and administrators employed in New York Public Schools and BOCES who elected to participate in TRS. Once a public employer elects to participate in the System, the election is irrevocable. The New York State Constitution provides that pension membership is a contractual relationship and plan benefits cannot be diminished or impaired. Benefits can be changed for future members only by enactment of a State statute. Additional information regarding the System, may be obtained by writing to the New York State Teachers' Retirement System, 10 Corporate Woods Drive, Albany, NY 12211-2395 or by referring to the NYSSTR Comprehensive Annual Financial report which can be found on the System's website at www.nystrs.org .

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Employees' Retirement System (ERS) The Board participates in the New York State and Local Employees' Retirement System (ERS). This is a cost-sharing multiple-employer retirement system. The System provides retirement benefits as well as death and disability benefits. The net position of the System is held in the New York State Common Retirement Fund (the Fund), which was established to hold all net assets and record changes in plan net position allocated to the System. The Comptroller of the State of New York serves as the trustee of the Fund and is the administrative head of the System. System benefits are established under the provisions of the New York State Retirement and Social Security Law (RSSL). Once a public employer elects to participate in the System, the election is irrevocable. The New York State Constitution provides that pension membership is a contractual relationship and plan benefits cannot be diminished or impaired. Benefits can be changed for future members only by enactment of a State statute. The Board also participates in the Public Employees' Group Life Insurance Plan (GLlP), which provides death benefits in the form of life insurance. The System is included in the State's financial report as a pension trust fund. That report, including information with regard to benefits provided, may be found at www.osc.state.nv.us/retire/publications/index.php or obtained by writing to the New York State and Local Retirement System, 110 State Street, Albany, NY 12244.

CONTRIBUTIONS

The Systems are noncontributory except for employees who joined after July 27, 1976, who contribute 3 percent of their salary for the first ten years of membership, and employees who joined on or after January 1, 2010 who generally contribute 3.0 to 3.5 percent of their salary for their entire length of service. In addition, employee contribution rates under ERS tier VI vary based on a sliding salary scale. For ERS, the Comptroller annually certifies the actuarially determined rates expressly used in computing the employers' contributions based on salaries paid during the Systems' fiscal year ending March 31. For TRS, contribution rates are established annually by the New York State Teachers' Retirement Board pursuant to Article 11 of the Education law.

Contributions for the current year and two preceding years were equal to 100 percent of the contributions required, and were as follows:

2015 2014 2013

ERS $ 7,695,528

8,571,712 8,421,974

TRS $42,995,224

30,497,559 28,676,187

In the prior year, the Board elected to participate in the alternate contribution stabilization program for ERS as enacted by New York State under Chapter 57, Laws of 2013. The program provides shortterm cash relief by allowing municipalities to defer payment on a portion of the annual contribution, but requires repayment with interest in the following year. The Board made a payment of $231 ,025 under this program and deferred payment of the remaining $3,192,902. Amortization of the deferral is as follows:

Fiscal Year Ending June 30

2016 2017 2018 2019 2020

2021-2025 2026

Principal $ 239,711

248,725 258,077 267,780 277,849

1,554,032 346.728

$3192902

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Interest $ 120,054

111,040 101,688 91,985 81,916

244,791 13.037

$ 764511

Total $ 359,765

359,765 359,765 359,765 359,765

1,798,823 359.765

$3957413



PENSION LIABILITIES, PENSION EXPENSE, AND DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS

At June 30, 2015, the Board reported the following asset/(Iiability) for its proportionate share of the net pension asset /(Iiability) for each of the Systems. The net pension asset/(Iiability) was measured as of March 31, 2015 for ERS and June 30, 2014 for TRS. The total pension asset/(liability) used to calculate the net pension asset/(Iiability) was determined by an actuarial valuation. The Board's proportion of the net pension asset/(Iiability) was based on a projection of the Board's long-term share of contributions to the Systems relative to the projected contributions of all participating members, actuarially determined. This information was provided by ERS and TRS in reports provided to the Board.

Measurement date Net pension asset/(liability) Board's portion of the Plan's total

net pension asset/(Iiability)

March 31. 2015 $ (4,813,758)

.142493%

June 30. 2014 $ 188,878,283

1.695591%

For the year ended June 30, 2015, the Board recognized pension expense of $4,429,256 for ERS and $(7,444,071) for TRS, respectively. At June 30, 2015 the Board's reported deferred outflows of resources and deferred inflows of resources related to pensions arose from the following sources:

Differences between expected and actual experience

Changes of assumptions

Net difference between projected and actual earnings on pension plan investments

Changes in proportion and differences between the Board's contributions and proportionate share of contributions

Total

$

Deferred Outflows of Resources

154,094 $

836,089

291.029

$ 1 281 212 $,=====

Board's contributions subsequent to

$

Deferred Inflows of Resources

- $ 2,761,999

- $126,852,294

362.158

$,====~- $129 976451

the measurement date $ 1 836 921 $ 43 929 324 $,====~- $,= ===

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Board contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year ended: 2016 2017 2018 2019 2020

Thereafter

ACTUARIAL ASSUMPTIONS

$ 320,303 320,303 320,303 320,303

$ (32,076,348) (32,076,348) (32,076,348) (32,076,348)

(363,274) (1,307,787)

The total pension liability as of the measurement date was determined by using an actuarial valuation as noted in the table below, with update procedures used to roll forward the total pension liability to the measurement date. The actuarial valuations used the following actuarial assumptions:

Significant actuarial assumptions used in the valuations were as follows:

ERS TRS

Measurement date March 31, 2015 June 30, 2014

Actuarial valuation date April 1, 2014 June 30, 2013

Interest rate 7.5% 8%

Salary Scale 4.9% 4.01% - 10.91%

Decrement tables April 1, 2005 - July 1, 2005 -March 31, 2010 June 30, 2010

System's Experience System's Experience

Inflation rate 2.7% 3.0%

For ERS, annuitant mortality rates are based on April 1, 2005 - March 31, 2010 System's experience with adjustments for mortality improvements based on MP-2014. For TRS, annuitant mortality rates are based on July 1, 2005 - June 30, 2010 System's experience with adjustments for mortality improvements based on Society of Actuaries Scale AA.

For ERS, the actuarial assumptions used in the April 1, 2011 valuation are based on the results of an actuarial experience study for the period April 1, 2005 - March 31, 2010. For TRS, the actuarial assumptions used in the June 30, 2013 valuation are based on the results of an actuarial experience study for the period July 1, 2005 - June 30, 2010.

The long term rate of return on pension plan investments was determined using a building block method in which best estimate ranges of expected future real rates of return (expected returns net of investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long term expected rate of return by weighting the expected future real rates of return by each the target asset allocation percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major asset class included in the target asset allocation are summarized below:

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Valuation Date March 31, 2015 June 30, 2013

Expected long-term rate of return 6.98% 8.00%

The discount rate used to calculate the total pension liability was 7.5% for ERS and 8.0% for TRS. The projection of cash flows used to determine the discount rate assumes that contributions from plan members will be made at the current contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based upon the assumptions, the Systems' fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore the long term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

SENISITIVITY OF THE PROPORTIONATE SHARE FO THE NET PENSION LIABILITY TO THE DISCOUNT RATE ASSUMPTION

The following tables present the Board's proportionate share of the net pension liability calculated using the discount rate of 7.5% for ERS and 8% for TRS, as well as what the Board's proportionate share of the net pension asset/(Iiability) would be if it were calculated using a discount rate that is 1-percentage point lower (6.5% for ERS and 7% for TRS ) or 1-percentage point higher (8.5% for ERS and 9% for TRS) than the current rate:

ERS 1% Current 1% Decrease Assumption Increase

(6.5%) (7.5%) (8.5%) Employer"s proportionate share of the net pension asset (liability) $ (32,085,783) $ (4,813,758) $ 18,210,592

TRS 1% Current 1% Decrease Assumption Increase

(7.0%) (8.0%) (9.0%) Employer's proportionate share of the net pension asset (liability) $ 4,074,369 $ 188,878,283 $ 346,356,883

PENSION PLAN FIDUCIARY NET POSITION

The components of the current-year net pension asset/(Iiability) of the employers as of the respective measurement dates, were as follows:

Measurement date Employers' total pension liability Plan net position Employers' net pension asset/(Iiability)

Ratio of Plan net position to the Employers' total pension asset/(liability)

ERS

March 31,2015 $ 164,592,504

161213259 $ (3379245)

97.9%

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TRS Total (Dollars in Thousands)

June 30, 2014 $ 97,015,706 $ 261,608,210

108155083 269.368.342 $ 11 139377 $ 7760132

111.5%



PAYABLES TO THE PENSION PLAN

For ERS, employer contributions are paid annually based on the System's fiscal year which ends on March 31 st. Accrued retirement contributions as of June 30, 2015 represent the projected employer contribution for the period of April 1, 2015 through June 30, 2015 based on paid ERS wages multiplied by the employer's contribution rate, by tier. Accrued retirement contributions as of June 30, 2015 amounted to $1 ,836,921.

For TRS, employer and employee contributions for the fiscal year ended June 30, 2015 are paid to the System in September, October and November 2015 through a state aid intercept. Accrued retirement contributions as of June 30, 2015 represent employee and employer contributions for the fiscal year ended June 30, 2015 based on paid TRS wages multiplied by the employer's contribution rate, by tier and employee contributions for the fiscal year as reported to the TRS System. Accrued retirement contributions as of June 30, 2015 amounted to $46,188,345.

F. OTHER POST EMPLOYMENT BENEFITS OBLIGATIONS (OPEB)

PLAN DESCRIPTION

The Board administers the Board of Education, City of Buffalo, New York's Retiree Medical and Prescription Drug (the Plan) as a single-employer defined benefit Other Post Employment Benefit plan (OPEB). The Plan provides for continuation of medical insurance benefits for certain retirees and their spouses and can be amended by action of the Board subject to applicable collective bargaining and employment agreements. The Plan does not issue a stand-alone financial report since there are no assets legally segregated for the sole purpose of paying benefits under the Plan.

