City of Long Beach now has credit rating just above junk bond status

The City of Long Beach’s credit rating is now one step above junk bond status — the lowest grade in 10 years — after Moody’s Investors Service downgraded it, citing increased borrowing and a looming judgment of more than $140 million against the city by developers.

Long Beach’s credit rating dropped to Baa3 with a negative outlook, which could increase interest rates when the city looks to issue bonds in February to cover expenses like separation pay and capital improvements.

The city has more than $100 million in outstanding bond debt and nearly $400 million in other outstanding liabilities and obligations.

"The City Council believes the management team is expertly fulfilling its responsibilities for day-to-date financial oversight and continues to offer stable leadership to the City at this critical time," Long Beach City Manager Donna Gayden said in a statement Wednesday.

Moody’s said the primary driver in the city’s downgrade was a Jan. 11 judgment, totaling nearly $150 million in interest owed by Long Beach to Manhattan developer Sinclair Haberman. The city was ordered to cover lost revenue after officials blocked an oceanfront condo development more than 30 years ago.

"It could be years before we have full clarity as to the impact on the long-term liabilities and operations," Moody’s analysts wrote. "Adding $150 million to the city’s long-term liability would push the city’s debt and retirement benefits close to 700% of revenues, which is significant and would be considered one of the highest in the state."

Long Beach city attorneys have appealed the judgment and recently met with Haberman’s attorneys, but the city is charged $1 million per month in interest until the judgment is paid.

City officials hired a team of restructuring attorneys and financial advisers for $1.5 million, which they expect will be reimbursed by the state.

"The Haberman judgment remains under appeal; however, City representatives have established an ongoing dialogue with the plaintiff’s representatives," city officials said in a statement Wednesday.

Haberman’s attorney Chris McGrath said the city had not made a settlement offer.

"Everyone’s interested in a settlement. It’s just a question of how much," McGrath said.

The city has been facing a fiscal crisis for the past 10 years following decades of borrowing to cover separation pay and other expenses. Long Beach's finances were masked after Superstorm Sandy in 2012 because the city received millions in federal bonds to cover rebuilding and city salaries.

The downgrade by Moody's cited dwindling funds and reserves used to balance the 2022 budget and borrowing to cover separation pay.

Moody’s suggested further deteriorating finances could lead to additional state oversight.

City Council members last week voted to approve up to $3.2 million in bonds to cover a fraction of the $10 million in outstanding retirement payments owed to police and former employees.

City officials said they couldn't afford to budget separation pay, which would require the equivalent this year of a 7% tax increase.

By John Asbury

john.asbury@newsday.comJohnAsbury

John Asbury is a breaking news and general assignment reporter. He has been with Newsday since 2014 and previously worked at The Press-Enterprise in Riverside, California.