Years of deficit spending and failure to approve a $2.1 million borrowing proposal to fund employee-leave obligation payments triggered a negative outlook for a cash-strapped city on Long Island.

Moody’s Investors Service revised its outlook for Long Beach, New York, to negative from stable while affirming its Baa1 rating Friday, after the city council didn't pass a $2.1 million bond measure that would have funded owed worker separation payments for unused vacation and sick days. The bond plan rejection prompted city officials to warn of layoffs and cuts to services like bus routes.

Long Beach New York in 2013, in the aftermath of Hurricane Sandy.
Long Beach, New York, in 2013, in the aftermath of Hurricane Sandy.

“In reviewing the city's cash flow statements, liquidity is going to get extremely narrow through the end of the year absent a planned borrowing in June,” said Moody’s analyst Robert Weber in report. “The negative outlook reflects the liquidity challenges the city will have in the near-term following years of operating deficits and City Council's failure to approve budgeted borrowing to pay for operating expenses.”

The Long Beach City Council adopted a budget last year that included plans for $1.6 million of bonding to cover employee separation employee payments and accrued time owed to retirees. When a higher amount was needed for the separation pay before the current fiscal year expires June 30, two city council members voted against the $2.1 million borrowing proposal. Bond measures in Long Beach require yes votes from four of five city council members.

“Unfortunately, Moody’s identified the City Council’s failure to pass the previously budgeted bond as the cause of a modification from a stable outlook to a negative outlook,” city spokesman Gordon Tepper said in a statement. “As we continue in our long-term fiscal recovery, we remain sensitive to the concerns outlined by Moody's, particularly those relating to the need to fund previously budgeted expenses.”

Long Beach officials have proposed a $95 million budget for the 2019 fiscal year that commences July 1, which would hike property taxes by 12.3%. The spending plan would also increase debt service by $696,032 to help fund recent capital improvements.

Long Beach was hit with a five-notch downgrade by Moody’s in 2011 while it was on the verge of bankruptcy. The seaside city, which has a year-long population of 33,407, received two one-notch upgrades from Moody’s in 2015 and 2016 after issuing deficit reduction bonds in the 2014 fiscal year. It has also tackled a major infrastructure rebuild after getting slammed by Hurricane Sandy in 2012.

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