FUNDING POLICY

The obligations of the plan members, employers and other entities are established by action of the Board pursuant to applicable collective bargaining and employment agreements. The required contribution rates of the employer and the members vary depending on the applicable agreement. The Board currently contributes enough money to the plan to satisfy current obligations on a pay-asyou-go basis. The costs of administering the plan are paid by the Board.

ACCOUNTING POLICY

The accrual basis of accounting is used. The fair market value of assets, if any, is determined by the market value of assets, if any, paid by a willing buyer to a willing seller.

ANNUAL OPES COST AND NET OPEB OBLIGATION

The Board's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC). The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years . The following shows the components of the Board's annual OPEB cost for the year, the amount actually contributed to the plan, and the Board's net OPES obligation to the Plan at June 30, 2015:

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BOARD OF EDUCATION. CITY OF BUFFALO, NEW YORK NOTES TO BASIC FINANCIAL STATEMENTS


Annual OPES Cost and Net OPES Obligation

Annual required contribution Interest on OPES obligation Adjustment to annual required contribution OPES Expense

(in thousands) $ 163,504

Net OPES contributions made during the fiscal year Net OPES obligation for the current fiscal year

27,221 (39,356) 151,369 (61,575) 89,794

680,531 Net OPES obligation at beginning of year Net OPES obligation at end of year $ 770325

Percentage of expense contributed 40.68%

The Soard's annual OPES cost, contribution, percentage of OPES cost contributed , and net postemployment benefit obligation for the plan for the current fiscal year ended June 30, 2015 and the two preceding years are as follows (in thousands):

Fiscal Year 2015 2014 2013

Annual OPES Cost $ 151 ,369

158,587 166,001

Employer Contribution $ 61,575

62,414 60,065

FUNDED STATUS AND FUNDING PROGRESS

Percentage of Annual OPES Cost Contributed

40.7% 39.4% 36.2%

Net OPES Obligation $ 770,325

680,531 584,358

As of June 30, 2015, the most recent interim actuarial valuation performed, the actuarial accrued liability for benefits was $1,825,333,000, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was $296,956,000, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 615%. The total post employment health insurance cost to the Soard for 6,115 retirees and dependents was $61 ,575,000 for the year ended June 30, 2015.

Actuarial valuations for OPES involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. These actuarially determined amounts are subject to continual revisions as actual results are compared to past expectations and new estimates are made about the future. The schedule of funding progress presented immediately following the financial statements as required supplementary information, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

METHODS AND ASSUMPTIONS

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial calculations of the OPES plan reflect a long-term perspective. Consistent with this perspective, actuarial valuations, will use actuarial methods and assumptions that include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets.

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The June 30, 2015 actuarial valuation utilized the projected unit credit cost method. The actuarial assumptions included a 4% investment rate of return (net of administrative expenses), which is the expected short-term investment rate of the Board's own assets since currently the plan has no assets at the valuation date in order to establish a plan investment rate. The assumed rate for all pre-65 healthcare benefits is initially at 8.5% and decreases to a 5.0% long-term trend rate after seven years. For all post-65 healthcare benefits this rate initially is at 7.0% and decreases to a 5.0% long-term trend rate after four years. Both rates included a 3% inflation assumption. The UAAL is being amortized as a level percentage of projected payrolls on an open basis. The amortization period is not to exceed thirty years.

G. CONSTRUCTION AND OTHER COMMITMENTS

CONSTRUCTION COMMITTMENTS

As of June 30, 2015, the Board has approximately $8,962,000 committed to various renovations.

ENCUMBRANCES

As discussed in Note 1.0.2, Budgetary Information, Budgetary Basis of Accounting, encumbrance accounting is utilized to the extent necessary to assure effective budgetary control and accountability and to facilitate effective cash planning and control. At year-end the amount of encumbrances expected to be honored upon performance by the vendor in the next year were $2,938,925 in the General Fund.

H. INDEBTEDNESS

LONG-TERM DEBT

1. Long-term liability balances and activity for the year are summarized below:

Balance Balance Due Within 7/01/14 Issued Redeemed 6/30/15 One Year

Government activities: Due to other governments $ 11,693,332 $ - $ 713,332 $ 10,980,000 $ 713,334

Due to City of Buffalo Debt Service Fund 89,761,443 11,968,083 77,793,360 12,052,361

Revenue bonds payable 13,305,000 575,000 12,730,000 590,000 JSCB bonds payable 990,125,000 236,975,000 318,740,000 908,360,000 41,995,000 Premium on bonds 99,357,522 36,801,089 31,528,761 104,629,850 8,426,006 Compensated absences 21,642,507 7,781,860 8,510,244 20,914,123 8,223,829 Pension deferral 3,423,927 231,025 3,192,902 239,711 Post employment benefits 680,531,000 151,369,000 61,575,000 770,325,000

Workers' Compensation 43,814,848 4,813,403 5,515,967 43.112.284 8,275,003

Total $ 1 953 654 579 $ 437 740 352 $439 357 412 $ 1 952 037 519 $8Q 5:15 244

2. Source of Funding - Amounts due to other governments; due to City of Buffalo (bond debt); and revenue bonds payable are repaid through annual appropriation of the General Fund. Payments for compensated absences are charged to the General Fund.

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3. Due to Other Governments - In June 2000 the State Legislature passed special legislation to advance the Board $20,000,000 in lottery aid to help pay for litigation settlement with the Buffalo Teachers Federation. In June 2006 the Board received an additional lottery aid advance of $1,400,000. The advances are recorded as long-term interest-free loans with annual maturities as follows:


2016 2017 2018 2019 2020

2021-2025 2026-2030 2031-2035

2036

Principal $ 713,334

713,334 713,332 713,334 713,334

3,566,666 3,566,668

233,334 46.664

$---.1D. 980 000

4. Due to City of Buffalo Debt Service Fund - Represents payments due to the City for the maturity of serial bonds, which were issued by the City on behalf of the Board.

The remaining annual maturities are as follows:


2016 2017 2018 2019 2020

2021-2025 2026-2027

Principal $ 12,052,360

11,708,000 8,726,000 9,028,000 8,699,000

26,375,000 1.205.000

$ 77 793 360

Interest $ 2,730,541

2,201,739 1,796,798 1,482,889 1,159,844 2,169,209

54,913 $ 11 595933

Total $ 14,782,901

13,909,739 10,522,798 10,510,889 9,858,844

28,544,209 1.259.913

$ 89389293

5. Revenue Bonds Payable - Represents amounts due for Municipal Bond Agency Revenue Bonds issued pursuant to the State of New York Municipal Bond Agency (the Agency) Act and a General Resolution and a Series Resolution to provide funds to (i) finance a portion of the cost of settling litigation involving the Board and the Buffalo Teachers Federation; (ii) fund the Debt Service Reserve Fund to at least the Debt Service Reserve Fund Requirement; and (iii) pay legal, accounting, financing, and other fees and expenses relating to the issuance of the Bonds.

The Bonds are special revenue obligations of the Agency and are secured by Annual Payments payable by the City from all monies legally available (which availability is, in general, dependent upon annual appropriations by the City), and amounts received by the Agency pursuant to the Agency's statutory right to intercept State School Aid payable to the City and all funds and accounts established by the General Resolution described in the Official Statement.

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Fiscal Year Ending June 30 Princi(2al Interest

2015 $ 590,000 $ 493,191 $ 2017 610,000 472,141 2018 630,000 453,641 2019 645,000 440,891 2020 665,000 421,141

2021-2025 3,840,000 1,577,956 2026-2030 4,695,000 722,034

2031 1,055,000 26,375 $ :12 73Q QQQ $ 4 6QZ 3Z0 $

Total 1,083,191 1,082,141 1,083,641 1,085,891 1,086,141 5,417,956 5,417,034 1,081,375

:lZ 337 3ZQ

6. JSCB Bonds Payable - Represents bond payments due for the design, construction, and financing of public educational facilities in the City (see Note 4).

In June 2015, the Board issued $236,975,000 in school facility revenue refunding bonds with an average interest rate of 4.99% to advance refund $281,295,000 of outstanding school facility revenue refunding bonds with an average interest rate of 5.73%. The net proceeds of 272,186,249 (after payment of $1,581,864 in underwriting fees, insurance and other issuance costs) were used to purchase United States government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the bonds. As a result, the bonds are considered to be defeased, and the liability for those bonds has been removed from the Board's financial statements. The Board advance refunded the bonds to revise its payment schedules due to changes in New York State's aid payment schedules. The economic gain on the transactions (the difference between the present values of the debt service payments on the old and new debt) is approximately $23,697,091.

In prior years, the Board defeased certain general obligations and other bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the Board's financial statements. $5,160,000 of these bonds defeased in prior years are outstanding at June 30, 2015.


Fiscal Year Ending June 30 Princi(2al Interest Total

2016 $ 41,995,000 $ 43,838,870 $ 85,833,870 2017 52,640,000 43,617,363 96,257,363 2018 55,330,000 40,990,163 96,320,163 2019 58,165,000 38,228,663 96,393,663 2020 61,145,000 35,325,513 96,470,513

2021-2025 371 ,885,000 124,268,188 496,153,188 2026-2030 241,510,000 39,766,975 281,276,975 2031-2032 25,690,000 1,662.000 27,352,000

$ 9Q6 360 QQQ $ 36Z 69Z Z35 $ :I 2Z6 05Z Z35

7. Compensated Absences - As described in Note 1, compensated absences, which total $20,914,123 at June 30, 2015, represent amounts relating to sick, vacation and personal leave for employees. Payments of these liabilities are dependent upon many factors (including retirement, termination, or employees leaving service). The Board has estimated that $8,223,829 will be paid in the next fiscal year.

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8. Workers' Compensation - Workers' compensation obligations total $43,112,284 at June 30, 2015, represent estimated amounts due for various outstanding claims.

