State Audit Blames Republicans for City’s Deficit

The City of Long Beach’s prior Republican administration poorly mismanaged the municipality’s finances, creating an $18 million multi-year deficit while depleting $21 million in rainy day funds, according to an audit report State Comptroller Thomas DiNapoli released last week.

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The audit states that in addition to the multi-year deficit and exhausted reserve funds, the prior administration enacted large, unaffordable payouts to retirees, and thousands of dollars in cash that is unaccounted for at the beach park, also contributed to the city’s fiscal crisis.

“By consistently adopting inaccurate budgets, the prior city administration created a significant deficit, depleted its surplus funds and went further into debt,” DiNapoli said in a public statement about the audit on July 11.

The audit, which covers the fiscal years 2008-09 through 2011-12, was conducted before Hurricane Sandy last October, at the request of the Democrat administration that took office in January 2012.

“As Long Beach continues to recover from the devastation caused by Superstorm Sandy, city officials must also battle to undo the long-term damage done to their budget,” DiNapoli stated. “It is encouraging that the current administration requested this audit to aid their efforts. Although Long Beach was facing financial strain before the storm, city officials’ pro-active approach will be necessary to address systemic budget problems and lead the city out of fiscal stress.”

Auditors found the prior administration enacted budgets that made “unrealistic estimates of revenues and expenditures,” the report states, which created the multi-year deficit and depleted surplus, resulting in its frequent reliance on inter-fund advances, budget notes, and long-term financing to fund operations.

As an example, the report states that revenues were overestimated by more than $12 million from 2008 to 2012, while during the same period actual expenditures exceeded budget appropriations by $2.8 million. The administration relied on its fund balance to offset deficits created by “unrealistic budgets,” and the surplus in its general, water and sewer funds declined from $6 million to a deficit of $14.8 million. 

Another of the audit’s top findings is that the city under-estimated overtime salaries by $3.4 million and failed to plan for $4.2 million in separation payments for retiring employees, “ despite personnel records and contractual agreements indicating liabilities that would be incurred.” The State Legislature in July 2012 authorized the city to issue bonds to finance these payments over five years.

City officials agree with the audit’s findings and their responses are included in the audit report.

“As a new administration that came into office in January 2012, we had serious and significant concerns regarding the city’s internal controls and cash controls, particularly as they related to the summer season, our most economically critical time of the year,” said Long Beach City Manager Jack Schnirman.

“This audit validates and illuminates the areas of concerns we identified in the first few months of this administration in 2012,"he continued. "Clearly, the prior administration did not properly budget revenues and expenses, nor did they have adequate cash controls in place.”

But Republicans said that local governments were encouraged to use their rainy day funds in order to ease the tax burden on residents after the city incurred unexpected costs due to Tropical Storm Irene in 2011 and a few major snow storms, as well as during the nation’s financial crisis.

Jim Hennessy, a former city council president and a spokesman for Long Beach Republicans, told Newsday:

“We were encouraged to deplete the surplus, and there was public pressure to deplete the surplus, and the administration was trying to use the surplus so that there wouldn’t be a tax increase. I think people should have been cognizant of the spending, but they weren’t.”

Further, McLaughlin called DiNapoli’s public report on the audit “very selective” and a “political statement,” saying it failed to publicly address the current Democrat administration’s operations, including the auditors’ findings that the city had 97 outstanding checks dating back to 2010, including one for nearly $651,000, and that accounting records were inaccurate for more than four months in 2012, according to the Herald. Said McLaughlin:

“By holding back those checks, it artificially inflates the deficit, and then it also gives them a slush fund that wasn’t budgeted for a new year.”

But Schnirman said that the check in question was the result of a bank’s error and it had no impact on the city’s finances, and he dismissed the Republicans’ charges, telling the Herald:

“Any attempt to find a bunch of extraneous issues is a distraction; the key facts that have been confirmed in audit after audit are that the city spent more than it took in for a period of years and the audit illuminates that in painstaking detail.”

Meanwhile, DiNapoli offered the city a host of recommendations, including an immediate plan to reduce and eliminate its fund deficits, create a fund for future employee separation payments, and establish formal written policies and procedures for the collection of cash receipts.

Schnirman and other city officials said that they have already initiated many of the comptroller’s recommendations. Said City Council President Scott Mandel: “We have already taken the comptroller’s recommendations to heart and used them to help get the city back on the road to recovery.”