City Council Agrees to Borrow $6M

Voting 5-0, the City Council on Tuesday approved a $6 million revenue anticipation note, a borrowing measure that City Manager Jack Schnirman said will cover payroll, avoid layoffs and maintain essential city services as officials attempt to close a $10.2 million deficit and balance the 2011-12 budget by the end of the fiscal years on June 30.  

The revenue-anticipation notes — a short-term debt security issued in anticipation that revenues will meet the city’s repayment obligation — were recommended by Moody’s Investors Service as a means to pay off the city’s liquidity needs, since the agency uses liquidity as a key credit rating criteria, according to City Manager Jack Schnirman, the Long Beach Herald reports.    

Jeff Nogid, the city’s comptroller, said the $6 million in notes (with a 2.25 interest rate), which must be paid off within about a year, is an attempt to close most of its deficit and allow the city to meet its biweekly payroll of approximately $1.7 million.

“In order to meet payroll, in order to anticipate certain revenue receipts, we’d like to have at least two to three payroll amounts in hand.”

Moody’s downgraded the city’s bond status in December, and the new Democrat administration looks to avoid another downgrade to junk bond status. The city will use a $1.5 million budget note that the city borrowed last November for retirement payouts to close the deficit to $8.75 million, but will start the 2013-14 fiscal year $7.5 million in debt.

While Schnirman indicated that short-term borrowing would become part of his administration’s efforts to recover the city’s troubled finances, others, including Councilman Mike Fagen and former Councilman Denis Kelly, warned that the city must soon embark on a more stable economic plan, to which Schnirman agreed. 

“The next move that you make as to our fiscal stability is going to determine what the city thinks of you, thinks of the job you did,” Kelly said. “It’s time to start talking about a plan of action. You’re going to have hard decisions to make and it’s going to get ugly.”

Schnirman maintains that the city is in debt due to the prior Republican administration’s failure to budget for retirement payouts, overestimating revenue projections and reducing the “rainy day” reserve fund from $14.7 million in 2008 to $107,000 last July.