Budget challenges drag Long Beach, N.Y., closer to junk
Escalating deficits and dwindling reserves triggered a downgrade for Long Beach, New York, nine months after the city's liquidity crisis prompted Moody's Investors Service to assign a negative outlook.
Moody’s Investors Service lowered Long Beach’s credit rating one level to Baa2 from Baa1 Wednesday, citing structurally imbalanced operations the last two fiscal years. Moody’s also kept the seaside city on Long Island at a negative outlook after revising it from stable in May 2018, when Long Beach was in the midst of a cash crunch.
“The city will remain challenged in the near-term given structurally imbalanced budgets and declining reserves,” Moody’s analyst Robert Weber wrote in a Feb. 20 report. The negative outlook reflects the challenges the city faces in returning to a structurally balanced budget, one that does not rely on non-recurring revenues or expenses.”
Weber said Long Beach has been using reserves to balance its budget the last two years and is at risk of exhausting its fund balance by the end of the 2019 fiscal year on June 30. Long Beach was plagued by deficit woes in 2018 after the city council failed to pass a $2.1 million bond measure to fund employee-leave obligation payments. The city budgeted $1.9 million of bonding in its 2019 spending plan for retirement and separation pay to departed employees.
“The City faces significant challenges and recognizes the need to generate new, recurring revenue streams to support its staffing structure and related services,” said acting Long Beach City Manager Rob Agostisi, who assumed office on Feb. 6. “Locating those streams is absolutely critical in order to maintain all services along with the City’s long-term resiliency projects.”
Long Beach is slated to issue $1.9 million of bonds for separation payments this spring, which Weber noted will add to the city’s above average debt burden compared with other Long Island municipalities. The city has $26.6 million in outstanding bond anticipation notes and $17 million in authorized but unissued debt, primarily for capital projects after Superstorm Sandy struck in October 2012. The projects may be funded by either state or federal grants. The Long Beach City Council also voted in early February to refinance $1.2 million in bonds.
Long Beach, which is now just two steps above a junk rating, was on verge of bankruptcy back in 2011, prompting a five-notch downgrade by Moody’s. The city issued deficit reduction bonds in 2014 and a year later received two separate one-notch Moody’s upgrades. Weber said that since the 2014 borrowing, the city has annually drawn on reserves to balance its operations.
Moody’s projects Long Beach’s $5.6 billion tax base will continue growing as a result of renovation projects, improving housing prices and a new development projects. Weber said the city’s assessed value has grown to pre-Sandy levels, though it remains below pre-recession highs.
Long Beach is located about 35 miles east of Manhattan. The city has year-round population estimated at 33,407 that doubles during the summer months.