City Council Approves $4.5 Million Borrowing Plan

The transition between administrations at the City of Long Beach has gotten off to a bitter start after the Long Beach City Council approved two resolutions to borrow a collective $4.5 million to cover a shortfall in the city’s payroll and retirement payouts at an emergency meeting Wednesday night.

While all five council members voted to authorize the city comptroller to take out a short-term $1.7 million tax anticipation note to make payroll by Christmas, Democrats Michael Fagen and Len Torres gave a thumbs down to a provision to seek short-term budget notes for $2.5 million to cover retirement payouts for three senior police officials that nevertheless passed by a 3-2 vote.   

Fagen and Torres – who earlier in the day tried unsuccessfully to prevent a vote on the budget notes by filing an injunction with the Nassau County Supreme Court – argued that they were not provided with the necessary information on the details of the payouts, and called for an auditor’s report before voting on the proposal.

Throughout the nearly two-hour meeting, Sofield and Theofan repeatedly noted, in the face of questions from council members and constituents alike, that the payouts to the police retirees — including a $500,000 lump sum payment to Commissioner Thomas Sofield Sr., the father of Council President Thomas Sofield Jr. — were contractual obligations based on accrued sick and vacation days over two or more decades, and must be paid within 60 days after notice of retirement.

After the vote, constituents in attendance shouted to Sofield Jr. that it was a conflict of interest for him to vote on his father’s retirement payout, a charge that he dismissed.

Most of the contentious talk during the meeting centered on the city's current financial state, how it got there and how officials are going to correct it.

In a Nov. 18 memo, City Comptroller Sandra Clarson notified City Manager Charles Theofan that the city faced a $1.3 million deficit at the end of the year, threatening the year-end payroll, and Clarson recommended that the city borrow money through the anticipation and budget notes that required approval by the council.

Theofan said the city’s shortage of cash-flow is the result of the cleanup after Tropical Storm Irene, including unexpected overtime costs, hired contractors and materials used that amounted to more than $1 million, as well as about $300,000 in taxes owed by a major property owner, reportedly the Allegria Hotel.

But the city expects to receive just under $18 million in real estate tax revenues in early January, as well as a $2.4 million reimbursement from the Federal Emergency Management Agency sometime between next March and May, all of which will return the city’s liquid assets to stability, Theofan said.

"So this is what we need to do so that we can meet our obligations to meet our payrolls for December until we get the tax revenue in January," Theofan said about taking out the tax anticipation note, which must be repaid by August 2012.

Fagen called Theofan's laying the blame on the storm an “excuse.”  

“After the hurricane you continued to hire people, and you continued to make grade changes and continued to spend as if we had plenty of money, yet at the same time back in May you were notified by the city comptroller that you had a cash-flow problem then,” Fagen said.  

Fagen maintains that the city continues to run a $3 million deficit, and he said that six departments are already at or beyond spending on their overtime lines, just six months into the 2011-2012 fiscal year.

Sofield denied Fagan’s characterizations that the city was operating at a deficit and that overtime spending is “out of control," which he said will be covered with the tax revenues that are due to arrived on January 1. 

“There is a shortfall, but that came about because of unanticipated issues,” Sofield said. “And we are correcting those tonight. And there is going to be additional tax monies that are going to come in, and we’re going to get the money from FEMA, and we’re going to be back on track.”

When questioned about the city’s finances moving forward, however, Clarson said it is possible that, within the next six months, the city could run a deficit.

“Just based on my cash flow analysis, we are possibly going to be at a deficit situation in May or June,” she said. “We'll know more as the months go by. I can’t really project how much revenue is going to come in."

This story was last updated at 6:53 a.m. on 12/1/11.