Community Corner

City Council Nixes 'Fiscal Crisis' Designation

Vote comes days after Moody's ups Long Beach's outlook.

Nearly nineteen months and a crippling storm later, the Long Beach City Council voted to remove a “fiscal crisis” designation the municipality declared after uncovering a substantial budget deficit in 2012.

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Tuesday’s unanimous vote came just days after Moody’s Investors Service, the Manhattan-based ratings agency, affirmed the city’s outlook from “negative” to “stable” on the city’s bonds and credited the Democrat administration for implementing new financial controls last year.

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According to the Moody’s report, the city reduced expenditures by $1.7 million, including overtime costs that the agency identified as a significant driver of the city’s financial woes, since the “fiscal crisis” designation was declared Feb. 7, 2012.

At Tuesday’s meeting, City Manager Jack Schnirman said that Moody’s was triggered to review the city’s $42 million outstanding debt after the City Council on Aug. 20 approved a $38.1 million short-term borrowing plan for expenses tied to the city’s recovery from Hurricane Sandy, as the municipality awaits reimbursements from the Federal Emergency Management Agency to cover costs to repair storm-damaged public infrastructure and facilities. Schnirman called removing the fiscal crisis designation “a huge step forward in our fiscal recovery.”

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In December 2011, a month after Republicans lost majority control of the council to the Democrats in an election, Moody’s downgraded the city’s rating to one step above junk-bond status, after uncovering what would later amount to a $10 million budget deficit.

In February 2012, the Democrat-led council declared a fiscal crisis, giving the new city manager greater powers over the city’s budgeting practices. On Tuesday, Schnirman said that, as directed by the crisis designation, he implemented and achieved spending control and personnel savings policies and procedures.

“And as a result, the city council did pass balanced budgets for the 2012-13 and 2013-14 fiscal years,” he added. “As such, it is now appropriate to remove the fiscal crisis designation and enter a long-term recovery phase and put forth a long-term recovery plan.”

Before casting his vote Tuesday, John McLaughlin, the lone Republican on the five-seat council, noted that while the city’s financial outlook has changed, its bond rating has remained the same. Schnirman said the upgraded outlook nevertheless sends a statement to bond investors “about how strong an investment we [the city] are,” and noted that the outlook would save the city about a quarter-of-one-percent on interest when the city borrows again.

McLaughlin also questioned if it was prudent for the city to remove the crisis designation at this time, when the city still awaits word from FEMA on reimbursement payments. The councilman, who has opted not to run for reelection in November, called the outstanding payments a “sword that’s hanging over [the city’s] head,” and estimated that FEMA will probably have to reimbursement the city “well over $100,000 million,” in which case the city would be responsible for covering $5 million of the costs.

Schnirman replied, in part, by saying that the city’s long-term plan will take into account all of the concerns McLaughlin cited. “Not only does Moody’s takes them into account, but we certainly them into account,” he said.

In July, New York State Comptroller Thomas DiNapoli released the findings of a state audit, spanning the years 2008 to 2012, which stated that the former Republican administration created an $18 million deficit and spent $21 million in surplus during that time.  

Meanwhile, with three council seats up for election in November, Long Beach Republicans have dismissed the move to remove the fiscal crisis designation as a hollow election-year gesture. Jim Hennessy, a Republican spokesman, said the Democrat administration has relied too heavily on borrowing measures to correct the city’s financial problems that include $42 million in outstanding debt, according to Newsday. Hennessy, who believes the city faces a “serious taxpayer crisis,” said:

"This administration is not fooling anyone with their smoke-and-mirror public relations.”


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