Mayor Paul Dyster’s proposed 2009 operating budget represents an increase in overall spending of more than $3 million but maintains stable tax rates for home and business owners thanks in large part to a shot of surplus state aid.

During a special meeting Wednesday at City Hall, Dyster presented his first budget as mayor, an $80.2 million plan that includes an increase in spending from 2008 of $3.69 million, or about 5 percent. The spending plan includes $3 million in revenue from a surplus fund of aid allocated to the city by the state for tax stabilization purposes. As a result, the tax levy, or the amount to be raised through property taxes, remains at its 2008 level of $27.3 million. In keeping with directions from the City Council, Dyster’s budget includes a 10 percent adjustment in equalization for the city’s homestead and non-homestead tax rates. Under the mayor’s proposal, homeowners would pay $16.89 per $1,000 of assessed value, an increase of 0.01 percent from 2008, and business owners would see a slight tax increase to $32.92, up 0.005 percent from this year.

Dyster told council members that while he’s pleased to be able to present a budget that does not increase the tax levy, he’s also concerned about how financial uncertainties at the state and national level will impact the city and its taxpayers in 2010 and beyond.

“The presentation of this budget comes at a time of tremendous turmoil in the national and state economies — a stressful situation that has impacted our finances in significant ways,” Dyster said. “In spite of this, I am happy to report that we have been able to balance the budget without increasing the tax levy. The nature of the times demand nothing less. At the same time, I cannot help but caution that what we are now experiencing may be the calm before the storm.”

For the second time in two years, the city’s tentative budget calls for a sizeable shot of revenue from a surplus fund of state aid known as Aid Incentives to Municipalities, or AIM. Last year, former Mayor Vince Anello used $3 million of what was then a $5.7 million surplus in AIM aid to offset spending hikes and, consequently, allow for a slight decrease in the tax levy. Dyster’s 2009 spending plan relies on another $3 million shot in AIM funding to be drawn down from the city’s 2008 AIM balance of $5.99 million. For 2009, Dyster said the fund balance is projected to be $3.7 million.

Brown said dipping into AIM money again this year, while acceptable, is a practice the city cannot afford to continue year after year. While an AIM funding proposal endorsed by former Gov. Eliot Spitzer projected four straight years of aid increases for Niagara Falls, Brown cautioned that, given the uncertainties in the state’s economy, there are no guarantees the city’s level of aid will be maintained moving forward. Continued use of surplus funds inevitably leads to the depletion of those funds, Brown said. Without increased revenue or new revenue streams beyond 2009, Brown said city leaders should expect to face the unpleasant choice of having to make potentially painful cuts in spending or equally unpleasant increases in property tax rates.

“You are going to have to begin to make some tough decisions,” she said.

Dyster said the proposed increase in spending is almost exclusively the result of non-discretionary expenses, saying all other costs were reduced or frozen at 2008 levels.

“Wherever it was possible to eliminate vacant positions, the sacrifice has been made,” he said.

Dyster said a number of economic uncertainties played a role in the framing of his tentative spending plan, including rising costs for fuel and employee health care, contractual raises for employees and expenses related to the construction of the new public safety building. In addition, Dyster said, the city’s revenue stream was impacted by a state change in the special franchise assessment program, which resulted in a requirement that forced the city to write off more than $10.4 million in assessed valuation, or 2.6 percent of the total value, on utility companies and several other non-homestead taxable properties.

Dyster noted that there are also several factors working in the city’s favor moving forward, including a strong Canadian dollar which bodes well for future sales tax receipts, a relatively stable local real estate market and the promise of new investments downtown and in the city’s industrial sector.

“The good news is that in spite of the many shocks to the state and national economy, the overall economic outlook here in Niagara Falls is bright,” Dyster said.

Dyster said his administration will continue to use casino revenues for equipment purchases and to rebuild streets, sidewalks and address other critical infrastructure needs. He said the city also will use funding from the Niagara River Greenway to support the development of waterfront parks, trails and heritage tourism sites.

“If we have the discipline and dedication to stick to the future we have envisioned for ourselves, better days do indeed lie ahead,” Dyster said.

City Council Chairman Sam Fruscione said he was pleased Dyster presented a plan that does not add to the tax burden already endured by property owners in the city.

“We, as City Council members, don’t like paying high taxes and we know the people in Niagara Falls don’t like paying high taxes either,” Fruscione said.

Council members will take a few days to review the mayor’s proposed budget before holding a series of budget meetings of their own. The first budget hearing will feature is scheduled to begin at 4 p.m. Wednesday and will include presentations from police Superintendent John Chella and Fire Chief William MacKay. By law, the council must return the budget with any changes to the mayor by Dec. 1. After the council returns its revised budget, the mayor has 10 days to veto any of the changes. Council members have the final power to override any of the mayor’s vetoes before the budget is formally adopted by Dec. 15.