Saying it is almost $500 million in debt, the Long Beach City Council voted unanimously at a special meeting Tuesday night to hire two firms with deep experience in financial restructuring to figure out how to get Long Beach to re-pay its obligations and start on a healthy fiscal future.
The council voted to hire M3 Partners and O'Melveny & Myers, both of New York. The firms are to begin work immediately. Gayden said that the city hopes that State Sen. Todd Kaminsky, a Long Beach Democrat, will help secure some state funding to help pay the costs of the firms.
Kaminsky said he will be talking to the state Financial Restructuring Board about securing funds to help Long Beach pay the firms. He was joined in support of the city’s plan by U.S. Rep. Kathleen Rice (D-Garden City), Nassau County Legis. Denise Ford (R-Long Beach), and Melissa Miller (R-Atlantic Beach.)
The two firms have deep experience in financial restructuring. Moshsin Meghji, M3 Partner’s managing partner, served as chief restructuring officer when the giant retailer Sears filed for bankruptcy in 2018.
Gayden said the restructuring project will not involve layoffs or changes in city services. It will deal solely, she said with the city’s long-term obligations and how to get them paid.
Questions arose from viewers about the possibility of the city declaring bankruptcy. Gayden said there was no such plan.
Meghji said, “It is an option of last resort. Any headlines about bankruptcy are premature, and probably wrong.
“Simply put, Long Beach is operating an annual budget that carries extreme negative/positive swings in operating fund balances, with holes often plugged by borrowing money, and this is unsustainable,” said Gayden. “But even worse we face total prospective financial obligations that likely exceed $460 million, an enormous amount. We cannot go on with the status quo. The appointment of these firms will begin the process of confronting the City’s challenges.”
O’Melveny & Myers has been around since 1885. Former U.S. Secretary of State Warren Christopher once served as its chairman, and Arthur B. Culvahouse, Jr., who served at the firm's Washington, D.C. office, was White House Counsel during the Reagan Administration. The firm also defended Donald Trump against a lawsuit over Trump University. That case resulted in a $25 million settlement for plaintiffs.
Gayden said she was hired to present the city with a balanced budget, which she did last year. The budgeted include a 1.8 percent tax increase, the smallest in years. She noted she also developed a five-year financial plan for the city going forward.
But, she said, the two firms were hired to help Long Beach develop long-term budget projections, along with the city, “to provide visibility on the severity of fiscal issues.” Additionally, the firms are tasked with assisting the city in executing a restructuring plan.
“We do restructuring work with cities,” said Meghji. “We have been working with Donna and the city for the last few weeks.” He said also that the two firms are “getting our arms around long-term, liabilities exacerbated” by the Haberman” case.
In January, State Supreme Court Justice Jack Libert, sitting in Mineola, found Long Beach liable for $131 million in damages in a case that goes back 31 years, brought by a Manhattan developer Sinclair Haberman after the city revoked a building permit for a luxury condo project. But the city reached a settlement in the case, knocking $20.5 million off whatever final figure is agreed upon that Long Beach must pay.
The Haberman family bought the vacant “superblock” property from the city in the 1980s but its plan for high-rise residential towers fell through, so it remained vacant The city is still dealing with a lawsuit from the Haberman family over that failed project.
The city has settled a suit filed by iStar, which had proposed luxury apartments for the six-acre site. But the Nassau County Industrial Development Agency denied the request and iStar sued the city for failing to support its bid. The settlement includes a sale of the Superblock property to developer Engel Burman, which plans to build a 438-unit mixed-use complex. The city will credit Engel Burman $2.5 million for fees already paid to the city, and the developer will complete $3 million worth of infrastructure improvement.
In addition to the Haberman case, the city’s obligations also include $128 million of bond debt and $139 million in employment benefits liabilities. The city says it has about $460 million overall in such obligations. The city’s financial statements of 2019 show that Long Beach has about $62 million a year in liabilities, making a restructuring plan a necessity.
Maria J. DiConza, a partner at O'Melveny & Myer, said “What we are doing is bringing an objective and holistic approach to Long Beach’s financial problems. Our job is to look at what the options are.”