A little more than a month after the city declared a fiscal crisis, Long Beach has hit a $10.2 million deficit, a gap that City Manager Jack Schnirman said needs to be closed before the end of the current fiscal year in order to maintain city services and avoid a further credit-rating downgrade.
Schnirman said the city is in the red because the previous administration significantly overestimated its revenue projections but continued to overspend, was recently forced to dole out millions in unbudgeted termination payouts to retiring police officials and wiped out its $14.7 million “rainy day” reserve fund over a four-year period.
“Quite simply we have no reserves,” Schnirman said.
The estimated deficit represents more than 12.4 percent of the city’s current $83.6 million budget, a situation that Schnirman called “tremendous and devastating.”
Schnirman said that the city must balance the budget prior to the end of the fiscal year on June 30.
“If the deficit is not closed, we would lose access to the bond markets, our bond rating will go down to junk-bond status — we’re now one level above junk bond — and we’d be forced to cease many of the city’s critical functions,” Schnirman said.
Recently, Moody’s Investors Service — which downgraded the city’s credit rating from A1 to Baa3 in December — pointed out that the city’s independent auditor found that the previous administration had overestimated revenues from the 2008 fiscal year through the end of fiscal 2011, and underestimated expenditures while significantly overspending. As of June 30, 2011, the agency said, the city’s general fund balance had dropped from $7.4 million in 2008 to just over $100,000, a mere 0.2 percent of 2011-12 expenditures.
The deficit comes as Moody’s continues its review of the city’s finances and as city officials take steps to avoid a further downgrade.