Long Beach, N.Y., Tax Increase a Credit Positive

Moody’s Investors Service said the approved property tax increase for the city of Long Beach, N.Y., is a credit positive.

“The property tax increase reflects positively on city management, demonstrating their willingness and ability to improve its financial operations,” analyst Robert Weber wrote in a report.

Long Beach, rated Baa3 with a negative outlook, declared a fiscal crisis in January last year and had accumulated an estimated $10.25 million deficit as of March 2011.

The Long Island city’s original plan to address the deficit was to issue $15 million of deficit bonds, but the state legislature did not approve the issue in June.

In lieu of the $15 million of deficit bonds, the city council on Sept. 19 approved a property tax increase that will raise $1.9 million annually toward narrowing the city’s accumulated deficit.

The extra tax will be instituted over the next three fiscal years unless the state approves deficit reduction bonds during that period.

“Nonetheless, with the new tax in place, the city will still have to issue short-term notes to bridge its cash flow over the three-year period,” Weber said. The city has issued multiple series of cash flow notes in the past six months in order to pay essential operating expenses, including payroll.

City officials call the tax a “temporary surcharge” to pay off the deficit, saying it is not a permanent increase and that the state legislature could still approve the deficit financing in the future.

The temporary surcharge will constitute an additional $183 per household a year for three years. According to officials, this amount could have been $243 or more if management had not taken measures to cut down the deficit, including reduction of department spending, personal reductions, and negotiations for labor savings.