9. Operating Leases - Operating lease obligations are primarily for rental of space and equipment. Lease expenditures and expenses for the year were $3,936,778. The future minimum lease payments required for noncancellable operating leases are as follows:

I. FUND BALANCE

Fiscal Year

2016 2017 2018 2019 2020 2021-2025 2026-2028 Total

$ 3,501,087 3,612,625 3,746,949 3,334,457 3,406,351

16,102,380 7.733.735

$ 41 437584

As of June 30, 2015, fund balances were classified as follows:

Debt Non-Major General Service Funds

Nonspendable Inventory $ 554,052 $ $ 802,308 Endowment 324,000

Restricted: Unemployment Insurance 3,156,044 Judgments, property loss

and claims 17,750,000 Stabilization 3,821,650 Joint School Construction

Board projects 70,654 Debt service 34,469,402 Capital projects 258,291 Special activities fund 185,644 Permanent fund 5,479

Assigned: Subsequent years' expenditures 8,372,000 Other post employment benefits 38,400,000 Prior year claims 56,698,000 Capital projects and repairs 7,220,000 14,230,796 School food service 19,769,097 Encumbrances: General Support 1,171,073 Instruction 1,718,745 Other 49,107

Unassigned (deficit}: General fund 52,106,887

Total $ :19:1 O:JZ 558 $ 34469402 $ 35646269

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Total

$ 1,356,360 324,000

3,156,044

17,750,000 3,821,650

70,654 34,469,402

258,291 185,644

5,479

8,372,000 38,400,000 56,698,000 21,450,796 19,769,097

1,456,895 1,442,232

49,107

51,599,930 $ 26:1 :133229



J. INTERFUND ACTIVITY

Interfund activity at June 30, 2015 are as follows:

General Fund Capital Projects Fund Special Aid Fund School Lunch Fund Debt Service Fund Trust & Agency Fund Joint Schools Construction

Board Fund Total

Interfund Receivables

$ 1,050

568,149

$ 569 :199

$

$

Interfund Interfund Pallables Revenues

568,149 $ 632,823 15,420,574 4,376,480

330,261 104,806,944

1,050

569 :199 $ :125 56Z 082

Interfund EXQenditures

$109,513,685

222,037 15,831,360

$125 56Z 082

Interfund receivables and payables, other than between governmental activities and fiduciary funds, are eliminated on the Statement of Net Position.

Interfund receivables and payables were incurred primarily due to cash not being transferred prior to fiscal year end. The majority of the interfund revenues and expenses were for debt service and capital project expenses.

NOTE3-AGENCYFUNDS

An agency fund exists for temporary deposit of funds. The following is a summary of changes in assets and liabilities for the fiscal year ended June 30, 2015.

Balance Balance 7/01/14 Additions Deletions 6/30/15

Cash $ 21,204 $ 29,774,899 $ 29,763,007 $ 33,096 Extraclass room activity cash 842,125 2,202,557 2,204,200 840,482

Due from other funds 633,955 13.754.967 13,820,773 568,149

Total assets $ 1 497284 $ 45 Z32 423 $ 45 Z8Z 980 $ j 441 72Z

Employee liabilities $ 633,956 $ 29,774,899 $ 29,840,706 $ 568,149

Extraclassroom activity balance 842,125 2,202,557 2,204,200 840,482

Due to other funds 19,983 2,681 21 ;614 1,050

Agency reserve 1,220 2,233,212 2,202,386 32,046

Total liabilities $ 1 49Z 284 $ 34213349 $ 34268906 $ 1 441 Z2Z

NOTE 4 - JOINT SCHOOLS CONSTRUCTION BOARD

The Buffalo Joint Schools Construction Board (the JSCB) is an inter-municipal board created as a joint cooperative board by resolutions of the Board and the City of Buffalo Common Council (the Council) and amendment of the City Charter, §18-59 and §18-60, to assist in a comprehensive program to redevelop the Board's school buildings and facilities. The JSCB is comprised of two Board designees, the Superintendent of Schools, the Mayor, the City Comptroller and one Council designee.

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NOTE 4 . JOINT SCHOOLS CONSTRUCTION BOARD (Continued)

Although the Buffalo Schools Act confers extensive powers upon the JSCB in relation to the construction of new educational facilities, it assigns to the JSCB only limited functions in relation to the reconstruction of existing schools, which the act authorizes the Board to finance and implement as projects of the Erie County Industrial Development Agency (the ECIDA). Phase I, II, III, IV and V of the Program have been authorized by amendments to the Buffalo Schools Act as ECIDA reconstruction projects. The JSCB's role in those phases has been principally to assist and advise the Board in developing projects up to the point when plans and specifications have been approved by the State Education Department, financing is completed and available and construction can begin. The JSCB has also been assigned to monitor implementation of the Program's workforce and business diversification plan and to compare the financing of the Project available through ECIDA with financing of the Project available through the Municipal Bond Agency (and to employ the financing that will result in the lowest cost to the taxpayers of the City and the State). For Phase III, the JSCB is also required to submit certain cost reports to state officials and cannot proceed with the projects if estimated costs do not meet certain limits prescribed in the Phase III regulation.

NOTE 5 . COMMITMENTS AND CONTINGENCIES

Judgments. Claims. and Contingencies Various types of claims have been asserted against the Board by various claimants. Claims probable of resulting in an unfavorable outcome to the Board have been reasonably estimated and recorded in the government-wide financial statements. The claims are in various stages of processing and some may ultimately be brought to trial. Claims are paid and ultimately funded by the fund associated with the loss. For claims not accrued, the ultimate outcome of the suits cannot presently be determined and no provisions for loss if any, has been made in the accompanying financial statements. It is the opinion of management that there will not be any material adverse effects on the Board's financial statements as a result of these actions.

State Aid The State periodically reviews its distribution of aid to school boards throughout the state. Thus, revenues recorded as of June 30, 2015 are subject to potential revision.

Health Insurance Litigation On September 1, 2005, following a competitive bid process, the Board selected one insurance carrier to provide four health care plans to school district employees - three HMO plans and one traditional indemnity plan. Prior to September 1, 2005, the Board paid three insurance carriers to provide the same four plans. Some of the Board's unions, including the Buffalo Teachers' Federation (hereinafter, BTF), challenged the Board's decision to go to a single carrier in arbitration. On October 21, 2006, the arbitrator in the BTF arbitration ruled that the Board must return to multiple carriers effective January 1, 2007 and reinstate all teachers laid-off effective September 1, 2005 with "make-whole" monetary damages, including back pay and benefits with interest at the statutory judgment rate. The arbitrator also retained jurisdiction to decide any unresolved claims for reimbursement of out-of-pocket expenses incurred by individual teachers under the single carrier arrangement. The Board appealed the decision and the Appellate Division ruled that while the Board violated the contract in moving to a single carrier for healthcare, the Board is not required to reinstate all laid off teachers. The BTF moved and the Board cross moved to appeal to the Court of Appeals. The leave to appeal was denied. Subsequently, the BTF commenced a contempt proceeding in the Supreme Court, which remains pending. The Court has agreed to several continuances of the return date with the expectation that negotiation of a successor collective bargaining agreement may resolve the health insurance issue. Contract negotiations are continuing.

Grants The Board has received grants, which are subject to audit by agencies of the State and federal governments. Such audits may result in disallowances and a request for a return of funds. Based on prior years' experience, the Board's administration believes disallowances, if any, will be immaterial.

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NOTE 6 - RISK MANAGEMENT

The Board is self insured for workers' compensation and has accrued its best estimate of workers' compensation losses. The plan establishes reserve liabilities based on the estimated cost of individual claims incurred. Those estimates are determined based on many factors, one of the most significant being past experience. Since the reserve liability is an estimate it may not reflect the plan's ultimate liability.

The schedule below presents the changes in the Board's estimated claims since June 30, 2014. The estimated claims represent claims that have occurred and are open due to an actual or future final determination of benefit payout as prescribed by the New York State Workers' Compensation Board. Estimated claims represents anticipated future payouts based on prior experience with actual payments of claims.

Estimated claims as of June 30, 2014 Claims incurred during the year Payments made during the year, net Estimated claims as of June 30, 2015

NOTE 7 - RELATED PARTY TRANSACTIONS

The amounts classified as due to the City of Buffalo, in the Special Aid Fund, represent cash advances made to the Board totaling $49,736,303.

Additionally, the Board transferred $15,210,410 to the City for payment of the Board's portion of principal and interest on long-term debt.

The City of Buffalo, from time to time, funds grants with the District. The outstanding due from the City of Buffalo for these grants was $975,970 at June 30, 2015.

