The state comptroller's office has launched an investigation into Long Beach's troubled finances, underscoring a yearlong period during which the city discovered a $10.25 million deficit and was hit with a five-level downgrade of its bonds.
State officials say the audit is intended to help the city more effectively manage its money and develop better budgeting during its recovery.
Long Beach faces a long and hard road out of the red with revenue declining, pension and health care costs soaring, and cash reserves depleted.
Long Beach's recent passage of a balanced $88 million budget is the first step toward recovery and rebuilding the city's credit, said representatives from Moody's Investors Service, which issued the bond downgrade in December.
The city must show an ability to live within its means in coming years, Moody's representatives said. That means the city must find and sustain new revenue streams, Moody's said. Long Beach officials point to new beach fees and a bicycle rental program as evidence that they are doing that.
In addition, officials say the city must reduce health care costs, which nonunion employees will begin sharing this year, and restructure its retirement payout system, which allowed seven employees to retire with packages of more than $200,000 last year. Both changes must be negotiated with unions.
The pressures on Long Beach are emblematic of the struggles being experienced by many governments on Long Island, City Manager Jack Schnirman said.
But the challenges in Long Beach, where the deficit found in March is more than 10 percent of the city's budget, could be the most dire on the Island, he said. "What's unique here in Long Beach was how fast the fall was, and how dramatic and how hidden it was," he said.
Officials in the administration that took office in January cite several factors in the financial decline, including previous administrations' raids on the city's surplus, excessive overtime and underbudgeting for overtime and termination pay.
Former City Manager Charles Theofan, who left in January and is now deputy county executive in Nassau, has repeatedly declined to comment on the city's finances.
One warning flag came last summer: Long Beach began the 2011-12 fiscal year with a scant general fund surplus of $107,000. That is now gone.
Among other recent shocks:
The city failed to spend more than $1 million in state grant money from 2007 and 2008, money that is now unavailable, city officials said.
A firehouse restoration project is $1.38 million over budget and not completed.
Retirement payments to two police officers are slated to cost more than $1 million.
The city needs to borrow more than $1 million to cover the final payroll in December.
In February, the city declared a fiscal emergency. The city slashed overtime and Schnirman said all departments would have to cut 25 percent of nonsalary spending through the end of the fiscal year.
Remedies in the works
Last month, the city council passed a 2012-13 budget that included a 7.9 percent tax hike and a deal to pay down the deficit over 10 years -- a move that required state permission to use special deficit financing. The city also laid off 25 full-time and 42 part-time workers. The new fiscal year begins July 1.
John Mooney, president of the city Civil Service Employees Association, said the layoffs were painful, but the union had to step forward to help bail out the city. He said he's optimistic that Long Beach's finances will stabilize.
Long Beach officials hope the moves begin to repair the city's bond rating, which affects its ability to borrow money for capital projects. A boost in the rating, city Comptroller Jeffrey Nogid said, is essential to Long Beach's economic health.
Meanwhile, state Comptroller Thomas DiNapoli's audit grinds on and probably will take six to nine months, according to Brian Butry, a spokesman for DiNapoli.
Long Beach Councilman John McLaughlin, one of three holdovers on the board, said he welcomes the audit. "We're still in uncharted waters," he said.