Long Beach eyes $6 million loan

Cash-strapped Long Beach is set to approve $6 million in borrowing Tuesday to cover operating expenses -- a move noted in a Moody's Investors Services interim review of the city that said it is being monitored for a possible further downgrade of its debt to junk status.

The review was released Thursday, three days after city officials projected a $10.25 million deficit for the current fiscal year, and about 90 days after Moody's downgraded Long Beach's debt five levels to Baa3, one level above junk status.

"What we decided yesterday was to extend the review period, so we haven't taken any rating action as yet," Moody's spokesman David Jacobson said Friday.

Moody's was expected to revisit Long Beach's finances after the 2012-13 budget is proposed in mid-April, City Manager Jack Schnirman said. The unplanned interim review Thursday, he said, came as a shock.

"It was a big deal," he said, "and it was unexpected."

In the review, Moody's noted the city's "deteriorating cash position" but also brought up positives: The city's large tax base includes above-average wealth levels, the new administration's declaration of a fiscal crisis last month gave Schnirman a tighter rein on spending, and overtime expenses have been cut 70 percent since January.

And the projected deficit could have been worse: The Moody's report notes the city's new management has reduced expenditures by $1.2 million.

"If you read between the lines, they're saying, 'You're on the right track, thus far you're doing what's responsible,' " Schnirman said, but added the city is "still in jeopardy" of a downgrade.

Borrowing, revenue increases and spending cuts are "the menu items" for closing the gap, Schnirman said, but added he did not know at this point the level of the cuts or increases.

The Moody's report notes a "combination of property tax and fee increases" will help balance the budget.

"All options are on the table and everybody's going to have to share the pain," Schnirman said. If the city does not borrow, he added, it would be forced to "immediately lay off 20 to 30 percent of its staff."

When the former administration borrowed cash in December, it was before the downgrade, and Long Beach's interest rates on two notes were 0.63 percent and 0.77 percent, comptroller Jeff Nogid said. Interest rates for borrowing will be significantly higher this time, Nogid said, though he wasn't sure how high.

Nogid said the city will run out of cash within six weeks.

The five-member council will vote on the borrowing at a special meeting Tuesday at 7 p.m. at City Hall.