Moody’s gives Long Beach a positive outlook

Agency's latest credit action cites improved financial controls

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Five years after Long Beach was on the brink of bankruptcy and its credit rating was downgraded to nearly junk bond status, Moody's Investors Service again issued a positive credit outlook for the city, citing the administration’s ongoing efforts to turn the city’s finances around.

“When our administration took office in January 2012, Long Beach was on the brink of bankruptcy due to an inherited fiscal crisis,” City Manager Jack Schnirman, a Democrat who is running for Nassau County comptroller this year, said in a statement. “We got to work right away, implementing a strict and responsible long-term fiscal recovery plan which has resulted in upgrade after upgrade, and we are thrilled to be rewarded by Moody’s with yet another positive credit action.”

The announcement by Moody’s, in a report issued on Feb. 3, marked the ninth consecutive positive credit action for Long Beach and came a year after the agency upgraded the city’s bond rating another notch, citing improved financial controls and a replenished reserve fund.

“The positive outlook also reflects our expectation that management will continue to build reserves over the near term,” Moody’s said in its report. “The outlook further reflects improved fiscal controls and policies implemented by the current management team. Future rating reviews will focus on the city's ability to adhere to its plan to achieve and maintain structural balance, restore reserves and to continue to demonstrate commitment to conservative budgeting practices.”

In 2013, Moody’s revised Long Beach’s credit rating outlook from negative to stable, which prompted the city to lift its declaration of a fiscal crisis, issued in February 2012, after it uncovered a multi-million-dollar deficit amassed by the previous administration.

Two months earlier, the rating had been downgraded an unprecedented five levels, from A1 to Baa3, just one step above junk bond status, which the agency said reflected the city’s deteriorating financial position since 2008 and its depletion of reserves. In 2015, the agency upgraded the city’s rating to Baa2 from Baa3.

Last year, Moody’s again upgraded the rating to Baa1, and gave the city a positive outlook on future bond upgrades. In its most recent report, the agency maintained the Baa1 rating on the city's $113 million of outstanding general obligation debt.

“The Baa1 rating reflects the city’s satisfactory financial position following the issuance of deficit reduction bonds in fiscal 2014,” wrote Moody’s, referring to a $12 million borrowing measure signed by Gov. Andrew Cuomo that year to help the city cover its deficit. “The rating also factors the city’s sizable and rebounding tax base with above average wealth levels and an elevated but manageable debt burden.”

Costs associated with Hurricane Sandy, which officials have said were $200 million, led to a number of borrowing measures. Moody’s, however, said that the city has received more than $90 million in reimbursements from the Federal Emergency Management Agency since the storm and anticipates that the remaining revenues will be reimbursed.

“Management continues to issue short-term cash flow notes in anticipation of FEMA reimbursements,” the agency wrote. “Although full FEMA reimbursement is expected, the city's liquidity would be severely strained should reimbursement not occur.”

Moody’s pointed out some areas of concern, saying that the city’s continued use of reserves could impact its financial position and that the outcome of ongoing litigation could increase the city’s debt burden.

Last year, the City Council approved a $90.1 million budget that included a 6 percent tax increase, two-thirds of which is being used to cover the remainder of a $20 million judgment the city was ordered to pay to two former owners of the Superblock property to settle a decades-old lawsuit.

The city is appealing another lawsuit after a Nassau County State Supreme Court judge granted a default judgment in 2015 to the development firm Sinclair Haberman, which is seeking to recoup $50 million in damages and profits it claims it lost after the city’s Zoning Board of Appeals revoked its permits to build three condominium buildings on Shore Road in 2003.

“While we still face a number of financial challenges, this positive outlook is another critical indicator of the hard-earned progress we continue to make,” Schnirman said.