NOTE 8 - RESTATEMENT OF NET POSITION

For the fiscal year ended June 30, 2015, the Board implemented GASB Statement No. 68 Accounting and Financial Reporting for Pensions - Amendment to GASB Statement No. 27 and GASB Statement No. 71 , Pension Transition for Contributions Made Subsequent to the Measurement Date. The implementation of Statements No. 68 and No. 71 resulted in the reporting of an asset, deferred outflow of resources, liability and deferred inflow of resources related to the Board's participation in the New York State Teachers' (TRS) and Employees'(ERS) retirement systems. The Board's net position has been restated as follows:

Net position beginning of year, as previously stated GASB Statement No. 68 and No. 71 implementation:

Beginning System asset - TRS Beginning System liability - ERS Beginning deferred outflow of resources for contributions subsequent to the measurement date:

TRS ERS

Net position beginning of year, as restated

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$ (497,670,378)

10,757,018 (6,439,054)

40,700,597 1 833.941

$ (450817 876)

BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK SCHEDULE OF FUNDING PROGRESS FOR RETIREE HEALTH PLAN

FOR THE YEAR ENDED JUNE 30. 2015

Actuarial Accrued

Actuarial Actuarial Value Liability (AAL) Unfunded AAL Valuation of Assets - Entry Age (UAAL) Date (a) (b) (b-a)

06/30/14 $ $ 1,825,333,000 $ 1,825,333,000 06/30/13 $ $ 1,896,318,000 $ 1,896,318,000 06/30/12 $ $ 1,881,696,000 $ 1,881,696,000

Schedule of Employer Contributions (in thousands)

June 30, 2011 June 30, 2012 June 30, 2013 June 30, 2014 June 30, 2015

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$

Funded Ratio (alb)

0.00% 0.00% 0.00%

58,256 60,349 60,065 62,414 61,575

Covered Payroll

(c)

$ 296,956,000 $ 293,169,000 $ 283,103,000

UAAL as a Percentage of Covered Payroll [(b-al/cl

615% 647% 665%

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK BUDGETARY COMPARISON SCHEDULE FOR THE GENERAL FUND


Original Amended Actual Over (Under) Budget· Budget Revenues Amended Budget

REVENUES: Local sources:

Contribution from City of Buffalo $ 55,172,758 $ 55,172,758 $ 56,995,611 $ 1,822,853 School tax relief reimbursement 15,150,000 15,150,000 13,327,147 (1 ,822,853) Nonproperty tax items 40,500,000 40,500,000 40,167,930 (332,070) Charges for services 1,650,000 1,650,000 1,695,938 45,938 Use of money and property 90,000 90,000 124,274 34,274 Sale of property and compensation for loss 116,611 116,611 Miscellaneous local sources 14,966,785 14,966,785 12,333,954 (2,632,831 )

State sources: Basic formula 582,720,938 582,720,938 567,898,404 (14,822,534) Lottery aid 75,000,000 75,000,000 86,535,760 11,535,760 Other aid 7,411,519 7,411 ,519 6,844,223 (567,296)

Federal sources 2,800,000 2,800,000 902,738 {1,897,262)

Total revenues 795,462,000 795,462 ,000 786,942,590 (8,519,410)

Other sources: Interfund transfers in 1,000,000 1,000,000 632,823 (367,177) Appropriated fund balance 10.180,000 12,912,257 (12,912,257)

Total revenues and other sources $ 806,642,000 $ 809,374,257 $ 787,575,413 $ (21,798,844)

A36

BOARD OF EDUCATION1 CITY OF BUFFAL01 NEW YORK BUDGETARY COMPARISON SCHEDULE FOR THE GENERAL FUND

FOR THE YEAR ENDED JUNE 30. 2015 (Continued)

Original Amended Actual Unencumbered Budget* Budget Expenditures Encumbrances Balances

EXPENDITURES: General support:

Board of education $ 264,015 $ 312,877 $ 271,486 $ 4,242 $ 37,149 Central administration 682,968 505,452 406,323 464 98,665 Finance 3,271,575 3,533,353 3,096,872 106,099 330,382 Staff 3,088,263 3,636,426 3,419,604 69,616 147,206 Central services 56,552,628 55,335,224 52,263,774 1,002,419 2,069,031 Special items 4,147,181 3,210,528 3,195,915 14,613

Instruction: Instruction, administration, and improvements 24,200,306 24,427,284 23,259,637 1,920 1,165,727 Teaching - regular school 230,915,148 237,490,784 230,777,652 861,020 5,852,112 Charter school payments 98,000,000 98,418,135 98,415,397 2,738 Instructional media 4,763,464 5,300,984 4,395,050 623,635 282,299 Pupil services 14,893,988 16,294,706 15,573,957 232,170 488,579

Pupil transportation 51,978,650 49,094,298 46,971,122 37,173 2,086,003 Home and community services 107,474 107,891 107,135 167 589 Employee benefits 190,585,639 188.614,997 183,353,190 5,261.807

Total expenditures 683,451 ,299 686,282,939 665,507,114 2,938,925 17,836,900

Other uses: Interfund transfers out 123,190,701 123,091 ,318 124,724,095 (1 ,632,777)

Total expenditures and other uses $ 806,642,000 $ 809,374,257 $ 790,231,209 $ 2,938,925 $ 16,204,123

Net change in fund balance $ {2,655,796)

* See Schedule of Change from Original Budget to Revised Budget on page B4 for reconciliation of GAAP to budgetary basis.

A37

BOARD OF EDUCATION, CITY OF BUFFALO. NEW YORK NYSERS AND NYSTRS PENSION PLAN

JUNE 30. 2015

District's proportion of the net pension asset (liability)

District's proportionate share of the net pension asset (liability)

District's covered-employee payroll

District's proportionate share of the net pension asset (liability) as a percentage of its covered-employee payroll

Plan fiduciary net position as a percentage of the total pension C!sset (liability)

A38

$

ERS

0.142493%

(4,813,758)

39,579,898

12%

97.9%

TRS

1.695591%

$ 188,878,283

259,159,687

73%

111 .5%

2006

Contractually required contribution $ $

Contributions in relation to the contractually required contribution

Contribution deficiency (excess) $ *1< $


Conributions as a percentage of covered-employee payroll

•• Information unavailable

2007

BOARD OF EDUCATION CITY OF BUFFALO NEW YORK NYSERS PENSION PLAN

SCHEDULE OF DISTRICT CONTRIBUTIONS LAST 10 FISCAL YEARS

JUNE 30

2008 2009 2010 2011

4,658,282 $ 4,070,641 $ 3,676,006 $ 2,391,143 $ 4,440,936 $

5,168.955 4,568,445 3,676,006 2,391,143 4,440,936

(510,673) $ (497,804) $ $ $ $

45,292,656 44,588,023 45,577,635 40,385,561 38,838,292

11% 10% 8% 6% 11%

A39

2012 2013 2014 2015

7,065,431 $ 8,436,183 $ 8,494,573 $ 7,335,763

--..1..065.431 8.436.183 5,070,646 7,695,528

$ $ 3,423,927 $ (359,765)

34,302,213 39,735,784 40,651,043 39,579,898

21% 21% 12% 19%

Contractually required contribution

Contributions in relation to the contractually required contribution

Contribution deficiency (excess)


Conributlons as a percentage of covered-employee payroll

•• Information unavailable

2006

$ $

$ $

BOARD OF EDUCATION, CITY OF BUFFALO. NEW YORK NYSTRS PENSION PLAN

SCHEDULE OF DISTRICT CONTRIBUTIONS LAST 10 FISCAL YEARS

JUNE 30,

2007 2008 2009 2010 2011

18,892,598 $ 18,981,793 $ 18,543,340 $ 15,246,576 $ 20,465,737 $

18.892,598 18.981 .793 18.543.340 15.246.,576 20.465,737

$ $ $ $ $

223.908,720 231,549,995 247,755,396 251,885,437 242,820,821

8% 8% 7% 6% 8%

A40

2012 2013 2014 2015

26,491 ,441 $ 28,341 ,558 $ 40,700,597 $ 43,929,324

26.491 ,441 28,341,558 40,700.597 43,929.324

$ $ $

243,486,199 248,023,907 258,505,177 259,159,687

11% 11% 16% 17%

SECTION B

SUPPLEMENTAL SCHEDULES


COMBINING BALANCE SHEET - NON-MAJOR GOVERNMENTAL FUNDS

JUNE 30, 2015

Joint Schools

Capital School Construction Special Permanent

Projects Food Service Board Activities Fund Total

ASSETS:

Cash and cash equivalents $ - $ 300 $ - $ 185,644 $ - $ 185,944

Cash held by City of Buffalo 15,775,638 18,837,366 34,613,004

Cash and cash equivalents - restricted 3,188,331 329,479 3,517,810

Accounts receivable 45,791 45,791

State and federal aid receivable 2,173,725 2,173,725

Inventory 802,308 802,308

Total assets $ 15,775,638 $ 21,859,490 $ 3,188,331 $ 185,644 $ 329,479 $ 41,338,582

LIABILITIES AND FUND BALANCES:

Liabilities:

Accounts payable $ 1,286,551 $ 849,000 $ 3,117,677 $ $ $ 5,253,228

Accrued liabilities 439,085 439,085

Total liabilities 1,286.551 1.288.085 3,117.677 5.692.313

Fund balances:

Non-spendable 802,308 324,000 1,126,308

Restricted 258,291 70,654 185,644 5,479 520,068

Assigned 14,230.796 19,769.097 33,999,893

Total fund balances 14,489,087 20.571,405 70,654 185,644 329,479 35,646.269

Total liabilities and fund balances $ 15,775,638 $ 21,859,490 $ 3,188,331 $ 185,644 $ 329,479 $ 41.338.582


B1

REVENUES:



Miscellaneous local sources

State sources

Federal sources

Total revenues

EXPENDITURES:

General support

Instruction - regular schools

Home and community services

Employee benefits

Capital outlay

Total expenditures

$


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS


Joint Schools

Capital School Construction

Projects Food Service Board

- $ 617,700 $ -7,136

7,136

16,971 ,605

16,971 ,605

1,623

68,646

769,065

25,903,986

27,359,397 1,623

1,151,488

24,403,359

2,470,922

3,840,812

28,025,769 3,840,812


82

Special

Activities

$ - $

5,804

5,804

5,016

5,016

Permanent

Fund Total

$ 617,700

586 9,345

74,450

769,065

25,903,986

586 27,374,546

1,151,488

24,403,359

5,821 10,837

2,470,922

20,812,417

5,821 48,849,023

Excess (deficit) of revenues over expenditures

OTHER FINANCING SOURCES (USES):

Interfund transfers in

Interfund transfers out

Total other financing sources

Net change in fund balances

Fund balances - beginning

Fund balances - ending


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES· NON-MAJOR GOVERNMENTAL FUNDS


(CONTINUED>

Joint Schools

Capital School

Projects Food Service

Construction

Board

Special

Activities

(16,964,469) (666,372) (3,839,189)

15,420,574 330,261

(222,037)

15,420.574 108,224

(1,543,895) (558,148) (3,839,189)

16,032,982 21 .129,553 3,909,843

1..1 .dR9.087 $ $==~~=== 20,571,405 $ 70,654


83

788

788

184,856

$ 185,644 $

Permanent

Fund

(5,235)

(5,235)

334,714

Total

(21,474,477)

15,750,835

(222,037)

15.528.798

(5,945,679)

