DiNapoli: Long Beach in ‘significant’ fiscal stress

City says pending Hurricane Sandy reimbursements hurt state rating

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A year after State Comptroller Tom DiNapoli said that the city had a moderate level of fiscal stress, the state last week said that Long Beach’s finances are in worse shape.

On March 22, the state put the city’s level of fiscal stress in the “significant” category, the highest level under DiNapoli’s Fiscal Stress Monitoring System, citing short-term borrowing, a deteriorating fund balance and increased operating deficits for fiscal 2017.

The state said that the monitoring system — meant to serve as an early warning to local governments to help head off fiscal problems that could lead to tax increases and service cuts — uses financial indicators, including year-end fund balances, short-term borrowing and patterns of operating deficits, and creates an overall fiscal stress score for a municipality: “significant” or “moderate” fiscal stress, “susceptible to fiscal stress” or “no designation.”

DiNapoli’s office evaluated 529 villages and 17 cities throughout the state, and found that 10 villages and two cities had some level of fiscal stress in 2017. The state said that Long Beach’s stress level had increased from 58.3 percent in 2016 to 80.8 in 2017.

“They scored points — which is bad — in pretty much every category,” said Brian Butry, a spokesman for DiNapoli’s office. “If you look, their operating deficit increased, they issued short-term debt again, and their fund balance is in worse shape, which is typically the main driver.”

The designation comes at a time when Long Beach is still searching for a new city manager, after former City Manager Jack Schnirman was elected county comptroller last year. The city is also seeking a new comptroller, after the departure of Kristie Hansen-Hightower last year.

“We are reviewing the rating and its criteria,” the city said in a statement. “It is our understanding that pending [Hurricane] Sandy reimbursements from New York State and [the Federal Emergency Management Agency] would have materially affected the rating. We expect to learn additional details in the coming weeks.”

City officials did not immediately respond to requests for further comment. Schnirman declined to comment.

Last spring, the state put the city back into the “moderate” category, the second-highest classification. In 2016, Long Beach had improved its score and was rated “no designation” based on the 2015 fiscal year, after being in the “moderate” category for 2014. However, Schnirman had said that in 2015, the city was bolstered by an influx of federal funding to help rebuild after Sandy, but emphasized that the infusion was not sustainable, and stressed the importance of the city's long-term recovery plan.

In the state’s latest review, the city’s total fund balance was $6.4 million, $1 million less than the previous year. Additionally, the state cited the city’s operating deficit in 2017, saying that gross revenues were $88 million, while gross expenditures totaled $89 million. The city also issued $17.4 million in short-term cash-flow debt, including a $6.8 million tax anticipation note to cover remaining costs associated with Sandy.

“From year to year, they continue to rely on [their] fund balance, which is a finite resource, to pay their bills,” Butry said. “Municipalities want to have recurring revenue match their recurring expenditures. It’s the continual reliance on this money to fund ongoing operations, and what it indicates is the city doesn’t have enough revenue coming in to meet its expenditures.”

“Based on the numbers that we’ve seen over the past few years, Long Beach is trending in the wrong direction,” Butry added. “It’s obviously something officials are aware of, but they need to take a more cautious approach to budgeting.”

He acknowledged the financial challenges after Sandy. “That obviously is going to put a municipality behind the eight-ball,” he said. “Their work isn’t done.”

Since 2012, when the city was on the verge of bankruptcy, with a $14.7 million deficit left over from the previous Republican administration and a downgraded bond rating, Democrats had touted steps the administration had taken to improve the city’s finances.

Last May, the City Council approved a $93.5 million budget for fiscal 2017-18, a spending plan that stayed below the state tax cap and included an average property tax increase of $56. City officials touted the spending plan — which DiNapoli’s office said was “reasonable” — as its sixth consecutive balanced budget. In October, officials said, the city had $9.4 million in its reserve fund.

Still, the city’s finances became a campaign issue among those running for council last year, and between Schnirman — who was endorsed by DiNapoli — and his Republican opponent, Steve Labriola, who said that the “moderate” category showed that Long Beach was in financial trouble.

Councilman John Bendo also questioned the city’s finances during his campaign. “I read with concern the state comptroller’s press release and supporting data identifying Long Beach as being under significant fiscal stress,” Bendo said in a statement on Monday. “Before I took office in January, I was vocal at City Council meetings for several years about the city’s financial practices, especially all the borrowing. As a new council member, it will be my job over the coming weeks to review and scrutinize the city’s budget. Issues that are identified will need to be addressed collaboratively between city leadership, the residents and the city’s workforce.”

In December, City Council President Anthony Eramo told the Herald that with FEMA funding coming to an end, the next city manager would have re-evaluate the city’s finances. “We’re still clawing are way back in our fiscal recovery,” Eramo said, “and now that the FEMA and Sandy money is completely dried up, we really have to take a hard look at the city finances again. … We’re sort of back now where we were before Sandy, where some tough decisions will have to be made.”