Tag Archives: Moody’s Bond Rating

Moody’s declares Long Beach Outlook Stable

I copied and pasted this from the city website. Enjoy! (source – read the article on the city’s website here)

city_sealMoody’s declares Long Beach Outlook Stable, No Longer Negative; City Council to Remove Fiscal Crisis Designation at Meeting Tuesday Night

Moody’s Investors Service has improved the outlook on the City of Long Beach’s general obligation bonds from negative to stable. The August 2013 Moody’s report cites the current administration’s “improved financial controls and policies leading to balanced budgets” and shrinking the City’s overall debt level by $6M as reasons for the positive report. This is in stark contrast to the previous administration that elicited an unprecedented five-level downgrade with fiscal mismanagement of epic proportions.

“We are extremely pleased that Moody’s is applauding this administration for restoring fiscal responsibility in Long Beach after years of mismanagement by the Republican administration,” said City Council President Scott J. Mandel.

In February 2012, shortly after the current administration took office, the City Council voted to declare a fiscal crisis in the City due to the $10M deficit that was inherited from the previous administration. According to the Moody’s report: “Since the declaration was announced, city management has reduced expenditures by $1.7 million, lowered headcount by 12% and labor and personnel costs from 83% of budget to 63% of budget.   The city reduced overtime costs, which had been a significant driver of the city’s fiscal stress, despite the significant effect of Hurricane Sandy in October 2012. In addition, new management has brought budgeted revenues more in line with historical revenues resulting in balanced budgets.”

The City Council is expected to officially remove the fiscal crisis designation at a public meeting on Tuesday, September 3, 2013 at 7pm in Long Beach City Hall.

Moody’s Confirms City’s Bond Rating Long Beach “no longer under review for downgrade” [PRESS RELEASE]

Long Beach, NY – Moody’s Investors Service has confirmed the Baa3 the rating on the City of Long Beach’s (NY) $48.3 million outstanding general obligation debt. Moody’s has stated that the City’s rating “is no longer under review for downgrade.”

“I’m extremely happy to hear that we are no longer living under the constant threat of being downgraded to junk bond status,” said City Council President Fran Adelson. “Moody’s recognition of our efforts to stabilize our finances is an important step towards restoring confidence in the City going forward.”

“Moody’s rating review praised the City for the steps we have taken thus far to reverse years of fiscal mismanagement by the prior administration, commented City Manager Jack Schnirman. “We are happy that Moody’s praises our new budget for stabilizing the City’s financial position. And we understand that Moody’s will keep a close watch as we implement our balanced budget plan.”

The report states that the City’s “NEW MANAGEMENT HAS REPORTEDLY STABILIZED THE CITY’S FINANCIAL POSITION.”

The detailed credit discussion emphasizes that the 2012-2013 budget is “more conservative.” It mentions that “economically sensitive revenues, a primary driver of the city’s deficit, have been significantly reduced in the fiscal 2013 budget.  Sales tax (which represents 3% of revenue) was reduced by 8% from the fiscal 2012 budget, utility taxes (2%) were reduced by 51%, parking fees (1%) were reduced by 58%, and mortgage taxes (2%) were reduced by 40%. These revenues have been brought closer in line with what the city has historically received.“

Moody’s also gave the City information concerning its outlook for the future, stating “we will focus on the city’s ability to access the capital markets for short-term cash flow borrowing and deficit reduction bonds, as well as management’s ability and willingness to improve the city’s financial position and liquidity.“

The following is a list of what could cause the rating to go up or down:

WHAT COULD CHANGE THE RATING – UP (REMOVAL OF NEGATIVE OUTLOOK):

  • —Demonstrated ability to manage near-term cash shortfalls
  • Continued ability to access the capital markets for additional cash flow note and deficit bond issuances
  • Further implementation of newly budgeted cost controls and revenue enhancements to return to structural balance

WHAT COULD CHANGE THE RATING – DOWN

  • Failure to execute on new budget’s plan to return to structurally balanced operations
  • Further liquidity declines.

Additionally, Moody’s stated that the City’s debt burden is “expected to remain manageable.” The report indicated that “the overall debt burden, which includes overlapping obligations of Nassau County and Long Beach City School District (rated Aa2), is slightly below average at 2.2%.” The City does not have plans for any significant new long-term debt issuance over the next two years.