41 ,591 ,948

329,479 $ 35,646,269

Adopted BudQet

Additions:

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK SCHEDULE OF CHANGE FROM ORIGINAL

BUDG.ET TO REVISED BUDGET - GENERAL FUND FOR THE YEAR ENDED JUNE 30,2015

Prior year encumbrances

Original 8udg~t

Budget Revisions: Cancelled encumbrances

Final Budget

B4

$ 806.642,000

2,899,935

809,541 ,935

(167,678)

$ 809 3Z4 25Z

Proiect Title

Computers & Technology $ Reconstruction of Various Schools Computers & Technology AlE Services Cafeteria I Library Redesign at Sch 69 Refunding Savings Phase I Refunding Savings Phase II AlE Services Mech System Reconstr Waterfront Sch Partial Refunding Savings Phase IV Transfer of Debt Service Costs Design I Consultants for Capital Projects JSCB ECIDA Funds Phase II JSCB ECIDA Funds Phase IV

Total Capital Project Expenditures and Other Financing Uses $

BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK SCHEDULE OF PROJECT EXPENDITURES -

CAPITAL PROJECTS FUND FOR THE YEAR ENDED JUNE 30. 2015

Ex~enditures/Reclassifications To Date Original Revised Prior Current

Aoorooriation Aoorooriation Years Year Total

4,158,954 $ 4,158,954 $ 4,143,585 $ 15,369 $ 4,158,954 $ 2,700,000 2,782,038 2,601,400 150,600 2,752,000 1,200,000 1,236,462 1,046,198 1,228 1,047,426

114,265 124,415 106,162 10,920 117,082 16,786,423 16,796,797 11,558,807 3,944,477 15,503,284 27,917,363 27,924,348 1,747,764 12,248,966 13,996,730

122,400 122,400 92,302 14,738 107,040 11,063,175 11,064,503

468,434 34,723,154 34,723,154 34,723,154 500,000 500,000 67,039 1,591 68,630 612,111 3,529,432 1,419,840 1,419,840 144.450 144,450 102,818 102.818

65,787,575 $ 103,106,953 $ 57,609,069 $ 16,387,889 $ 73,996,958 $

85

Outstanding Over Encum- (Under) brances Budget

$ 30,038

3,182 185,854 7,333

411,523 881,990 8,505,491 5,422,127

15,360 11,064,503

26,882 404,488 2,109,592

41 ,632

8,962,438 $ 20,147,557

BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK SCHEDULE OF NET INVESTMENT IN CAPITAL ASSETS


Capital assets, net $ 1,095,669,622

Add: Cash held by City of Buffalo Cash with fiscal agents Cash - restricted

Total additions

Deduct: Joint School Construction Board bonds payable Due to City of Buffalo debt service fund

Total deductions Net investment in capital assets

B6

15.,775,638 21 ,062,467

3,188,331 40,026,436

908,360,000 77,793,360

986,153,360 $ 149542698

SECTION C

SUPPLEMENTARY INFORMATION

FEDERAL FINANCIAL ASSISTANCE

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

FOR THE YEAR ENDED JUNE 30,2015

Federal Pass-Through/ Federal Grantor/Pass-Through CFDA Grantor Entitl£ Disbursements/ Grantor/Program Title Number Identifl!ing Number Expenditures

U.S. DEPARTMENT OF AGRICULTURE: Direct Programs:

Summer Food Service 10.559 N/A 1,497,937

Passed through State Department of Agriculture: Farm to School USDA 10.575 CN F2S Plan 15 NY 01 8,696 Fresh Fruits & Vegetables 10.582 0004-15-0012 1,124,324 Fresh Fruits & Vegetables 10.582 0004-14-0024 7,049 Fresh Fruits & Vegetables 10.582 0004-13-0024 3,478 Breakfast 10.553 7,694,848 Lunch 10.555 15,031,745 Snack 10.555 355,681 Donated Foods 10.555 1,323,775

Total U.S. Department of Agriculture 27,047,533

U.S. DEPARTMENT OF DEFENSE Direct Programs:

JROTC Program - 2013-2014 12.357 N/A 34,244 JROTC Program - 2014-2015 12.357 N/A 548,820

Total U.S. Department of Defense 583,064

U.S. DEPARTMENT OF LABOR: Passed through State Department of Labor:

Youthbuild - Youth Career Connect 17.274 YC-25402-14-60-A-36 344,770 School Adult 17.278 326,710

Total U.S. Department of Labor 671,480

U.S. DEPARTMENT OF EDUCATION: Direct Programs:

Indian Education Formula Grant 84.060A S060A-14-1033 218,878 Indian Education Formula Grant 84.060A S060A-1 3-1 033 3,894 Professional Development for Arts Educators 84.351C U351 C-11 -0014-13 124,864

Passed through State Department of Education: WIA Title /I - English Language Civics Education 84.002A 0040-1 5-2001 103,129 WIA Title /I - English Language Civics Education 84.002A 0040-14-2001 49,945 WIA Title /I - Adult Basic 84.002A 2338-15-2003 436,839 WIA Title 1/- Adult Basic 84.002A 2338-14-2003 35,178 WIA Literacy Zone - East Zone 84.002A 2338-1 5-3001 79,649 W IA Literacy Zone - East Zone 84.002A 2338-14-3001 7,466 WIA Literacy Zone - West 84.002A 2338-15-3003 77,889 WIA Literacy Zone - West 84.002A 2338-14-3003 11,975 WIA Literacy Zone - North 84.002A 2338-15-3002 80,473 WIA Literacy Zone - North 84.002A 2338-14-3002 8,421 Title I School Improvement - 1003A Leadership & STE 84.010 0011-14-2202 270,222 Title I School Improvement - 1003A 84.010A 0011 -13-2002 809 Title I School Improvement - 1003A 84.010A 0011 -14-2002 138,025 Title I School Improvement - 1003A 84.010A 0011-15-2002 912,964 Title I Parts A & D 84.010A 0021-15-0740 23,321,521 Title I Parts A & D 84.010A 0021 -14-0740 1,579,487 Title I Parts A & D 84.010A 0021-13-0740 879 Title I Parts A & D 84.010A 0021-12-0740 (572) Title I Parts A & D 84.010A 0021-11-0740 1,048 Title I Parts A & D 84.010A 0021 -10-0741 (873) Out of District Title I Payment 84.010A 271 RSE-TASC (Regular Special Ed - Tech Asst Spt) 84.027A C012213 366,486 RSE-TASC (Regular Special Ed - Tech Asst Spt) 84.027A C010307 1,413

C1


FOR THE YEAR ENDED JUNE 30, 2015 (Continued)

Federal Grantor/Pass-Through CFDA Grantor Entitll Grantor/Program Title Number Identiflling Number

IDEA Section 611 Part 8 84.027A 0032-15-0202 IDEA Section 611 Part 8 84.027A 0032-14-0202 Response to Intervention - IDEA (Extension) 84.027A 0031-15-5511 Response to Intervention - IDEA 84.027A 0031-14-5511 IDEA Section 619-Pre-School Regular 84.173A 0033-15-0202 IDEA Section 619-Pre-School Regular 84.173A 0033-14-0202 Perkins VATEA Adult Project 84.048A 8000-15-9002 Perkins VATEA Adult Project 84.048 8000-14-9002 VATEA 8asic Grant - Perkins Secondary 84.048A 8000-15-0075 VATEA 8asic Grant - Perkins Secondary 84.048 8000-14-0075 School Climate Transformation USDOE 84.184G S184G140241 21st CCLC 84.287 0187-15-6080 21st CCLC 84.287 0187-14-6080 Title III - Immigrant Funds 84.365 0149-13-0740 Title III -Immigrant Funds 84.365A 0149-14-0740 Title III-Immigrant Funds 84.365A 0149-15-0740 Title 111- LEP 84.365A 0293-13-0740 Title III - LEP 84.365A 0293-14-0740 Title III - LEP 84.365A 0296-15-0740 Math & Science Partnership - Math 84.3368 0294-15-0207 Math & Science Partnership - Science 84.3668 0294-15-0213 Title II Part A 84.367A 0147-15-0740 Title II Part A 84.367A 0147-14-0740 School Improvement Grant 84.388A 0123-15-6102 School Improvement Grant 84.388A 0123-15-6105 School Improvement Grant 84.388A 0123-15-6104 School Improvement Grant 84.388A 0123-15-6101 School Improvement Grant 84.388A 0123-15-6103 School Improvement Grant 84.388A 0123-15-6106 School Improvement Grant 84.388A School Improvement Grant 84.388A 0123-15-4103 School Improvement Grant 84.388A 0123-15-5115 School Improvement Grant 84.388A 0123-15-4104 School Improvement Grant 84.388A 0123-15-4301 School Improvement Grant 84.388A 0123-15-5117 School Improvement Grant 84.388A 0123-15-2102 School Improvement Grant 84.388A 0123-15-4101 School Improvement Grant 84.388A 0123-15-4102 School Improvement Grant 84.388A 0123-15-3202 School Improvement Grant 84.388A 0123-15-5116 School Improvement Grant 84.388A 0123-15-3102 ARRA - School Improvement Grant 84.388A 5123-13-4103 ARRA - School Improvement Grant 84.388A 5123-14-4103 ARRA - School Improvement Grant 84.388A 5123-14-4101 ARRA - School Improvement Grant 84.388A 5123-14-5115 ARRA - School Improvement Grant 84.388A 5123-14-4104 ARRA - School Improvement Grant 84.388A 5123-14-4301 ARRA - School Improvement Grant 84.388A 5123-14-5117 ARRA - School Improvement Grant 84.388A 5123-14-2102 ARRA - School Improvement Grant 84.388A 5123-14-4102 ARRA - School Improvement Grant 84.388A 5123-1 3-3202 ARRA - School Improvement Grant 84.388A 5123-14-3202 ARRA - School Improvement Grant 84.388A 5123-14-5116 ARRA - School Improvement Grant 84.388A 5123-14-3102 ARRA - School Improvement Grant 84.388A 5511-15-6101

