Purpose of Budget Review
Determine whether the significant revenue and expenditure projections in the City’s proposed budget for the 2020-21 fiscal year are reasonable, and whether the City took appropriate action to implement or resolve recommendations from our budget review issued in May 2019.
Background
The City of Long Beach, located in Nassau County, has been authorized to issue debt not to exceed $12,000,000 to liquidate the accumulated deficit in the City’s general fund and certain other funds as of June 30, 2012. Local Finance Law requires all municipalities that have been authorized to issue obligations to fund operating deficits to submit their proposed budgets for the next fiscal year to the State Comptroller for review while the deficit obligations are outstanding.
Key Findings
- The proposed general fund budget includes appropriations of $83.2 million and revenue estimates of $36.6 million. For the fiscal year ended June 30, 2019, personal services and employee benefits accounted for 86 percent of revenue. This leaves little to finance operations and maintain infrastructure; yet the City continues to incur debt to finance recurring costs.
- City officials have not developed or adopted a budget calendar which would have included, among other things, the scheduled date for formal adoption of the budget. To date, City officials have been unable to indicate the date the City Council plans to vote on the adoption of the budget.
- The proposed budget includes revenue estimates of $4.3 million in metered water sales and $5.5 million in sewer rents. Water and sewer rents appear reasonable.
- The proposed budget includes appropriations of $2.7 million in termination salary payments. Although the City appears to have budgeted sufficiently for the 2020-21 fiscal year, we caution the City that its continued practice of borrowing to fund these operating costs is not fiscally prudent.
- The proposed budget contains an appropriation of $3.3 million for overtime, yet the City has already expended $2.9 million of the $3.1 million budgeted for 2019-20 as of March 30, 2020. Although the City has improved its projections for overtime costs in certain departments, it does not appear that the total appropriation will be sufficient.
- City officials only partially implemented the Comptroller’s recommendations in our May 2019 review of the 2019-20 proposed budget. They did not modify the budget to increase the appropriation for termination salary payments to be more consistent with past payments. In February 2020, the City issued $2.1 million in bond anticipation notes to cover termination salary related expenditures. Continued reliance on debt to finance operations perpetuates the City’s weak financial condition.
- The City’s proposed budget includes a tax levy of $46.6 million which is $4,136 above the limit established by law. The Council has not adopted a resolution authorizing the City to override the tax levy limit.
Key Recommendations
- Discontinue reliance on proceeds of long-term debt to finance recurring operating expenditures.
- Consider increasing the appropriations for overtime or ensure that controls are in place to reduce the use of overtime.
- Include cash flow projections in the budget, to identify and address cash shortfalls.
- Review our recommendations before the budget is adopted.