“In less than six months, we’ve stopped the bleeding, cut spending, cut overtime, shrank the workforce, passed a budget that eliminates the City’s annual operating deficit – and now Moody’s has confirmed that we are on the road to recovery,” stated Schnirman.

PRESS RELEASE: Moody’s Issues Interim Update: Affirms City’s Current Rating

March 23rd, 2012

Long Beach, NY – As the new administration begins moving forward in response to the $10 million deficit inherited from the previous administration, Moody’s Investors Service issued an interim review affirming Long Beach’s current rating and negative watch. After analyzing the size of the inherited fiscal deficit, Moody’s determined that the City’s financial deterioration was “far larger than anticipated” based on the information they had received form the previous administration. However, Moody’s lauded the new administration for the response thus far – declaring fiscal crisis and “slowing expenditure growth,” specifically by saving the City $1.2 million in reduced overtime costs, lower overall management salaries, and amortizing state pension payments.

Moody’s stated that the work the new administration has done thus far to responsibly handle what they have inherited has helped the City avoid another rating downgrade at this time. Moody’s affirmed Long Beach’s current rating, maintaining the City’s access to capital markets and citing the importance of continuing to use cash flow borrowing as a bridge to expected incoming revenues. As a direct result of Moody’s guidelines for improving the City’s bond rating, the City will be looking to go to market for $6 million in Revenue Anticipation Notes at a special City Council meeting on Tuesday, March 27 at 7pm.

In Moody’s ratings review, the following challenges were indentified:

  • “The city’s newly-appointed financial manager attributes the budget deficit to the previous management team’s overly aggressive estimate of revenues and failure to control expenditures.”
  • “With the continued decline in the city’s financial position, maintaining adequate cash flow for operations has become increasingly difficult. In December 2011 the city issued a $1.75 million budget note and a $1.5 million tax anticipation note to make payroll in December and pay for employee termination payments. The city has $631,419 in debt service payments due through the end of April, which according to management will be paid with cash currently on hand, currently at approximately $5 million. However, cash continues to decline and the city expects to issue additional short-term notes in April to raise cash for ongoing liquidity needs. Absent the additional cash flow borrowing in April the City may not have enough liquidity to make future debt service payments in June of 2012.”
  • “The city’s General Fund’s position has been in decline for the past four years, declining to an estimated negative $7.4 million at the end of the FY 2012 from a high of $8 million in FY2008. In addition, the city’s Water Fund, Sewer Fund, and Risk Retention Funds are all expected to end the year with negative fund balances. Management projections indicate that failure to address the city structural problems will increase the budget deficit to nearly 25% by the end of fiscal 2015.”
  • “Positively, the city’s declaration of a fiscal crisis in February gives the city manager greater control over expenditures which have contributed to year over year deficits. This action has already led to a reduction in overtime expenses by nearly 70%. Management also notes that since January the new administration has reduced expenditures by $1.2 million from mid-year projected spending levels. Additionally, management is actively working with collective bargaining units to achieve savings including offering the CSEA an early retirement incentive.”

Moody’s also gave the City information concerning its outlook for the future, stating “Moody’s continues to review the city’s rating for possible downgrade, in the context of its deteriorating financial position and liquidity. Specifically, our review is focusing on the city’s ability to access the capital markets for short-term cash flow borrowing, as well as management’s ability and willingness to improve the city’s financial position and liquidity.”

The following is a list of what could cause the rating to go up or down:

WHAT COULD CHANGE THE RATING – UP (REMOVAL OF WATCHLIST ACTION):

  • Demonstrated ability to manage cash shortfalls in the near-term.
  • Continued ability to access the capital markets or privately place additional note borrowings.
  • Development of a financial plan to return the city to structural balance and begin increasing reserves in all funds.

WHAT COULD CHANGE THE RATING – DOWN

  • Failure to return to structurally balanced operations
  • Further liquidity declines.