C2

Disbursements/ Ex~enditures

10,930,570 301,838

54,166 40,544

541,264 91,271

345,987 22,580

518,871 710

265,588 386,871 28,018

413 275,760 176,186

5,220 59,223

614,394 334,001 228,770

3,555,787 585,838 353,596 412,971 372,558 399,521 433,841 250,924

(46) 1,019,770 1,199,015

998,616 1,306,419 1,071,435

304,091 1,024,519 1,040,942 5,151 ,014 1,063,127 1,956,980

7,833 423,674 318,544 346,004 222,294 405,456 397,966 26,195

281,051 478

111,523 226,334

3,802 220,331


FOR THE YEAR ENDED JUNE 30, 2015 (Continued)

Federal Grantor/Pass-Through Grantor/Program Title

ARRA - District Resource Allocations ARRA - Race To The Top Systemic Support 2012-13 ARRA - Race To The Top Systemic Support 2013-14 ARRA - Race To The Top Systemic Support 2014-15 ARRA - Virtual Advanced Placement ARRA - Virtual Advanced Placement ARRA - Race To The Top - Model Induction Program ARRA - Race To The Top - Teaching is the Core ARRA - Race To The Top ARRA - Race To The Top ARRA - Race To The Top

Total U.S. Department of Education

u .S. DEPARTMENT OF HOMELAND SECURITY: Passed through New York State Department of Home/and Security:

CFDA Number

84.395A 84. 395A 84.395A 84.395A 84.395A 84.395A 84.395A 84.395A 84.395A 84.395A 84.395A

Stafford Act - Federal Emergency Management Agency 97.036

TOTAL EXPENDITURES OF FEDERAL AWARDS

C3

Grantor Entity Identi~ing Number

5555-15-0003 5540-13-2000 5540-14-2000 5540-15-2000 5580-15-0016 5580-14-0016 5530-14-0001 5590-15-0002 5500-13-0740 5500-14-0740 5500-15-0740

FEMA-4204-DR-NY

Disbursements/ Ex~enditures

31 ,245 (4,666) 46,768

411 ,330 239,939

3,899 8,297

161,649 (55,103) 356,907

1,741,598 71,486,791

184,507

$ ===9=:9=,9:::::7=3,=37=5=

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


NOTE 1 - BASIS OF PRESENTATION

The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal grant activity of the Board under programs of the federal government for the year ended June 30, 2015. The information in this Schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the Schedule presents only a selected portion of the operations of the Board, it is not intended to and does not present the financial position, changes in net position or cash flows of the Board.


Expenditures reported on the Schedule are reported using the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-8?, Cost Principles for State, Local and Indian Tribal Governments, wherein certain types of expenditures are not allowable or are limited as to reimbursement. The amounts reported as federal expenditures were obtained from the Board's financial reporting system, which is the source of the Boards' basic financial statements. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Grant numbers were presented where available.

NOTE 3 - PASS-THROUGH GRANTOR

With the exception of the summer lunch, Indian Education Formula Grant, Professional Development of Arts Educators, and JROTC, all Federal financial assistance received was passed-through departments of the State of New York.

NOTE 4 - MAJOR PROGRAM DETERMINATION

Major program determination is a risk based assessment which classifies programs as either a Type A program or a Type B program. All federal programs with expenditures exceeding the greater of .3% of the total federal awards or $3,000,000 are considered Type A programs and all other programs are considered Type B programs. The Type B federal programs with expenditures which do not exceed the greater of .03% of the total federal awards or $300,000 are considered insignificant and were not further evaluated. All other programs were then further assessed based on risk and major programs were selected.

NOTE5-NON-MONETARYFEDERALPROGRAM

The Board is the recipient of a federal award program that does not result in cash receipts or disbursements, termed a "non-monetary program." During the year ended June 30, 2015, the Board received $1,323,775 of commodities under the Surplus Food Distribution Program (CFDA 10.555).

C4

SECTION D

INTERNAL CONTROL AND COMPLIANCE

Freed Maxick'cPAS, pc.

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

INDEPENDENT AUDITOR'S REPORT

To the Board of Education of City of Buffalo, New York

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund and the aggregate remaining fund information of Board of Education, City of Buffalo, New York (the Board), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements, and have issued our report thereon dated October 23, 2015.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the Board's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion of the effectiveness of the Board's internal control. Accordingly, we do not express an opinion on the effectiveness of the Board's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control , such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

01

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Board's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Board's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Board's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

~ !Yl~ Ct1As/ Ie.-. Buffalo, New York October 23, 2015

~ FreedMaxickcPAS,PC. D2

Freed Maxick'cPAs, pc.

REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133

INDEPENDENT AUDITOR'S REPORT

To the Board of Education of City of Buffalo, New York

Report on Compliance for Each Major Federal Program

We have audited Board of Education, City of Buffalo, New York's (the Board) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Board's major federal programs for the year ended June 30, 2015. The Board's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs.

Management's Responsibility

Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs.


Our responsibility is to express an opinion on compliance for each of the Board's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Board's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Board's compliance.

Opinion on Each Major Federal Program

In our opinion, the Board complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2015.

D3

Report on Internal Control Over Compliance

Management of the Board is responsible for establishing and maintaining effective internal control over compliance with the type of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Board's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federa l program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Board's internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or Significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMS Circular A-133. Accordingly, this report is not suitable for any other purpose.

~ /fl~ cfl;fs/ Ie. Buffalo, New York October 23, 2015

fI FreedMaxickcPAs. Pc. D4

BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK SCHEDULE OF FINDINGS AND QUESTIONED COSTS


I. SUMMARY OF AUDITOR'S RESULTS

Financial Statements

Type of auditor's report(s) issued:

Internal control over financial reporting:

Material weakness(es) identified?

Significant deficiency(ies) identified?

Noncompliance material to financial statements noted?

Federal Awards

Internal control over major programs:

Material weakness(es) identif!ed?

Significant deficiency(ies) identified?

Type of auditor's opinion(s) issued on compliance for major programs:

Any audit findings disclosed that are required to be reported in accordance with section 51 O(a) of Circular A-133?

Identification of major programs

Title II Part A Nutrition Cluster

Dollar threshold used to distinguish between Type A and Type B Programs

Auditee qualified as low risk?

II. FINDINGS - FINANCIAL STATEMENT AUDIT

Unmodified

__ yes ~no

__ yes ~none reported

__ yes ~no

__ yes ~no

__ yes ~none reported

Unmodified

__ yes ~no

CFDA#

84.367A 10.553/10.555/10.559

$2,999,201

~yes __ no

There were no findings related to the financial statement audit noted in the current fiscal year.

III. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS

There were no findings or questioned costs related to federal awards noted in the current fiscal year.

05

BOARD OF EDUCATION. CITY OF BUFFALO. NEW YORK SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS


I. FINDINGS - FINANCIAL STATEMENT AUDIT

There were no findings related to the financial statement audit noted for the fiscal year ended June 30, 2014.

II. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS

There were no findings or questioned costs related to federal awards noted for the fiscal year ended June 30, 2014.

06

SECTION E

EXTRACLASSROOM ACTIVITY

Freed Maxick'cPAS, pc.

INDEPENDENT AUDITOR'S REPORT ON THE STATEMENT OF CASH RECEIPTS, DISBURSEMENTS AND CHANGES IN CASH BASIS NET POSITION OF THE

EXTRACLASSROOM ACTIVITY FUNDS

The President and Members of the Board of Education of Board of Education, City of Buffalo, New York Buffalo, New York

Report on the Financial Statements

We have audited the accompanying Statement of Cash Receipts, Disbursements and Changes in Cash Basis Net Position of the Extraclassroom Activity Funds of Board of Education, City of Buffalo, New York (the Board), as of and for the year ended June 3D, 2015 and the related note to the financial statement.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of this financial statement in accordance with the cash basis of accounting described in Note 1; this includes determining that the cash basis of accounting is an acceptable basis for preparation of the financial statement in the circumstances. Management is also responsible for the design, implementation, and maintenance of internal control over Extraclassroom Activity relevant to the preparation and fair presentation of the financial statement that is free from material misstatement, whether due to fraud or error.


Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement.

An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor's judgment, including the assessment of risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls over Extraclassroom Activity relevant to the Board's preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

E1

Basis for Qualified Opinion

Insufficient accounting controls are exercised over cash receipts from the point of collection to the time of submission to the Central Treasurers. Accordingly, it was impractical to extend our audit of receipts beyond the amounts recorded and were unable to determine whether any adjustments to these amounts were necessary.

Qualified Opinion

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph , the financial statement referred to above presents fairly, in all material respects, the recorded transactions of the Extraclassroom Activity Funds of the Board for the year ended June 30, 2015, arising from cash collected and disbursements made during the year then ended on the basis of accounting described in Note 1.

