Purpose of Budget Review
The purpose of our review was to provide an independent evaluation of the City’s proposed budget for 2026.
Background
Chapter 56 of the Laws of 2024, Part DD (the City of Dunkirk Fiscal Recovery Act; “Deficit Financing Act”) authorized the City of Dunkirk (City) to issue debt not to exceed $18.5 million to liquidate the accumulated (actual) deficits in the general, water, sewer and capital projects funds existing at the close of its 2024 fiscal year. During the effective period of the Deficit Financing Act, the Fiscal Affairs Officer must submit the proposed budget for the next succeeding fiscal year to the State Comptroller no later than 30 days before the date scheduled for the City Council’s vote on the adoption of the final budget or the last date on which the budget may be finally adopted, whichever is earlier. The City Council (Council), no later than five days prior to the adoption of the budget, must review all recommendations made by the State Comptroller and must make adjustments to its budget consistent with the recommendations contained in this report.
Key Findings
- The lack of complete, accurate, and current accounting and financial records significantly limited our review and precluded us from determining the reasonableness of all of the City’s significant revenue and expenditure projections. The City’s most recent Annual Financial Report was submitted to the Office of the State Comptroller for the 2023 fiscal year; the 2024 Annual Financial Report was due April 30, 2025.
- The most recent available independent audited financial statements were finalized for 2024 in October 2025. The external auditor’s findings reported in the 2022, 2023 and 2024 financial statements further support our position that the City’s accounting records are not reliable or up to date. They also acknowledge the rapid deterioration of the City’s finances and report that officials do not have the ability to effectively monitor the City’s cash position or results of operations, making financial planning and budgeting incredibly difficult.
- The City’s most recently completed audited financial statements reported that as of December 31, 2024, unassigned fund balance in the general, water, wastewater, refuse and boardwalk funds were ($11.6 million), ($2.5 million), ($1.1 million), ($109,232) and ($11,970), respectively. The City’s financial condition continued to decline during the current year because the 2025 adopted budget was not structurally balanced and due to a large unbudgeted $1.8 million payment for the purchase of two pumper trucks.
- Each year, the City receives about $1.6 million per month of revenue in the first three months of the year, but spends an average of $2.4 million per month. In addition to the City’s regular monthly operating expenditures, City officials plan to pay its current NYSLRS bill which totaled more than $2.7 million in February 2026. Therefore, we estimate that the $5 million remaining cash balance at December 31, 2025 plus the additional $4.8 million in revenues received in the first three months of 2026 will not be sufficient to pay for the City’s monthly operating expenditures and the current NYSLRS bill. Without deficit financing, as authorized by the Deficit Financing Act, we estimate that the City will experience cash flow issues beginning in March 2026. Furthermore, at the time of our review, the City was delinquent in paying its past NYSLRS bills and owed more than $5 million to the NYSLRS. The 2026 proposed budget does not provide for repaying the NYSLRS and the Mayor told us that she intends to issue deficit financing as authorized by the Deficit Financing Act to satisfy each of these liabilities.
- With fund balance depleted, the City has limited options available to fund any increases in operating costs. City officials were not planning to increase water or wastewater rates to address the deficits in the water and wastewater funds. The 2026 budget includes a proposed tax levy increase of $198,675 (2 percent) which will exhaust 86.37 percent of the City’s constitutional tax limit. As a result, the City’s ability to raise taxes going forward will be severely limited.
Key Recommendations
- Make updating and correcting the City’s accounting records a priority and ensure records are updated as soon as possible so the Council has appropriate financial information to monitor the City’s finances and make informed decisions.
- Prior to adopting the 2026 budget, ensure the budget is structurally balanced and includes realistic estimates and sufficient recurring revenues to fund recurring expenditures in all funds.
- Closely monitor the City’s finances, especially the available cash balance, to ensure the City can continue to provide services and fund its operations.