Moody's Calls Long Beach's Fiscal Move 'Positive'

In its Weekly Credit Outlook newsletter, Moody’s Investors Service this week published a “credit positive” article on the City of Long Beach’s decision to declare a fiscal emergency on Feb. 7.

While the article says that declaring a fiscal emergency gives City Manager Jack Schnirman greater authority to manage the city’s finances, its stresses that the city must maintain its contractual agreements.

“The resolution is credit positive because it gives the city manager greater control over the city’s financial operations, including the authority to implement budgetary initiatives to further fiscal stability,” reads the Moody’s article, dated Feb. 13. “Importantly, it does not allow the city to forgo the payment of contractual agreements, including the payment of debt service.”

About Moody’s assessment of his administration’s actions, Schnirman told Newsday.:

"We're obviously super-excited. It doesn't change our rating, but it's like saying, 'You're on the right track, kid.'"

In December, Moody’s downgraded the city’s bond rating to a Baa3, five levels below its previous A1 status, and the city incurred a general obligation debt of $48 million and $107,000 remaining in its general fund at the end of the 2010-11 budget year, down from $7.5 million in 2008. This, after the prior administration in November approved two resolutions to borrow a collective $4.5 million to cover a shortfall in the city’s year-end payroll and retirement payouts.
Moody's will reevaluate the city’s financial standing in 90 to 120 days from Dec. 20.

Moody's article notes that the city's declaration of a fiscal crisis follows years of chronic overspending beyond its budgets, including the fire department exceeding its budget by 25 percent and the police department by 10.3 percent in 2011, and says that the city overestimated revenues and underestimated expenditures from 2008 to 2011: “Improper budgeting for transfers between the Debt Service and General Funds resulted in a draw of $1.7 million from the Debt Service Fund.”

Critics say the new Democrat administration exaggerates the city’s current financial situation, arguing that declaring a fiscal emergency was unnecessary and that the prior Republican administration used the general fund to avoid raising taxes during the nation's Great Recession, the effects of which the city government is finally experiencing.

“In a perfect world, people and cities end their budget year with a balanced budget — revenues would equal expenses,” wrote Jim Hennessy, a former City Council president and a member of the Long Beach Republican Committee, on his blog for Patch: “The fact that the city ended the year with a $107,000 surplus flies directly in the face of allegations that a ‘fiscal emergency’ exists, that the city is broke and that the Republicans mismanaged taxpayer money.”