Since a key credit rating criteria used by Moody’s is liquidity, or a projection of balances in the future, Long Beach is issuing revenue anticipation notes now which will have a maturity after the receipt of next year’s property tax bills and seasonal revenues. This ensures that the City will be able to perform essential services while the gap-closing measures take effect. This borrowing serves as a bridge to allow the City to make the necessary changes to balance the budget going forward. If this borrowing did not take place, the City would have been forced to immediately layoff 20-30% of its staff.

Moody’s Issues Scathing Report on LB Credit (It’s Less Good)

The speculation posted here on Friday is now confirmed by Moody’s themselves. The City’s credit now sucks more. What’s most interesting about the downgrade is how clear Moody’s is in explaining exactly why they are downgrading, and then spelling out how to get out of this mess. Also, no where in this do they mention anything at all about Irene causing any of this as our soon to be departing Dear Leader told the Herald.

Now I’m sure a lot of you wonder “how could we be financially sound and improving in the Summer but now a financial disaster?” Don’t worry, Moody’s was kind enough to explain, and point a pretty big finger right at City Hall:

“Moody’s is also reviewing the city’s rating for withdrawal due to insufficient information given severe negative discrepancies between the city’s projections in August 2011 of reserve and cash positions and unaudited reporting of its fiscal 2011 results earlier this month.”

What’s that you say there? “Severe negative discrepancies”? In a nut shell, when Moody’s came in to look at the books and make their rating assessment they were told one thing, now they’re looking at reality, and it’s sadly very, very different.  Was their analyst lazy?  Were they not given the whole story?  Were certain details like a crapload of pending lawsuits and a overtime disaster omitted?

What Now?

Moody’s lays it out pretty clearly:

– Demonstrated ability to manage cash shortfalls in the near-term.

(Don’t spend more money than the City has)

– Continued ability to access the capital markets or privately place additional note borrowings.

(Keep borrowing money to fund big projects, slightly counter-intuitive, but Moody’s wouldn’t be in business if it didn’t encourage people to borrow money)

– Development of a financial plan to return the city to structural balance and begin increasing reserves in all funds.

(Make a budget that increases revenues while not spending more than we have)

Further, Moody’s basically says doing the opposite of this (not balancing the budget, and further shortfalls) would lead to yet more downgrades.

What does this mean for the city?

The City may be given worse interest rates when it goes to market to borrow money for things  like covering payroll shortages.  I emphasize may because banks use this rating in just one small part of how they determine how they loan money.  To also get the City’s credit backup, it will have to raise revenue.  Of course, that brings in that nasty “T” word, yup, taxes.  So we either need our property values to go up, more people to move here, have an amazing summer season, or have super successful business so more money will be raised by our current tax structure, or else, they will have to go up.  It’s not political, it’s just reality.

What does this mean to you?

Not much. In your wallet this really shouldn’t do anything. A downgrade A1 to Baa3 is actually only a one step drop on the road to having Greek-level “junk bond” credit. There’s 5 full steps between now and then. And also for a little history, the City only came off of a Baa1 rating in 2008, so this isn’t a particularly new position for the City to be in.

The greater impact is on what you should think of the politicians and the clowns running this City. Moody’s clearly states that they weren’t told the whole picture when they came in for their review, and because of that gave a rating that just wasn’t accurate. Convenient that that was right before a major election.  Now that the election went the other way for those guys, it looks like the glue and tape that was holding this contraption together have effectively fallen off. I’ve always been a skeptic of anything coming out of a poltiican’s mouth, but after hearing months of gloating about this almighty credit rating, to see it yanked so quickly and so harshly is joke.

So, yet another mess for the new administration to have to attempt to stabilize. It would sure be great if there was a massive revenue-generating festival coming in six months to help with those cash shortfalls. Oh right, that was borked as well.

Full Press Release from Moody’s follows:

New York, December 20, 2011 — Moody’s Investors Service has downgraded to Baa3 from A1 the rating on the City of Long Beach’s (NY) $48.3 million outstanding General Obligation debt. Concurrently Moody’s has placed the rating on review for possible downgrade. The bonds are secured by the city’s unlimited general obligation pledge.

SUMMARY RATINGS RATIONALE

The downgrade to Baa3 reflects the city’s deteriorating financial position since 2008 marked by a lack of structural balance due to declining mortgage tax revenue and increasing expenditures. The rating also factors the city’s sizable tax base with above average wealth levels and a manageable debt burden.