Basis of Accounting

We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statement is prepared on a cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

~ !Yl¥t.d. CflAs/ Ie,. Buffalo, New York October 23, 2015

arJ FreedMaxickcPAS. P.c. E2

BOARD OF EDUCATION! CITY OF BUFFALO! NEW YORK STATEMENT OF CASH RECEIPTS! DISBURSEMENTS

AND CHANGES IN CASH BASIS NET POSITION OF THE EXTRACLASSROOM ACTIVITY FUNDS FOR THE YEAR ENDED JUNE 3~! 2015

Balance Cash Cash Balance School June 30, 2014 Recei~ts Disbursements June 30, 2015

3 $ 3,131 $ 14,211 $ 15,044 $ 2,298 6 7,966 15,303 15,010 8,259 17 7,608 20,094 19,204 8,498 18 (580) 11,528 11,559 (611 ) 19 8,109 6,891 8,727 6,273 27 8,437 14,533 12,416 10,554 30 12,859 26,288 20,983 18,164 31 2,667 7,397 6,796 3,268 32 31,105 62,578 64,304 29,379 33 2,314 15,784 13,640 4,458 37 3,397 27,928 28,193 3,132 39 3,706 11,101 8,269 6,538 40 180 727 704 203 42 11,280 18,515 21,475 8,320 43 8,390 10,400 14,898 3,892 45 7,977 26,113 25,431 8,659 53 4,492 15,831 13,127 7,196 54 9,057 20,621 21,689 7,989 56 13,658 69,075 63,766 18,967 59 869 18,234 17,688 1,415 61 797 8,160 2,060 6,897 64 9,955 23,238 20,124 13,069 65 4,619 23,312 22,425 5,506 66 5,022 10,034 11,355 3,701 67 27,098 25,515 34,608 18,005 69 8,991 51,533 51,074 9,450 72 9,551 36,001 38,619 6,933 74 1,079 16,030 16,111 998 76 2,597 17,470 19,094 973 79 19,267 17,448 18,977 17,738 80 6,501 27,169 25,262 8,408 81 2,068 5,548 5,882 1,734 82 11,994 15,635 17,950 9,679 84 31,702 24,997 19,511 37,188 89 4,566 30,584 31,187 3,963 90 3,678 12,237 13,350 2,565 91 5,525 17,971 17,810 5,686 93 26,296 42,273 36,474 32,095 94 26,453 32,408 32,605 26,256 95 19,281 22,424 19,290 22,415 97 2,524 16,458 15,877 3,105 99 4,070 25,283 26,144 3,209 115 303 416 630 89 131 708 1,002 1,703 7 192 103,308 193,590 215,209 81,689

Subtotal $ 484,575 $ 1,109,888 $ 1,116,254 $ 478,209

See note to financial statement. E3

BOARD OF EDUCATION! CITY OF BUFFALO! NEW YORK STATEMENT OF CASH RECEIPTS! DISBURSEMENTS

AND CHANGES IN CASH BASIS NET POSITION OF THE EXTRACLASSROOM ACTIVITY FUNDS FOR THE YEAR ENDED JUNE 30! 2015

(CONTINUED>

Balance Cash Cash Balance School June 30,2014 Recei~ts Disbursements June 30, 2015

195 $ 108,414 $ 268,727 $ 262,163 $ 114,978 197 2,967 32,945 34,419 1,493 198 1,601 21,973 22,535 1,039 200 26,478 67,707 74,658 19,527 202 1,728 1,728 204 15,392 43,907 46,209 13,090 205 9,013 31,592 28,171 12,434 206 43,899 87,864 89,348 42,415 212 6,437 100,323 107,273 (513) 301 9,544 27,454 20,618 16,380 302 31,569 61,085 65,844 26,810 304 65,224 189,846 189,765 65,305 305 6,965 90,766 76,789 20,942 307 9,114 27,846 30,617 6,343 352 27 308 316 19 415 20,906 38,599 37,494 22,011

Subtotal 357,550 1,092,670 1,087,947 362,273

Subtotal (E3) 484,575 1,109,888 1,116,254 478,209

Total $ 842,125 $ 2,202,558 $ 2,204,201 $ 840,482

See note to financial statement. E4

BOARD OF EDUCATION, CITY OF BUFFALO, NEW YORK EXTRACLASSROOM ACTIVITY FUNDS

NOTE TO FINANCIAL STATEMENT


The transactions of the Extraclassroom Activity Funds are not considered part of the reporting entity of the Board of Education, City of Buffalo, New York (the Board). Consequently, such transactions are included in the basic financial statements of the Board only to the extent that cash and a corresponding liability are recorded in the Agency Fund in the Board's Statement of Net Position-Fiduciary Funds at June 30, 2015.

The books and records of the Board's Extraclassroom Activity Funds are maintained on the cash basis of accounting. Under this basis of accounting, revenues are recognized when cash is received and expenses are recognized when cash is disbursed.

E5

D-1

APPENDIX D

SUMMARY OF THE ACT

The Act and the Enabling Resolution contain various covenants and provisions, certain of which are summarized herein. Reference should be made to the Act and the Enabling Resolution for a full and complete statement of their provisions, including the definition of certain words and terms not defined herein.

Authorization for Fund (Section 3)

The City is authorized by the Enabling Resolution to establish and maintain with a Trustee a Capital Debt Service Fund for the purpose of paying Capital Debt Service. The Chief Fiscal Officer shall annually certify to the Collecting Officer and Trustee the amount of real property taxes to be deposited into the Fund at the time or times specified in the Enabling Resolution. Other Moneys may be deposited into the Fund. Amounts in the Fund shall be withdrawn by the Trustee for the purpose of paying Capital Debt Service.

Special Covenants to Secure Certain Obligations and Performance of the Act (Section 4)

At the discretion of the Common Council, the Enabling Resolution may contain certain covenants of the City to protect and safeguard the security and rights of Holders of Obligations issued and sold subject thereto and other Capital Debt Obligations outstanding. Such Enabling Resolution may contain covenants as to: (a) the establishment and maintenance of the Fund and its requirements; (b) the powers and duties of the Trustee; and (c) conditions which would give rise to an event of default.

Rights and Remedies of Holders of Certain Obligations (Section 5)

Holders of Obligations for the benefit of which the Fund is established shall have certain rights and remedies in addition to any rights and remedies under law, subject to the Enabling Resolution establishing said Fund. (See “Payment of and Security for the Bonds and the Notes – Rights and Remedies” herein.)

State Pledge and Agreement (Section 6)

The State pledges to and agrees with and for the benefit of the Holders of Obligations benefited by the fund to refrain from the performance of certain acts. (See “Payment of and Security for the Bonds and the Notes – Rights and Remedies” herein.”) The City is authorized and directed to include this pledge in the Enabling Resolution.

E-1

APPENDIX E

SUMMARY OF ENABLING RESOLUTION

Definitions (Section 101)

Act means the act of the legislature of the State entitled “AN ACT in relation to certain financing by the City of Buffalo, to authorizing the establishment of a debt service fund, to prescribing and limiting powers and procedures with respect to such fund, and to providing for the rights of holders of certain obligations of such city”, approved March 8, 1977 and constituting Chapter 12 of the Laws of 1977 of the State;

Capital Debt Obligations means serial bonds, bond anticipation notes and capital notes;

Capital Debt Service means with respect to a fiscal year (a) all principal due or becoming due in said year on any serial bonds and capital notes, (b) all amounts appropriated for principal amortization for said year on bond anticipation notes and (c) all interest due or becoming due for said year on serial bonds, capital notes and bond anticipation notes;

Capital Debt Service Fund or Fund means the fund so entitled which is held by the Trustee and is described and provided for in the Resolution;

Capital Debt Service Requirement means the amount of Capital Debt Service on Obligations in a fiscal year;

Chief Fiscal Officer means the comptroller of the City or such other officer of the City who may hereafter be designated chief fiscal officer of the City;

City means the City of Buffalo;

City Taxes means and includes all taxes on real property levied and assessed by the City based on valuation thereof, and shall not mean any rent, rate, fee, special assessment or other charge based on benefit or use;

Collecting Officer means the treasurer of the City and any other official empowered to demand, collect and receive City Taxes;

Collection Period means a length of time during which City Taxes are received by the Collecting Officer;

Common Council means the common council of the City;

First Collection Period means the Collection Period commencing on the first day of July and ending on and including the last day of November;

Holder or Holders means any person who shall be the bearer of an Obligation or Obligations registered to bearer or not registered, or the registered owner of any Obligation or Obligations which shall at the time be registered other than to bearer;

Investment Securities means any investment authorized pursuant to paragraph b of section one hundred sixty-five of the local finance law, except an investment in any obligation of any political subdivision of the State; provided such investment shall be payable or redeemable within such times as the proceeds thereof shall be needed to make payments from the Fund;

Obligation or Obligations means and includes all Capital Debt Obligations issued and sold subject to the Resolution and all Outstanding Capital Debt Obligations and any coupons appurtenant thereto;

E-2

Other Capital Debt Redemption Sources means all or part of the proceeds of Capital Debt Obligations issued, or other funds received, which are to be applied to payment of Capital Debt Service;

Other Moneys means and includes (a) accrued interest received at the time of delivery of any Obligation or Obligations; (b) the proceeds of any Obligation or Obligations no longer required for the object or purpose for which such Obligation or Obligations are issued; (c) investment earnings and capital gains on any Obligation or Obligations; (d) rents, rates, fees, special assessments or other charges based on benefit or use; (e) Other Capital Debt Redemption Sources; (f) funds received by the City which are required by law to be expended only for the payment of Capital Debt Service on an Obligation or Obligations; and (g) any other revenue received by the City, whether or not required by law to be expended for payment of Capital Debt Service on any Obligation or Obligations, which the Chief Fiscal Officer determines to so expend;

Outstanding Capital Debt Obligations means serial bonds, capital notes and bond anticipation notes outstanding on the date Capital Debt obligations are issued and sold subject to the Resolution;

Resolution means this resolution as the same may from time to time be amended or supplemented;

Second Collection Period means the Collection Period commencing on the first day of December and ending on and including the last day of June;

State means the State of New York; and

Trustee means any trust company or bank having the power of a trust company in the State, appointed by the City in the manner set forth in the Resolution, and any successor trust company or bank having the powers of a trust company in the State which may be substituted in its place pursuant to the Resolution.

Establishment of Capital Debt Service Fund (Section 201)

The City establishes a special fund to be known as the Capital Debt Service Fund (Fund) for the purpose of paying Capital Debt Service on Obligations for the benefit of Holders of Obligations; such Fund to be held, by and maintained with the Trustee. The City covenants with the Trustee and Holders of Obligations that it will comply in all respects with the provisions of the Act and the Resolution, that it will duly and punctually pay or cause to be paid Capital Debt Service on such Obligations, and that it will maintain the Fund with the trustee, and will operate the Fund in the manner set forth in the Resolution.

