State to release audit of Long Beach payouts this summer

DiNapoli: City still in ‘significant’ fiscal stress for second year

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New York State Comptroller Tom DiNapoli’s office said it expects to release part of a comprehensive audit of the city’s “fiscally stressed” finances this summer, focusing on separation payouts to current and former employees that sparked an outcry among residents last year.

A spokeswoman for DiNapoli’s office said that the audit — which was announced nearly a year ago, in the midst of a financial crisis — was being conducted in two parts.

The first part, an examination of separation payouts and drawdowns of accrued time to union and non-union employees — the City Council called on DiNapoli last year to look at the past six fiscal years to determine whether the payouts, including a $108,000 payment to former City Manager Jack Schnirman, were appropriate — should be released this summer, though no specific date was set, the spokeswoman said.

The second part, a review of the city’s overall finances, is expected to be released by the end of the year.

Additionally, the state’s Financial Restructuring Board for Local Governments is conducting a separate comprehensive review of the city’s finances. City officials said they expect the report to be released before the summer, and added that both would help the city institute budget reforms to help stabilize its finances and improve management practices.

“In terms of accountability, we are working — and believe me when I say every day — with the New York state comptroller’s office, the New York state financial restructuring board, and our auditors . . . who have pretty much taken up residence in the city,” Acting City Manager Rob Agostisi, who was appointed to the position on Jan. 30, said at last week’s council meeting.

Last week, DiNapoli’s office said that Long Beach remained in “significant fiscal stress” — the highest level under DiNapoli’s Fiscal Stress Monitoring System — in 2018 for the second consecutive year, again citing short-term borrowing, a deteriorating fund balance, structurally imbalanced budgets and operating deficits as main factors.

The state gave Long Beach a score of 80.8 percent for the fiscal year ending June 30, 2018, the same as the previous fiscal year. Long Beach is now second in the state’s most current roundup of fiscally stressed municipalities, ranked behind the city of Amsterdam.

The designation comes a month after Moody’s Investors Service downgraded Long Beach’s credit rating from Baa1 to Baa2 — just two notches above what is considered junk bond status.

The state said that the city’s fund balance dropped from $6.4 million in fiscal year 2017 to $1.8 million last year. The state also said that the city had $86.1 million in gross revenues in FY 2018 but $91.4 million in gross expenditures.

Short-term cash flow debt, however, was reduced from $17.5 million to $4 million, though the city had $11.7 million in debt service. Much of the borrowing was due to costs associated with Hurricane Sandy and reimbursable by the state and federal governments, city officials said. Officials said that the city’s long-term debt is about $100 million.

“We have been attempting to eliminate more debt than we retire,” Agostisi said last week. “As we retire debt, we are trying to borrow for less than that amount, in order to start to make a dent in terms of debt repayment services and re-establish our fund balance.”

Last May, following an outcry from residents over a proposed 12.3 percent tax increase — which officials had floated to help fill a $4.5 million deficit at the time — the City Council voted unanimously to approve a revised $95 million budget for the current fiscal year that avoided layoffs and drastic cuts to services, and reduced the tax increase to 8.3 percent after officials made a number of cuts.

As the city prepares its upcoming budget, Agostisi said that he was taking a number of steps to turn the city’s finances around, including hiring a full-time comptroller — the position has not been filled since July 2017, and interviews with a number of candidates are ongoing — and bringing in a group of financial specialists.

“In addition to the city’s search for a full-time comptroller, which we believe will go a long way to stabilize the current situation, the city’s financial issues at this point justify the retention of a person or dedicated team of financial professionals who will specialize in long-term strategic financial planning,” Agostisi said on Wednesday. “I think we’re in a position now where we’re about to see a different trajectory take route.”

Of the upcoming budget challenges, he said, “We have a cost structure here that needs to be supported by revenue. We need more recurring revenue streams. This city is used to its staffing models and levels of services, and the trick now is to generate enough revenue to support it.”

Residents demand answers

A number of residents have prodded officials at council meetings about the status of the state audit.

They had expressed shock over Long Beach’s fiscal stress designation a year ago, particularly after Schnirman had touted a $9.4 million surplus and a turnaround of the city’s finances during his campaign for county comptroller in 2017.

Last year, officials said that the rejection of a $2.1 million bond measure to cover separation payouts to 62 union and non-union employees, including a number of those still on the payroll, created a hole in the budget through the end of the fiscal year ending June 30 and threatened layoffs and service cuts, shedding further light on the city’s financial problems.

According to a list of payouts obtained by the Herald last year, 16 union and non-union employees received more than $300,000 in separation payouts and “drawdowns” of their accumulated time in 2017-18 but remained on the payroll.

Councilman John Bendo, who voted against the bond measure after he questioned whether Schnirman and other employees were overpaid — the city’s Code of Ordinances states that non-union employees like Schnirman are entitled to 30 percent of total accrued sick days at the time of separation — criticized the timing of the audit’s release.

“I find it very interesting that the state comptroller’s office is waiting until after the June Democratic primary to release the audit results from the payout investigation — and then again, it sounds like they’re waiting until after the November election to release their results of the full investigation,” Bendo said. “Wouldn’t the city be better served having that information now, when the 2019-20 budget is being developed . . . or is the state OK with another year of the same financial shortcomings?”

City officials have said that while the payouts may have been financially questionable, they were not illegal. Agostisi said Wednesday that the city has suspended the practice of drawdowns of accrued time to both union and non-union employees, and that the city was waiting for recommendations from the state comptroller and restructuring board as it re-evaluates its payout process.

“We had been rethinking it, and we have some ideas we want to implement in terms of reform measures,” Agostisi said. “Until we know the scope of the problem, it’s hard to come up with a solution.”