A New York state agency issued a report last week saying that City of Long Beach separation payouts are a major driver of its fiscal stress, and made a number of recommendations to reduce costs.
The report came from the state’s Financial Restructuring Board for Local Governments, roughly a year after State Sen. Todd Kaminsky and the city sought assistance from the agency amid a financial crisis.
“In recent years, employee separation pay has created significant issues for the city’s fiscal stability,” the board said. “The city has not adequately planned for, and has not properly or consistently funded, these multi-year separation payouts.”
The board said that the city’s payout policies are unprecedented in the state, particularly for retiring police and firefighters, with the average payments “well into the six figures,” and it recommended renegotiating labor contracts to reduce separation payments and to require police and firefighters to pay a portion of their health care premiums. The police and firefighter unions, the report noted, are working under expired contracts.
“These two departments alone constitute 30 percent of the city’s gross health insurance cost,” the report stated. “As such, the board believes the city and its police and fire collective bargaining units should work together to negotiate a fair contribution rate to offset the high cost of health insurance.”
As part of its review, the board also awarded the city $375,000 in grants to cover the costs of retaining a financial consulting firm that the city hired in May to assist in its fiscal recovery, as well as upgrading more than 500 streetlights with energy-efficient LED lighting that the board said would save a significant amount of money. Acting City Manager Rob Agostisi, who was appointed in January, said during recent budget talks that the recommendations of the FRB would factor into a long-term plan to turn the city’s finances around, including a re-evaluation of its payout process to union and non-union employees.
“The city is especially pleased by the [board’s] validation of our recent decision to retain a long-term financial planner, Capital Market Associates,” Agostisi said in a statement. “While the city naturally would have preferred to receive additional grants at the outset, we appreciate their thoughtful approach, and we understand that the city is now a ‘lifetime customer’ of the FRB. Their blueprint can be used now, or at any point in the future.”
The board approved the city’s request for a comprehensive financial review — in which the city stood to receive up to $5 million in grants and loans — in June 2018, in the wake a fiscal crisis largely triggered by a budget shortfall after the council voted 3-2 to reject a $2.1 million bond measure to cover separation payments to union and non-union employees in the 2017-18 fiscal year.
Council members questioned whether the payouts were proper after it was revealed that a number of employees — including former City Manager Jack Schnirman and other non-union staffers who remained on the payroll — might have been overpaid. State Comptroller Tom DiNapoli’s office is auditing the city’s payout practices, and Nassau County District Attorney Madeline Singas is investigating the payments.
Report illustrators city's financial decline
The state board noted the city’s reliance on borrowing and the use of its fund balance to cover large separation costs. The report also illustrated Long Beach’s financial decline, one that was masked largely by borrowing in the wake of Hurricane Sandy.
City officials had touted a turnaround of the city’s finances and balanced budgets after the Democratic administration inherited a $14.2 million deficit in 2012, and the fiscal challenges in the aftermath of the storm. But the board said that although the city made a “drastic” turnaround to a $9.1 million surplus by 2014, much of that was due to the issuance of debt to cover separation payouts and lower-than-expected employee retirements. Four consecutive budgets, the agency said, included overestimated revenues and underestimated expenditures.
“While surpluses of this magnitude may indicate, at first glance, that the city had restored fiscal sustainability,” the report noted, “it is clear upon further examination that the surpluses were generated by one-time actions and only temporarily masked Long Beach’s structural budget imbalance.”
The city has run deficits since 2015, the board said, including a $5.2 million deficit at the end of fiscal year 2018. Long Beach continues to face budgetary challenges, the board wrote, “including expired labor contracts, ongoing infrastructure upgrades, large separation payouts, and the potential for a summary judgment of up to $50 million for damages related to longstanding zoning litigation.”
“I certainly think the financial experts put in perspective how big the problems are,” State Sen. Todd Kaminsky told the Herald, adding that residents have been calling for reforms. “They said no other municipality has a payout policy like this, and that, obviously, is very telling. I think for a lot of the report, beyond the payouts, they’re listing a menu of options the city can address, but the payouts were the ones they said were unique to Long Beach that put the city in a bad position — and that needs to be addressed immediately.”
A struggle to fund separation payouts
The city, the report stated, has struggled to fund such payouts and has borrowed $15 million since 2012. The lowest average payout, the report said, for a retiring career firefighter, is nearly $300,000, and the highest exceeds $600,000 for a police sergeant.
“The payouts are made possible by significant vacation, sick and other time accruals permitted in collective bargaining agreements,” the board wrote. “In the course of its engagements with other municipalities, the board has yet to encounter separation pay policies elsewhere in the state that allow payments of this magnitude.”
“These payouts represent a fiscal threat to the city, and have prompted the borrowing of millions of dollars in recent years to cover unexpected retirements and other separations,” the report added.
The city could be eligible for more grants, the board said, and the report made a number of recommendations that it said the city is either already pursuing or could explore as potential ways to increase revenue and reduce costs. They include installing parking meters, sharing more services with Nassau County, modernizing its employee time-keeping procedures, “resizing” its police force, and transferring city operations of the Magnolia Center to a nonprofit organization, which would lease the facility.
Police and fire union leaders, however, challenged some of the report’s findings and its recommendations, saying that the unions are not to blame for the city’s current financial problems.
“Over the last 100 years of collective bargaining, there has been give and take, and unions have accepted increases in caps on retirement payouts in lieu of many other benefits enjoyed by comparable jurisdictions,” said Lt. Bill Dodge, president of the Commanding Officers Association, which represents lieutenants in the Police Department.
“This benefited the city greatly over the years,” Dodge continued. “The unions are not to blame for the city’s strategies over the years. Every nickel of every payout has been earned and negotiated for by the unions through collective bargaining and in exchange for some other tangible benefit.”
Sam Pinto, president of the Long Beach Professional Firefighters Local 287, said the report ignored “questionable actions” by current and former administrations, and “focused on attacking contractual agreements made by the city and unions.”
“This report was designed to bring in up to $5 million in grant funding, yet the information shared was used to paint a bad picture of the workforce,” Pinto said. “If the city wants to work on the payouts, it should sit down in good faith with the unions to discuss it.”
City Councilman John Bendo said that some of the recommendations are “easier said than done.”
The report “is putting out things that we sort of already knew, but that’s good in that the state is now acknowledging it,” Bendo said. “They talk about benefits that some of the employees get under collective bargaining agreements and renegotiating some of those, and that’s fine — we can do that — but it’s going to have to be a collaboration between the administration and our employees.”