Hurricane Sandy has added to the financial strain of the already struggling city of Long Beach, N.Y., Moody’s Investors Service said in a report on Tuesday.

The city, which declared a state of fiscal emergency early this year, had accumulated a $10.25 million deficit and could now face up to $25 million in storm-related costs.

Moody’s has not changed its Baa3 rating and negative outlook, which makes Long Beach one of the lowest-rated issuers in the zones declared disaster areas, but the agency said it would continue to monitor the situation.

“The city of Long Beach suffered significant disruption as a result of the storm, including the evacuation of a significant portion of its year-round population of 33,275, and considerable damage to public infrastructure,” analysts said.

Going forward, key drivers of the city’s credit quality will include the extent and pace of federal and state funding, the degree of disruption in taxes and revenue streams, market access for short-term notes, and the city management’s ability to continue on the path of fiscal recovery.

Long Beach’s management, led by city manager Jack Schnirman since January this year, is currently assessing the extent of damage and projects repair costs to be $200 million.

“We will have to rebuild and as we do so, we will do it stronger, smarter, and safer,” Schnirman said at Long Beach’s first City Council meeting since the storm on Tuesday.

At the meeting, the council affirmed the city’s declaration of a state of emergency, made before the storm. The coastal Long Island city is expected to be reimbursed for at least 75% of storm-related costs by the Federal Emergency Management Agency and at least one-half of the remaining reconstruction costs by New York State.

That figure would leave the city responsible for about $25 million, if the $200 million cost estimate is accurate.

“The city could finance these costs with long-term debt, which would not materially increase its debt burden,” Moody’s said. “Given the extremity of the damage sustained by the city, it is possible that FEMA and-or the state will reimburse a higher share of the costs, leaving the city with little to no long-term financial impact.”

Long Beach has been working with FEMA officials to expedite reimbursements, given its liquidity constraints in the face of near-term storm costs. If FEMA does not provide timely reimbursements, city officials are preparing to issue revenue anticipation notes of up to $20 million before the end of 2012.

City management has indicated to Moody’s that is has sufficient liquidity to maintain its operations and to make an upcoming debt service payment in December.

Despite its credit strains, Long Beach has demonstrated access to the capital markets in the past year, though at relatively high interest rates.

In June, the city sold $5 million of eight-month tax anticipation notes at 2.5% with a 3.4% coupon.

“Given this trend, and the robust nature of the note market in New York overall, we anticipate that the city will continue to have market access for any [revenue anticipation notes] issued because of the storm,” analysts said.

In addition to recovery costs, Long Beach will also take a hit in its sales tax revenues. The city receives those revenues from Nassau County, which said recently that it could lose up to $30 million in sales tax due to the storm.

Going forward, Moody’s said it would keep an eye on the city’s liquidity and the timing and level of reimbursement from the state and federal agencies.

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