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Sinking City: Long Beach Faces Deep Financial Troubles


WAVES OF MUTILATION

What’s irrefutable is that on Theofan’s watch Moody’s lowered Long Beach’s bond rating five grades, from A1 to Baa3, one notch above junk. The downgrade stung.

Once in charge, the new council members and their new city manager brought in O’Connor Davies Munns & Dobbins, a consulting firm based in Westchester, to conduct an independent audit of the 2010-2011 budget. The consultants’ findings were presented on the same February day the city declared a fiscal emergency, a move that Moody’s called “a 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.” Then at a special council meeting on March 27, the council approved borrowing $6 million to bridge the growing budget chasm.


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This week, the city manager unveiled his budget blueprint to begin the long uphill climb to balance its books.

“You’re talking about a budget that is certainly not a ‘good news’ budget but is all about fighting for the city’s financial survival,” says Schnirman.

Under the proposal, there will be two tax lines, an “inherited deficit reduction surcharge” of $3.3 million for three years, and a “more modest” increase in the general fund tax of 4.1 percent, all told adding up to about “$1.21 a day,” by his calculations, to cover both new lines. It’s “a bare bones budget” that still depends on labor savings, through negotiations in the coming weeks, because it must reap $7 million to avoid layoffs. Without these bold measures, Schnirman says, 75 city workers might have to lose their jobs or city residents pay a whopping 41 percent tax hike.

“It’s quite a statement on the hand that we were dealt, quite honestly,” says Schnirman. The public will get to weigh in at the first budget hearing on May 15.

Jack Schnirman, Long Beach City Manager

Moody’s is keeping the city under review because of further deterioration in its cash position. It said in February that Long Beach “has already exceeded its entire annual overtime budget of $1.78 million by $561,868, just over half-way through the fiscal year.”

The severity of the city’s fiscal condition “shocked” the incoming city council, says Fran Adelson, city council president. “We knew there was going to be a deficit. We didn’t know how deep the deficit was going to be. All we heard from the previous administration’s campaign was how wonderful the city’s finances were, that Moody’s gave them an A1 bond rating, and everything was great.”

Jimmy Hennessy, a Republican activist and former city council president, has a different perspective.

“I would not have called Moody’s in and had our bond rating dropped, which caused us to pay millions more on our bond indebtedness in interest,” he wrote on his blog in Patch. “I would not have told the world we were in a fiscal emergency and hurt our residents’ property values.”

In an interview with the Press, he elaborated on his position that the current administration was exaggerating the situation for political gain but to the detriment of Long Beach.

“They’re laying the foundation for a catastrophic tax increase,” he says. “Who in their right mind would buy a house or open a business in Long Beach at this particular point in time?

“The Democrats are in power now,” Hennessy says, “and they’re blaming everything on the prior administration because Long Beach has historically been a Democratic town. They want the power and they will do anything they can to hold onto power even if it means ruining our own reputation!”

The new administration notes Long Beach is not alone in its crisis.

“There are other municipalities that are facing difficult deficits and crises,” says Schnirman, the new city manager. “But the difference between us and them, and what earned us an unprecedented five-level downgrade at once is that our problems were covered up by the previous administration.”

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