Long Beach's Deficit Financing Bill Dies in Senate

State legislators never introduced pending legislation that would have allowed Long Beach to issue up to $15 million in serial bonds on the final day of legislative session last week.  

After the City Council voted to adopt a $87.9 million budget for 2012-13 on May 24, the council voted two days later to submit a home rule request to the state legislature to allow the city to issue bonds to pay down the city’s $10.2 million deficit across 10 years to avoid burdening residents with a 16 percent tax increase.

But despite assurances from City Manager Jack Schnirman that the legislation would pass both the Assembly — which it did on June 18 — and the Senate, the bill failed to even reach a vote in the Senate, where it died last Thursday.

The city’s borrowing request was among other legislation that the Republican-controlled Senate rejected, including a $300 million proposal for Nassau University Medical Center to help refinance its debt. Even though Senate Majority Leader Dean Skelos, R-Rockville Centre, introduced the Long Beach-related bill, along with Assemblyman Harvey Weisenberg, D-Long Beach, Skelos said it was "going nowhere," according to Newsday. Skelos said:

"I put it in as courtesy. But I think that bonding out for the entire deficit is not the way to go."

The senator’s position is that municipalities must do more to cut costs, said Scott Reif, a spokesman for Skelos, who noted that the senate was not going to take up the bill and others like it that would have allowed deficit financing. Reif told the Long Beach Herald:

“I think our position has been that you put your fiscal house in order through reducing spending — we’ve had a policy that we’re not going to do tax increases or deficit borrowing.”

The bonds would have allowed the city to liquidate deficits in various funds — general, water, sewer and risk management — by the end of the 2011-12 fiscal year on June 30, city officials said. 

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In a letter mailed to residents last week, Schnirman wrote that the city was able to cut the tax increase in the newly adopted budget to 7.9 percent from the 16 percent projected in the budget’s earlier draft. “Thanks to the help of Assemblyman Harvey Weisenberg and State Senator Dean Skelos, we were able to reduce the burden on the taxpayers by paying down the deficit over the course of 10 years,” Schnirman wrote in the letter, as if the bill had already won approval from the Senate, too.  

Schnirman did not return a request for comment on Friday.

Weisenberg issued a statement about four pieces of Long Beach-related legislation that the assembly passed last week, including a proposal to reduce the speed limit in the President Streets neighborhood, in which he expressed disappointment that the only bill the Senate didn't approve was the borrowing proposal.
   
“The Senate unfortunately rejected a fourth piece of legislation that would have given additional flexibility with the city’s budget,” Weisenberg stated. “As a dedicated member of the Long Beach community and as their assemblyman, I will continue to push for measures that have our hardworking families, taxpayers and community in mind.”

Meanwhile, the city must close the $10.2 million deficit and balance the budget before the new fiscal year starts on July 1, or face possible penalties, including a further downgrade to its credit rating to junk bond status by Moody's Investors Service, the credit ratings agency, which could hinder future borrowing and impact payroll.

On Tuesday, the City Council approved a resolution to issue $5 million in tax anticipation notes in order to cover payroll for July. Schnirman said that until the state deficit financing process is completed, the city will need to borrow against future property taxes to ensure adequate cash flow, as recommended by Moody's

Schnirman told Patch last Wednesday: "As long as there is not a rain-day fund, the fact that our tax revenues only come in twice a year means that there are going to be times when we have lots of money, and times when we don't have lots of money. And so up until the point when we have a rain-day fund that we can use to borrow money from, or up until the point that we do our state financing, capital borrowing is a regular part of cash management. Borrow it one day, and we pay it back the next, when the revenues come in."

Councilman Michael Fagen, a Democrat who has challenged the city manager on his budgetary and deficit-reduction proposals, said that it's possible the city may call an emergency meeting this week to amend the budget to reflect these latest developments.

"This was a failure of epic proportions," Fagen said. "This never had a chance of passing the Senate. As I've been saying all along, they've done very little to cut spending and their strategy of borrowing to pay off more borrowing was exposed at the senate level as unacceptable. They've left the taxpayer with very few options because of their inexperience. Astounding."

* This story was updated at 9:40 a.m. on 6.25.12.