Long Beach’s reserve fund in a precarious state

In May, City Manager Charles Theofan said that the $83.9 million 2011-12 budget would utilize roughly $1 million of the city’s reserve fund to avert a tax levy increase, reducing the fund’s balance from $3.8 million to $2.87 million.

At the Nov. 30 City Council meeting, residents asked why the city wouldn’t use money in its reserves to meet its payout obligations for outgoing police officials and other retirees, which may cost the city upward of $2.5 million. “If you can use the surplus fund to pay down deficits so you can claim that you don’t have to raise taxes,” resident Mitchell Sahn said, “there’s no reason that you can’t use these funds to pay down, or serve as a bridge loan, for the next month.”

Theofan and City Council President Tom Sofield Jr. said that the $2.87 million that would be left in the reserve fund could not be used for unbudgeted retiree payouts. Theofan added that an independent auditor is evaluating the city’s finances for the last fiscal year, and that there would “probably be a deficit.” Comptroller Sandra Clarson explained that the surplus would have to cover any deficit from the last fiscal year, and is not considered “cash on hand.”

“If our auditors deem that there is a deficit, we would have to take that money,” Clarson said, adding that the report is due this month. “So right now, that money is sitting there … it’s a fund balance, not cash on hand. Until we know what those number are, we can’t allocate, we can’t spend.”

Prior to the meeting, City Councilman Mike Fagen, citing biweekly expenditure and revenue reports, said that the city is currently running a deficit of nearly $3 million. Just six months into the 2011-12 fiscal year, he said, six departments have reached or exceeded their budgeted overtime. Police overtime, according to a Nov. 23 report, has already cost the city $742,182, just below its budget for the year of $750,000.

Fagen told the council on Nov. 30 that based on his discussion with the auditor, the city’s reserve fund has been wiped out. “The shortfall for the fiscal year that just passed will be close to $3 million, which is why we’re here today in such bad financial shape,” Fagen said.