Further action on the credit standing of Long Beach, New York, which Moody’s Investors Service downgraded last week, could hinge on final resolution of a decades-old lawsuit by a developer.
Moody’s last week lowered to Baa3 from Baa2 the issuer rating and general obligation limited tax on the city, citing its “weak financial position combined with a potential significant increase in long-term liabilities that would further pressure the city's financial flexibility.”
The issuer rating, which is just above junk, is the same as the general obligation unlimited tax rating and there is no debt associated with the rating, Moody’s said affirming its negative outlook.
“Available reserves are currently negative but improved in fiscal 2020 and will likely improve again in fiscal 2021,” Moody’s said. “However, the fiscal 2022 budget is balanced by appropriating reserves and it's likely the city will need to use reserves.”
Long Beach, a barrier-island city off Long Island’s southern shore and adjacent to New York City’s Queens borough, has roughly $100 million of these bonds outstanding.
Nassau County Supreme Court Judge Jack Libert on Jan. 11 ruled the 33,450-population city was on the hook for $131 million of damages in a 31-year-old case that developer Sinclair Haberman of Haberman & Haberman brought after the city revoked a building permit for an oceanfront luxury condominium project.
The City Council in 2014 rejected a settlement the city attorney recommended.
The city is appealing the ruling. Moody’s said an unfavorable outcome could lead to a downgrade while noting that its negative outlook reflects Libert’s ruling.
“As announced in April, the city is working with a legal and financial team of outside professionals to coordinate a pragmatic response to the city’s long-term financial obligations," the city said in a statement issued through John McNally, executive assistant to City Manager Donna Gayden.
"The Haberman judgment remains under appeal; however, city representatives have established an ongoing dialogue with the plaintiff’s representatives. Analysis and recommendations for action is in process. In addition, the City Council believes the management team is expertly fulfilling its responsibilities for day-to-date financial oversight and continues to offer stable leadership to the city at this critical time."
State Comptroller Thomas DiNapoli categorized Long Beach as one of three cities in “significant fiscal stress” for fiscal 2020, along with Yonkers and Amsterdam in Westchester and Montgomery counties, respectively.
“These local communities were already struggling with fiscal stress before the pandemic hit,” DiNapoli said. “Some of that pressure could be alleviated with federal stimulus funds and the restoration of state aid, but the full extent of the pandemic’s impact on local communities is unclear and the fiscal landscape continues to change.
“Local officials should remain vigilant in monitoring their financial condition.”
The City Council last year appointed Gayden as city manager, the fourth person in the position since 2017. Gayden had been the interim finance director for Country Club Hills and Bradley, both in Illinois.