Operation of the Fund (Section 202)

On or before the first day of each fiscal year commencing hereafter, the Chief Fiscal Officer shall prepare and deliver to the Trustee and to the Collecting Officer, a certificate setting forth: (a) the Capital Debt Service Requirement for such fiscal year, (b) the portions of such Capital Debt Service Requirement allocated to each Collection Period, being July 1 through December 31, for the First Collection Period and January 1 through June 30 for the Second Collection Period, (c) a schedule of the amounts of Capital Debt Service Requirement allocated to each Collection Period and the date or dates when and place or places where such amounts are due and payable, and (d) the amount to be deposited in the Fund during each Collection Period, which amount shall equal the portion of the Capital Debt Service Requirement allocated to such period.

Commencing on the first day of each Collection Period, the Collecting Officer shall deposit real property tax collections in the Fund, until the amount so deposited equals the Capital Debt Service Requirement allocated to such period. At any time, Other Moneys shall be deposited in the Fund. When the amount deposited in the Fund equals the unpaid Capital Debt Service Requirement allocated to such period and any prior period, no further real property taxes shall thereafter be deposited in the Fund during such period. If at any time during a Collection Period the amount in the Fund exceeds the unpaid amount of Capital Debt Service Requirement

E-3

allocated to such period and any other prior period, such excess may be returned to the City in the manner set forth in Section 304.

The Chief Fiscal Officer’s certificate shall be amended in order to provide for the payment of Capital Debt Service on Obligations issued after the commencement of the fiscal year for which such certificate was prepared, and such certificate as amended shall show the change in the amount to be deposited in the Fund.

Covenant as to City Tax Collection Procedure (Section 203)

The City covenants with the Trustee and the Holders of Obligations that it will not adopt a new tax collection procedure which in any manner shall provide insufficient City Taxes to timely pay portions of a Capital Debt Service Requirement allocated to any Collection Period as such portions and periods may be determined pursuant to the amended Resolution.

Negative Pledge (Section 204)

The City will not issue any Capital Debt Obligations other than Capital Debt Obligations issued and sold subject to the Resolution or any other forms of indebtedness and execute other contracts secured by a pledge of the revenues, moneys and securities in or payable to the Fund, and will not create or cause to be created any lien or charge upon the revenues, moneys and securities in or payable to the Fund.

Accounts, Reports and Certificates (Section 205)

The City covenants that it will keep, or cause to be kept, proper books of record in which complete and accurate entries shall be made of all transactions relating to the Fund. The City shall cause such books of record to be audited annually by one or more certified public accountants duly licensed by the State, and such audit shall be filed by the City with the Trustee.

Issuance and Sale of Capital Debt Obligations (Section 206)

All Capital Debt Obligations shall hereafter be issued and sold subject to the Resolution, unless the Common Council shall determine by resolution adopted by two-thirds of all the members of such Council and approved by the Mayor that a particular issue of Capital Debt obligations shall not be issued and sold subject to the Resolution, and such resolution shall be filed with the Trustee.

Moneys in the Fund (Section 302, 303 and 304)

The Trustee shall hold all moneys deposited in the Fund for the benefit of Holders of Obligations, and shall withdraw all amounts as may be necessary to pay the Capital Debt Service Requirement. Pending such withdrawals, moneys in the Fund may be invested in Investment Securities. If at any time during a Collection Period the amounts in the Fund exceed the unpaid amount of the Capital Debt Service Requirement allocated to such Collection Period and any prior Collection Period, the Chief Fiscal Officer may request the Trustee to, and the Trustee shall, pay over to the Chief Fiscal Officer the amount of such excess for use by the City in the manner provided by Law.

Resignation and Removal of Trustee (Section 310, 311 and 312)

The Trustee may resign by giving written and publication notice, and may be removed by the City or the holders of a majority in principal amount of Obligations outstanding provided at the time of any such removal or resignation a successor Trustee shall be appointed. A successor Trustee may be appointed by the City or the Holders of a majority in principal amount of Obligations outstanding, and any successor Trustee appointed by Holders shall supersede a successor Trustee appointed by the City.

E-4

Remedies and Abrogation of Right to Appoint Trustee (Sections 401 and 404)

The Holders shall be entitled to the benefits and be subject to the provision of Section 5 of the Act. (See “Summary of the Act.”) The powers provided by said Section 5 are conferred on the Trustee, and the right or privilege of the Holders of any Obligations to be issued and sold subject to the Resolution hereafter to appoint a different Trustee is abrogated.

Events of Default (Section 402)

Each of the following constitutes an event of default under the Resolution: (1) default by the City in the payment of principal or interest on any Obligation, whether at maturity or upon call for redemption, which default shall continue for a period of thirty days; or (2) failure or refusal by the City to maintain the Fund and the covenants with respect thereto which continues for a period of 45 days after written notice of such default to the City by the Trustee or the Holders of five per cent of the principal amount of Obligations outstanding; or (3) filing by the City of a petition seeking a composition of indebtedness under any applicable law or statute of the United States of America or of the State or seeking by the City of application of laws then in effect under the bankruptcy provision of the United States Constitution.

Enforcement by Trustee (Section 403)

Upon the happening and continuance of any event of default the Trustee may, and upon the written request of the Holders of twenty-five percent in principal amount of Obligations outstanding shall, exercise all or any of the powers of any such Holders set forth below and in addition (a) bring suit for any principal or interest then due with respect to such Obligations; (b) by mandamus or other suit, action or proceeding at law or in equity enforce all rights of the Holders of such Obligations, including any right to require the City to carry out the provisions of any contract with the Holders and to perform its duties thereunder; (c) bring suit upon such Obligations; and (d) by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of such Holders.

Enforcement by Holders (Section 405)

Any Holder of an Obligation at any time outstanding, whether or not then due and payable or reduced to judgment and either on his own behalf or on behalf of all persons similarly situated, may (a) by mandamus, original or ancillary, mandatory or other injunction, or any other order, process or decree, or by any other suit, action or proceeding at law or in equity, enforce all contractual or other rights of such Holder or Holders, including any right to require the City to carry out the provisions of any contract with such Holder or Holders and to perform its duties thereunder; and (b) by action, suit or other proceeding, enjoin any acts or things which may be unlawful or in violation of the rights of such Holder or Holders.

Restriction on Action by Holders (Section 406)

No Holder of any Obligation shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of any provision of the Resolution or for any other remedy hereunder, unless either (a) such Holder previously shall have given to the City and the Trustee written notice of the event of default on account of which such suit, action or proceeding is to be instituted requesting the Trustee to institute such suit, action or proceeding, and the Trustee shall have refused or neglected to comply with such request within a reasonable time, or (b) such Holder previously shall have obtained the written consent of the Trustee to the institution of such suit, action or proceeding, and such suit, action or proceeding is brought for the ratable benefit of all Holders of Obligations.

E-5

Limitation on Powers of Trustee (Section 407)

Nothing in this Resolution contained shall be deemed to give power to the Trustee either as such or as attorney-in-fact of the Holders of Obligations to vote the claims of such Holders in any bankruptcy proceeding or to accept or consent to any plan of reorganization, readjustment, arrangement or composition or other like plan, or any other action of any character to waive or change any right of any such Holder or to give consent on behalf of any such Holder to any modification or amendment of the Resolution requiring such consent pursuant to the provisions of the Resolution.

Right to Enforce Payment of Obligations Unimpaired (Section 408)

Nothing in the Resolution contained shall affect or impair the right of the Holder of any Obligation to enforce payment of the principal of and interest on his Obligation, or the duty of the City to pay the principal of and interest on such Obligation to the Holder thereof at the time and place or places set forth in said Obligation.

Powers of Amendment (Sections 502 and 503)

Any modification or amendment of the Resolution and of the rights and obligations of the City and of the Holders of Obligations may be made by written consent of the Holder of at least two-thirds in principal amount of the Obligations outstanding at the time such consent is given; provided, however, that no such modification or amendment shall permit a change in the terms of redemption or maturity or the principal of any Obligation outstanding or of any installment of interest thereon or a reduction in the principal amount or the redemption price, if any, thereof or the rate of interest thereon, or the requirements for the discharge and satisfaction of the obligations of the City without the consent of the Holders of such Obligations, or shall reduce the percentage or otherwise affect the description of Obligations the consent of the Holders of which is required to effect such modification or amendment, or shall change or modify any of the rights or obligations of the Trustee without the filing with the Trustee of its written assent thereto.

Amendments Not Requiring Consent of Holders (Section 506)

The Resolution may be amended for any of the following purposes without consent of Holders: (1) to add to the covenants or agreements to be observed by the City; (2) to add to the limitations or restrictions to be observed by the City; (3) to surrender any right, power or privilege reserved to or conferred upon the City by the Resolution; (4) to cure any ambiguity, supply any omission, or cure or correct any defect or inconsistent provision in the Resolution; (5) to insert such provisions clarifying matters or questions arising under the Resolution as are necessary or desirable and are not contrary to or inconsistent with the Resolution; and (6) to effect any change in the operation of the Fund necessitated by any change or alteration in the procedure for collection of City Taxes.

Defeasance (Section 602)

The covenants, agreement and other obligations of the City to the Holders shall be discharged and shall be of no further force and effect if any time during a Collection Period: (a) there is on deposit in the Fund sufficient money or direct obligations of the United States of America or of the State, the principal of and interest on which will provide moneys to pay the unpaid amount of the Capital Debt Service Requirement of such Collection Period and any prior Collection Period as well as all the principal of and interest due or to become due on all Capital Debt Obligations issued and sold subject to the Resolution, (b) irrevocable instructions from the City to the Trustee for such payment on all Capital Debt Obligations issued and sold subject to the Resolution have been given, and (c) notice to the Holders of Obligations of the provisions for payment made herein has been given.

E-6

Regulations Regarding Investment of the Fund (Section 605)

Investment Securities purchased as an investment of moneys in the Fund shall be deemed at all times to be part of the Fund, and the interest thereon and any profit arising on the sale thereof shall be credited to the Fund, any loss resulting on the sale thereof shall be charged to the Fund. In computing the amount in the Fund for any purpose hereunder, such Investment Securities shall be valued at the lower of cost or market price thereof, exclusive of accrued interest.

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