A Wall Street credit agency has given the City of Long Beach its first credit rating upgrade in six years, citing improved finances and reserves.
Moody’s Investor Services last week upgraded the city’s bond rating to Baa2 from Baa3, one step above junk bond status. Moody’s noted the city's improving, yet delicate, finances and added reserve funds. Creditors also said the city continues to recover following Superstorm Sandy and is adding new residents to the city’s tax base in a booming and fortified housing market with additional projects like the Superblock.
“Reserves declined substantially from fiscal 2015 through 2019, driven by a failure of management to hit budget targets," Moody’s analysts said in their report. “However, under the watchful eye of new management, operations have turned around and reserves are starting to rebound.”
Moody’s noted the city used $4.6 million in reserves to balance its budget in 2022 following the COVID-19 pandemic and has elevated debt and other liabilities and obligations, which city officials said is nearly $500 million. The credit rating affects interest rates and future bond funding for the city.
The city marked its rebound in the midst of a fiscal crisis for the past five years, which began when the city’s finances ran out after they were masked by an influx of federal disaster funding to rebuild from Superstorm Sandy. The city also faced audits by the state comptroller, which found a history of improper separation payments to retirees and drawdowns for current and former employees for their total accrued vacation and sick time.
Moody’s and other auditors have criticized the city for borrowing for separation pay annually for nearly a decade. The city budgeted this year for the first time to cover $2.5 million in separation pay, which resulted in a 5% tax increase to cover the expenses.
Moody’s analysts said the city’s fiscal turnaround for the past three years could lead to a greater surplus, despite having to absorb a $75 million settlement with oceanfront apartment developer Sinclair Haberman to be paid through taxes and budgeting over the next 30 years.
The city marked its first surplus since 2017 at the end of fiscal year 2021, according to Moody’s. The city is on track to stop borrowing from reserves to balance the budget, but still faces long-term debt, facing more debt and retirement benefits than expected revenue.
“While this issuance by Moody’s is a strong affirmation of our progress, I want our residents to understand that we are still only at the beginning of our financial turnaround,” City Manager Donna Gayden said. “The Haberman bonds will impact our budgets after July 1, 2023, and other stresses must be contended with. We must remain vigilant if our progress is to be continued, but I am confident that we can, and will, continue this positive trajectory.”