Moody’s Investors Service recently revised Long Beach’s credit outlook from positive to stable, and while the city’s credit rating — a financial score that impacts the ability to borrow money — remains unchanged, the agency said it’s unlikely to get an upgrade anytime soon.
In a report issued in February, Moody’s said that the city faces a number of financial challenges including structurally imbalanced budgets, an above average debt burden and pending reimbursements from the Federal Emergency Management Agency for Hurricane Sandy.
Moody’s maintained the city’s Baa1 credit rating — one of the lowest investment grades — but changed its outlook, saying that while “reserves and liquidity will remain healthy,” the city is challenged by structurally imbalanced budgets.
Moody’s also said that the city continues to issue debt to pay operating expenses, and that planned borrowing is expected to keep the city’s debt burden above average compared to similar municipalities on Long Island, with total long-term, outstanding debt increasing to $92.2 million.
“The outlook indicates the potential direction of the rating,” said Moody’s spokesman David Jacobson. “While a positive outlook means the city could’ve been upgraded, the stable outlook means the rating is where it should be … for the next 12 to 24 months.”
The report comes as the city administration prepares for budget talks at the May 1 and 15 City Council meetings for the 2018-19 fiscal year, which begins July 1.
Moody’s cited credit positive areas such as the city’s growing tax base, improved housing prices and “modest” new development; “healthy” and improved reserves and liquidity following the issuance of deficit reduction bonds in 2014; and increased oversight by the state comptroller’s office.
Additionally, Moody’s said that the city continues to actively manage pension and benefit costs, as well as costs associated with Sandy.
“We are pleased that Moody's has reaffirmed our credit rating and that our borrowing costs are expected to remain stable,” the city said in a statement. “As we continue in our long-term fiscal recovery, we remain sensitive to the concerns outlined by Moody's.”
Moody’s issued its report less than a month before state Comptroller Tom DiNapoli’s office State Comptroller Tom DiNapoli’s office moved the city’s level of fiscal stress from the "moderate" to “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.
Officials said that pending reimbursements from FEMA and state for costs associated with Sandy affected the state comptroller’s rating.
Still, DiNapoli’s report sparked concern among residents amid a rumored 20 to 30 percent tax increase, and planned borrowing and fee increases. At Tuesday’s meeting, the council was expected to hold a public hearing to discuss a proposed $2.1 million bond measure to finance separation payments owed to city employees as part of an early-retirement incentive.
“The fiscal 2018 budget included $1.6 million to fund separation pay for employees that left the city,” Moody’s said of the planned borrowing measure in its report. “Management now projects that it will need at least $2.1 million to cover separation pay. Implementing structurally balanced budgets and stabilizing reserves will be key factors in future assessments of the city's credit profile.”
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 to a step above junk bond status, the Democratic administration had touted steps the administration had taken to improve the city’s finances, including a replenished reserve fund and six consecutive balanced budgets, as well as bond upgrades and positive credit actions by Moody’s.
After the city approved a $93.5 million budget last year, the city said that it used a portion of its $9.4 million surplus to pay for the annual debt service following the issuance of $12 million in deficit reduction bonds in 2014, which maintained the city’s fund balance “in a responsible manner and allowed us to lower the adopted tax levy and generate a savings for the third year in a row.”
Moody’s, however, said that while the city’s reserves are healthy, they have been on the decline, and in order to receive an upgrade, the city needs to further improve its reserves and liquidity.
Moody’s also said that recent spending plans have been structurally imbalanced, and that in addition to appropriating reserves in 2018, “management continues to issue debt to pay operating expenses.”
“The city will remain challenged in the near-term given structurally imbalanced budgets and declining reserves,” Moody’s said, adding that the agency would also monitor the city’s ability to navigate through management turnover following the departure of former City Manager Jack Schnirman — who was elected Nassau County comptroller in November — and former city comptroller Kristie Hansen-Hightower last year.
Many residents say that the days of blaming the previous administration for the city’s problems are over.
“They say they’re digging out of the mess left over from the previous administration and I just don’t buy that,” said Long Beach resident John Ashmead. "One administration passes the buck to the next administration. They’ve increased taxes and fees, and keep borrowing to pay operational expenses. You’re supposed to borrow money really for capital improvements or if something big or unexpected happens.”