City borrows $5 million to make payroll

As the city contends with a projected $10.25 million deficit, the City Council voted 4-1 on Tuesday to borrow $5 million in tax-anticipation notes in order to make payroll at the beginning of July.

The measure came a day after the State Assembly passed a bill that would allow Long Beach to borrow up to $15 million in serial bonds in order to reduce a proposed 16 percent tax increase and pay down its deficit over 10 years. The measure is expected to pass the Senate this month.

City Comptroller Jeff Nogid said that the city would issue $12 million in deficit-reduction bonds that would ultimately replace recent cash-flow borrowing the city most likely would have continued. The state measure also allows the city to institute a tax increase of 7.9 percent.

“The state advised that we ask for a little bit more than we think we need,” Nogid said, “because we can’t go back to them for additional capacity if something happens.”

The city borrowed $6 million in March to pay its workers, to help close the deficit and to balance the budget by the end of the fiscal year. It had borrowed approximately $2.5 million in December amid a staggering cash-flow shortfall that led Moody’s Investors Service to downgrade the city’s credit rating five levels. The city avoided a further downgrade last week.

“Until the time comes when we have restored the city’s rainy-day fund, and in the short term, until the state deficit financing process is completed, on a regular basis, we will need to borrow against the upcoming property taxes to ensure adequate cash flow,” City Manager Jack Schnirman said. “Moody’s review of the city’s financing identified key factors affecting the city’s credit rating, one being our ability to access capital markets and maintain available cash on hand.”

Nogid said that the issuance of serial bonds would increase the city’s general-obligation debt from $48 million to $60 million. That led some to criticize the administration for “excessive” borrowing.

City Councilman Mike Fagen, who voted against the measure, said that residents would be hit with tax increases for a decade, and that the administration should do more to cut costs, such as trimming exempt employee salaries.