Long Beach, N.Y., stung by a recent five-notch downgrade by Moody’s Investors Service and an independent audit that cited improper budgetary practices, has declared a fiscal emergency.
Tuesday night’s 5-to-0 vote gives city manager Jack Schnirman power to curb and veto spending items, even those already passed as part of a $60 million budget. Schnirman took office in January, succeeding Charles Theofan.
Long Beach, a 33,000-population beachfront community in Nassau County adjacent to New York City’s Queens borough on the south shore of Long Island, owes $48.3 million of general obligation debt.
“The Moody’s report sent a tremendous shock to our system and the audit report is sobering,” Schnirman said in an interview Wednesday.
According to Schnirman, the city’s general fund balance has dwindled to about $107,000 as of last June 30 from $7.45 million in 2008.
Overtime costs, including those related to Hurricane Irene in August, have hit the city hard. In addition, Long Beach last fall made a $500,000 lump-sum payout to retiring police commissioner Thomas Sofield Sr.
Schnirman said the city has begun to rein in overtime costs, which have risen $900,000, or 66%, since 2006. He said Long Beach in its Feb. 3 payroll spent 46% less than the average overtime paid out in the previous seven payrolls.
In December, the city had to sell $1.5 million of budget notes and $1.75 million of tax anticipation notes to make payroll. Capital One Bank purchased both at rates of 0.63% and 0.77%, respectively. Long Beach issued no GO debt in fiscal 2011.
Moody’s in late December lowered the city’s GO bond rating five notches to Baa3 from A1, and placed the rating on review for possible withdrawal. The rating agency cited “severe negative discrepancies” between revenue estimates and expenses, which the auditing firm discussed at Tuesday’s meeting.
Scott Oling, a partner at auditor O’Connor Davies Munns & Dobbins LLP, briefed the council Tuesday night. Schnirman said that the public session and the posting of the report on the city’s website enhanced transparency.
“Several key revenue sources were substantially overestimated compared [with] actual amounts earned,” O’Connor Davies said in the report.
Schnirman, formerly a vice president at Bowne Management Systems Inc. and chief deputy supervisor in Suffolk County’s Brookhaven, N.Y., said the first step for the city is for new comptroller Jeffrey Nogid to spend the next several weeks looking for “real cash projections so we can know the depths of our deficit.”
Corrective action, Schnirman said, will include long-range financial planning and a new budget for Moody’s to review by late March or early April. The agency has threatened to withdraw its rating unless it sees improvement.
“They’ve been reasonable,” Schnirman said of Moody’s. “They understand there’s a new administration and they’re willing to give us time to come up with a new alternative plan.”
O’Connor Davies also found that the city’s debt service fund was over-expended due to a transfer of $1.7 million. The incoming transfer was budgeted in the general fund but the outgoing transfer was not budgeted in the debt service fund. The firm also noted that $465,492 of scheduled lease payments were not included in the 2010-11 adopted budget, and that Long Beach stopped tracking capital asset activity throughout the year.
The firm also chided city officials for what it considered insufficient accountability, noting several instances in which claims lacked purchase orders attached to the supporting documentation, and several purchase orders that were post-dated. The report also said four separate bank accounts pertaining to the police department had reconciling items that were not investigations.
The audit recommended procedures to curb cost overruns, a long-term financial plan, and maintenance of capital asset records.
The city and the Federal Emergency Management Agency are still tallying Irene-related costs, Schnirman said. The storm prompted the city and organizers of the Quiksilver Pro New York surf competition to cancel a revenue-producing festival portion of the event.
“It’s not a huge town, so their problems are manageable,” said workout specialist Bill Brandt, president and chief executive of consulting firm Development Specialists Inc. and chairman of the Illinois Finance Authority. “What they’ve done is allow their city manager to come up with a solution that makes sense.”
