The City of Long Beach’s credit rating was reaffirmed Friday, but was given a negative outlook after years of deficit spending and the city council’s failure to pass $2.1 million in bonds to fund separation pay.
Wall Street credit rating agency Moody’s Investors Service maintained the city’s Baa1 rating, but dropped the city’s outlook to negative from a stable outlook given in February.
“The negative outlook reflects the liquidity challenges the city will have in the near-term following years of operating deficits and City Council’s failure to approve budgeted borrowing to pay for operating expenses,” Moody’s analysts said.
City Council members unanimously approved a budget last year that included a plan to issue $1.6 million in bonds to cover separation payments and accrued time to retirees and departing employees as an additional stream of revenue to fund the city through the end of the fiscal year June 30.
The city eventually needed $2.1 million to fund separation pay, but city council members last month voted against borrowing. The separation pay included nearly $300,000 to 14 union and nonunion employees who remained on staff and a $108,000 payment for sick and vacation time to former City Manager Jack Schnirman. Councilmembers Anissa Moore and John Bendo voted against the bond.
City Council President Anthony Eramo said the City Council wanted to reform the payout process, but the report showed the city’s need to pay its bills.
City officials warned of a city shutdown without drastic cuts and layoffs after ending some bus service, but City Manager Michael Tangney said the city will use $550,000 of remaining cash in previously approved bonds and cut nonessential spending and overtime, but remains about $800,000 short to close the funding gap.
“Unfortunately, Moody’s identified the City Council’s failure to pass the previously budgeted bond as the cause of a modification from a stable outlook to a negative outlook,” according to a city statement. “As we continue in our long-term fiscal recovery, we remain sensitive to the concerns outlined by Moody’s, particularly those relating to the need to fund previously budgeted expenses.”