Calls for a criminal investigation into the prior administration’s financial reports surrounded the Long Beach City Council’s unanimous vote to pass a resolution officially declaring a fiscal emergency at Tuesday’s meeting at City Hall.
An independent auditor, Scott Oling, a partner at the accounting firm O'Connor Davies Munns & Dobbins that was hired by the prior Republican administration, first briefed the council on the fiscal budget ending on June 30, 2011, in which he highlighted overspending in various departments, primarily the police and fire departments, and underfunding in the water fund and sewer fund, among others. Along with subsequent borrowing, Oling said, these practices contributed to depletion in the reserve fund from $7.4 million in 2008 to $107,000 on June 30, 2011.
“As it stands here, in June 2011, when you take that $2.2 million in total fund balance for the general fund and you set aside $1.1 million to cover the deficits in water and sewer, and $932,000 that was used to balance the current budget that you’re in, that gives you a total fund balance of only $107,000,” Oling explained.
The auditor's report also confirmed that, as of last June, the city owes $48 million in general obligation debt, and Oling projected that, come June 2012, “most likely the general fund will be in a deficit along with the water and sewer funds.”
City Manager Jack Schnirman indicated that it remains too early to say exactly what measures the city will adopt to correct the city’s budgetary woes, among which are possible layoffs, increased taxes, reduced services and spending cuts. “We’re not going to have a corrective action plan immediately,” Schnirman said, adding that other actions must be taken first.
On Dec. 20, Moody’s Investor Services downgraded the city’s A1 bond rating to Baa3, and the ratings agency will reevaluate the city’s financial standing in 90 to 120 days from that date. Schnirman said Moody’s has put Long Beach on a negative watch list during this time, and if the city fails to take substantive steps toward stabilizing its finances, the agency could further downgrade the city’s credit rating.
“We want to make it extremely clear to all of us here that the city misrepresented its financial numbers and information,” said Schnirman, echoing what he said was Moody’s assessment of the previous administration’s financial reports.
Moody’s stated that the most recent information the prior administration gave to them, Schnirman continued, “was extremely different than the information they were given beforehand, and they felt that the city had misrepresented its financial information.”
Councilman Scott Mandel, as well as some residents, asked whether a criminal investigation into the prior administration’s financial practices might be initiated. Corey Klein, the city’s attorney, said that with the direction of the city manager, the city could present the relevant information to the Nassau County District Attorneys Office and even the FBI and ask that they consider an investigation.
Neither former Council President Thomas Sofield Jr., nor former City Manager Charles Theofan attended Tuesday’s meeting. Theofan had reportedly defended his administration’s financial management and said the impact of the national recession was finally catching up to Long Beach
Moody’s downgrade came after the city announced a cash-flow shortfall in November, when former City Comptroller Sandra Clarson notified Theofan that the city faced a $1.3 million deficit at the end of 2011, threatening the year-end payroll. At Clarson’s recommendation the City Council approved a proposal to borrow $4.5 million, in part to cover a payroll shortfall in December and to payout contractual obligation for retirees, using anticipation and budget notes.
The new Democrat-majority City Council tabled the resolution to declare a fiscal emergency at the Jan. 17 meeting, in part to await the auditor’s report that was released Monday, and in order to clarify language that gives the city manager more authority to control and veto spending items, including items in the current budget. Schnirman pointed out that the rewritten resolution calls for the City Council to approve measures he proposes and that this expansion of authority will terminate on June 30, 2012.
The next City Council meeting is on Feb. 21.