March 28 (Bloomberg) -- Long Beach, New York, the Long Island city whose credit rating was cut five levels in December, plans to borrow as much as $6 million in the next few weeks to avoid firing workers.
The City Council approved the plan last night. 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. The city of 36,000 will sell revenue-anticipation notes to fund operations through June, Manager Jack Schnirman said.
“Doing cash-flow borrowing will allow us to get a plan together,” Schnirman said in a March 23 telephone interview. “There is nothing we can do to reverse the deficit this year. If we were looking to cut the budget, we would have to do overwhelming layoffs.”
From 20 percent to 30 percent of the city’s 360 employees would have been fired without the borrowing, said Schnirman, 34, who took office in January.
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. At Schnirman’s request, New York Comptroller Thomas DiNapoli is auditing the city’s internal controls over its summer seasonal departments.
Midway through the current fiscal year, eight departments had exceeded their overtime budgets by a collective $544,016, or almost 41 percent, Schnirman said. Since 2006, overtime costs have risen $900,000, or 66 percent, he said.
That burden, along with unrealistic budgeting and payouts to exiting city workers helped drain the $14.7 million Long Beach had in its reserve funds in 2008, Schnirman said.
On Dec. 20, Moody’s Investors Service dropped the city’s rating on $48.3 million of general-obligation bonds to Baa3, the lowest investment grade, from A1.
Schnirman said the latest round of borrowing will help show Moody’s that the city can still access the bond market, a point raised by the company in a March 22 report that said Long Beach’s credit rating remains on review for a downgrade.
The review reflects a “deteriorating cash position,” the report said.
“I do expect, until we rebuild our fund balance, we’ll have to go to the bond market again next year,” Jeffrey Nogid, the city’s comptroller, said in a March 23 telephone interview. “We know ultimately time will be our friend in getting out of this with the right budget and expense controls.”
To contact the reporter on this story: Freeman Klopott in Albany, New York, at firstname.lastname@example.org
To contact the editor responsible for this story: Mark Tannenbaum at email@example.com.