N.Y.’s DiNapoli Audits Long Beach Amid City’s Fiscal Crisis

New York (STONY1) state Comptroller Thomas DiNapoli is conducting an audit of Long Beach (9309MF), the Long Island city whose credit rating was cut five levels in December.

The audit, requested by the city, is focusing on “policies and procedures related to internal controls over cash transactions in various summer seasonal departments,” according to a letter sent today from DiNapoli’s office to Manager Jack Schnirman, who took office in January, and the City Council.

The comptroller asks the municipality to turn over annual financial reports, budgets, revenue ledgers, bank statements and a code of ethics, among other documents.

“Under the prior administration, in certain departments, there were some questionable practices in terms of the receipt of funds,” City Councilman Scott J. Mandel said in an e-mailed statement. “Given the inherited fiscal crisis, we requested this audit to examine exactly what has been going on and what reforms should be undertaken.”

Kate Gurnett, a DiNapoli spokeswoman, said in an e-mail that Schnirman requested the audit. The city is looking forward to the help, Schnirman said in an e-mailed statement.

The council declared a fiscal crisis last month after a 66 percent increase in overtime and a $500,000 payout to a retiring police commissioner forced officials to tap the bond market for $4.25 million in December. Long Beach is facing a $10.3 million deficit, about 12 percent of its $83 million budget, by the end of its fiscal year June 30, Schnirman said in a March 19 interview.

‘Cooked Budget’

“This was a cooked election-year budget,” Schnirman said. “They were trying not to raise taxes, and spending continued to go up as revenue went down.”

Midway through the current fiscal year, eight departments had exceeded their overtime budgets by a collective $544,016, or almost 41 percent, said Schnirman, 34. Since 2006, overtime costs have gone up $900,000, or 66 percent, he said.

That burden, along with unrealistic budgeting and the payouts to exiting city workers -- including the $500,000 given to retiring police Commissioner Thomas Sofield Sr. -- helped drain the $14.7 million Long Beach had in its rainy day fund in 2008, Schnirman said.

Cash-Flow Notes

About $2.5 million of the city’s $10.3 million deficit is the result of city officials underestimating payments they would owe for accrued vacation and sick leave given to workers who retired, resigned or were fired, he said.

City officials are planning to issue as much as $6 million in cash-flow notes in the next six weeks, Moody’s Investors Service said in a report today. The credit-rating company is keeping the city under review for a possible downgrade, reflecting the projected deficit and a “deteriorating cash position.” Long Beach is planning property-tax and fee increases as well as spending cuts to balance the fiscal 2013 budget, Moody’s said.

Schnirman said in a telephone interview today that he hadn’t seen the Moody’s report and declined further comment.

On Dec. 20, Moody’s dropped the city’s rating on $48.3 million of general-obligation bonds to Baa3, the lowest investment grade, from A1. Earlier that month, Long Beach borrowed $4.25 million to meet its monthly payroll, according to data compiled by Bloomberg and an offering statement.

A Long Beach general-obligation bond sold in June 2010 and maturing in January 2021 traded at an average of 107.71 cents on the dollar on March 20. That’s down from an average of 110.63 cents on Feb. 27, according to data compiled by Bloomberg.

To contact the reporter on this story: Freeman Klopott in Albany, New York, at fklopott@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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