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July 11, 2013

 

DiNapoli: Long Beach Faces Fiscal Challenges but Moving in Right Direction

Poor budgeting of the prior administration in the city of Long Beach created an $18 million multi-year deficit while also exhausting $21 million in rainy day funds, according to an audit released today by State Comptroller Thomas P. DiNapoli. The audit, which was requested by city officials, was conducted prior to the damage caused Superstorm Sandy.

“By consistently adopting inaccurate budgets, the prior city administration created a significant deficit, depleted its surplus funds and went further into debt,” said DiNapoli. “As Long Beach continues to recover from the devastation caused by Superstorm Sandy, city officials must also battle to undo the long-term damage done to their budget. It is encouraging that the current administration requested this audit to aid their efforts. Although Long Beach was facing financial strain before the storm, city officials’ pro-active approach will be necessary to address systemic budget problems and lead the city out of fiscal stress.”

Auditors found for years the prior administration of Long Beach enacted budgets that included unrealistic estimates of revenues and expenditures. As a result, the prior administration frequently relied on inter-fund advances, budget notes, and long-term financing to fund operations.

During fiscal years 2008-09 through 2011-12, for example, revenues were over-estimated by more than $12 million. This included utilities gross receipts taxes, commercial sanitation fees, traffic violations fees, and mortgage recording taxes. During this same time frame, actual expenditures exceeded budgeted appropriations by a total of $2.8 million.

The city also depended on its fund balance to offset the operating deficits created by adopting unrealistic budgets. During fiscal years 2008 through 2012, the total unexpended surplus for the city’s general fund, water fund and sewer fund declined by a total of almost $21 million, from a surplus of $6 million to a deficit of $14.8 million.

“As a new administration that came into office in January 2012, we had serious and significant concerns regarding the city’s internal controls and cash controls, particularly as they related to the summer season, our most economically critical time of the year,” said Long Beach City Manager Jack Schnirman. “This audit validates and illuminates the areas of concerns we identified in the first few months of this administration in 2012. Clearly, the prior administration did not properly budget revenues and expenses, nor did they have adequate cash controls in place.”

Additional audit findings include:

  • The city did not plan for $4.2 million in separation payments for retiring employees despite personnel records and contractual agreements indicating liabilities that would be incurred. In July 2012, the State Legislature authorized the city to issue bonds payable over five years to finance these costs;
  • The city’s utilities gross receipts tax was over-estimated by $4 million from 2008-09 through 2011-12 because city officials did not consider historical data for this revenue;
  • City officials over-estimated revenues for commercial sanitation by $1.6 million during the four-year period;
  • The city consistently over-estimated revenues from metered water sales and sewer rents and created ongoing deficits in those funds that required $5.3 million in loans from the general fund;
  • City officials under-estimated overtime salaries by a total of $3.4 million during this period, by budgeting between $1.1 and $1.9 million per year, even though actual overtime expenditures were never less than $2.4 million in each of those years; and
  • The city had not formalized policies and procedures over Parks and Recreation Department cash collections. As a result, city officials could not be assured that all revenue is accounted for.

DiNapoli recommended the city should immediately develop a formal plan to reduce and eliminate its fund deficits and restore its fund balance to an appropriate level.

Additional recommendations include:

  • Monitor actual revenues and expenditures to ensure that operations do not deviate significantly from the budget;
  • Ensure that the inter-fund advances are repaid by the close of the year in which the loans were made;
  • Consider establishing and funding an Employee Benefit Accrued Liability Reserve fund to provide funding for future employee separation payments;
  • Require bank reconciliations be prepared monthly, reviewed by the City Comptroller and included as part of the monthly financial reports presented to the city council;
  • Establish formal, written policies and procedures for the collection of cash receipts; and
  • Investigate and resolve any and all variances between money received, as indicated in transaction records, with the actual daily cash collected and the bank deposits.

“We have already taken the Comptroller’s recommendations to heart and used them to help get the city back on the road to recovery,” stated City Council Scott J. Mandel.

Long Beach officials agreed with the audit’s findings and have already begun to implement many of the recommendations made by the Comptroller. The city’s response is included in the final audit report, which can be found here: http://www.osc.state.ny.us/localgov/audits/cities/2013/longbeach.pdf

For access to state and local government spending and more than 60,000 state contracts, visit http://www.openbooknewyork.com/. The easy-to-use website was created by Comptroller DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.


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