Moody's downgrades Long Beach debt rating

Moody's Investor Services has downgraded to Baa3 from A1 its rating on the City of Long Beach's $48.3 million outstanding general obligation debt, and placed that rating on review for another possible downgrade in the future.

The Baa3 rating is the lowest investment-grade rating Moody's issues and is considered to reflect a moderate credit risk for investors.

In the report released yesterday, the credit rating firm said the downgrade reflects the city's deteriorating financial position since 2008 caused by "severe structural imbalance" from declining mortgage tax revenue and increasing expenditures. The rating also considers the city's large tax base, with what it called above-average wealth levels and a manageable debt burden, according to the report.

Placing the rating under review reflects the city's projected deficit in fiscal 2012 and possible borrowing in the near term, according to Moody's. It also reflects "severe negative discrepancies" between the city's reserve and cash position projections in August, and unaudited reporting of its fiscal 2011 results earlier this month, analysts said.

The downgrade comes after the city borrowed more than $4 million, in part to cover a payroll shortfall in December and to fund termination pay for three high-ranking police officers and other city employees.

"I cannot deny that the city is experiencing financial difficulty, but the reality is that there are explanations for that," City Manager Charles Theofan said.

The city's cash shortage is the result of more than $1 million in cleanup costs after Tropical Storm Irene, as well as about $300,000 in taxes owed by the Allegria Hotel, Theofan said.

"Let's not lose sight that ratings for so many municipalities in Long Island, the United States and the world have been downgraded," Theofan said. "This is not an isolated problem."