The placement of the rating under review reflects the projected deficit fund balance in fiscal 2012 and a deteriorating cash position resulting in near-term liquidity strain.. The city recently issued Tax Anticipation Notes and a Budget Note in order to have sufficient cash to meet the December payroll. Projections show the city’s cash balance is expected to decline further and may require additional cash flow borrowings in the near term which will require market access. Moody’s is also reviewing the city’s rating for withdrawal due to insufficient information given severe negative discrepancies between the city’s projections in August 2011 of reserve and cash positions and unaudited reporting of its fiscal 2011 results earlier this month.

Effective January 1, 2012, all local governments in New York State will be subject to a property tax cap which limits levy increases to 2% or the rate of inflation, whichever is lower. While school district debt has been exempted from the cap, debt has not been exempted for all other local governments. Moody’s will continue to treat all general obligation debt issued in New York as an unlimited tax pledge through the end of the year. We continue to research what the impact of the new property tax cap will be on debt issued by nonschool districts after it goes into effect next year. For more information regarding the property tax cap please reference the Special Comment “New York State’s Property Tax Cap will Further Pressure Local Government Finances; School District’s Most Impacted” released July 5, 2011

STRENGTHS:

– Large tax base with above average wealth levels
– Manageable debt position

CHALLENGES:

– Significant weakening of financial position due to severe structural
imbalance

– Cash position continues to deteriorate and projected to be depleted by
end of year, necessitating cash flow borrowing

WHAT COULD CHANGE THE RATING – UP (REMOVAL OF WATCHLIST ACTION):

– Demonstrated ability to manage cash shortfalls in the near-term.

– Continued ability to access the capital markets or privately place
additional note borrowings.

– Development of a financial plan to return the city to structural
balance and begin increasing reserves in all funds.

WHAT COULD CHANGE THE RATING – DOWN

– Failure to return to structurally balanced operations

– Further liquidity declines.

Official: LB Bond Rating Downgraded to Baa3

Trash? Ok, so not exactly Junk Bond Status, but it is a downgrade. As first mentioned on this site last Friday, Moody’s officially downgraded Long Beach’s bond rating down to a Baa3; A far cry from the A1 the city gloated about in the October 2011 LB Citybeat newsletter a few months ago. I am still waiting for the official press release on Moody’s website and will post more when it’s available, but the Long Beach Herald pretty much has all the info you need (LB Herald – Moody’s to downgrade Long Beach’s credit rating.)

According to that article, it seems like Tropical Storm [Hurricane] Irene is once again being blamed. What I don’t understand is this: If that storm was such a financial disaster for this city then why would City Council President Thomas R. Sofield, Jr. tell us how great our finances are in a city newsletter that was printed well after the storm? I mean, tell us the truth for once.

From the taxpayer-funded October 2011 LB Citybeat, Sofield said:

“Even in this era of economic uncertainty, while the Federal Government’s bond rating has been downgraded, we are proud to say that our City’s finances are in order,” states City Council President Thomas R. Sofield, Jr. “This favorable rating given to us by Moody’s demonstrates their recognition of our sound financial structure both now and going forward. 

“Our administration is proud to lessen the tax burden to our residents with no increase in taxes for the fiscal year,” says Sofield.  “We are committed to reduce spending while seeking funding through alternative  sources as we move forward with infrastructure and other upgrades throughout the City.

October might have been cutting it close, but they could have updated us taxpayers in the newsletter that was send out a month later. The followup November 2011 LB Citybeat said absolutely nothing about the financial state of affairs the City of Long Beach apparently suffered from Tropical Storm Irene. I mean, surely our elected officials would of known by then what financial damage this city suffered.

This is what I think: Leading up the the elections we were told how great our city’s financies were. The LB Coalition doesn’t get re-elected and guess what? The shit hits the fan. They sing a different tune and Long Beach is a financial disaster. First we have to borrow money and now this bond rating downgrade. Here is something to think about: Maybe it has to do with some salaries / hiring practices and not the storm at all? Can we get a list of all city employees, including Interns & their salaries? I demand to know where my tax money is going.