Mayor LaToya Cantrell’s hard-fought “fair share” infrastructure deal could provide more than $20 million a year for the struggling Sewerage and Water Board over the next decade. But that doesn’t come close to meeting the $3 billion in funding required by the Sewerage and Water Board’s 10-Year Capital Improvement Plan.
That was revealed by Cantrell administration officials on Monday at the first meeting of the City Council’s Ad Valorem and Special Dedicated Revenue Committee. The committee aims to take a bird’s eye view of the city’s finances and release a public report in early 2020.
“Oh wow, so every year, you’re hundreds of millions of dollars short leading up to 2028?” Councilwoman Helena Moreno asked at the meeting.
Sewerage and Water Board Chief Financial Officer Yvette Downs said that the deficit between the agency’s long-term needs and infrastructure deal funding was likely even larger, since the ten-year plan only considered projects it planned on doing when it was published in 2018.
“So that $3 billion is probably understated,” Downs said. “And we don’t have that kind of money.”
Covering those costs at the Sewerage and Water Board will likely be met with new grant money and bond issues.
Remaining fair-share deal money would likewise not get anywhere close to meeting the city’s other pressing needs — for roads, recent police salary increases and affordable housing, among other things. For those projects, Cantrell’s Chief Administrative Officer Gilbert Montaño is pursuing a new three-mill property tax and the issuance of $500 million in new bonds, which would be repaid with revenues from existing property taxes.
Cantrell spent much of her first year in office lobbying for the city to get a larger piece of tourism taxes, which bring in hundreds of millions of dollars per year, much of which goes back to tourism infrastructure and promotion rather than general municipal services. Her effort culminated in a deal brokered by her administration, Gov. John Bel Edwards and the tourism industry during the 2019 legislative session.
Rather than taking recurring tax dollars away from tourism, the infrastructure deal will create new taxes — including a one-cent hotel tax increase and a new short-term rental tax. The revenue will largely go to city infrastructure, although 25 percent of the proposed short-term rental tax will go to New Orleans and Co., a private organization formerly named the New Orleans Convention and Visitors Bureau that promotes tourism.
There are various aspects of the deal that still need approval from the City Council and, in the case of the short-term rental tax, New Orleans voters. But if all goes to plan, it is slated to bring in more than $200 million over five years. About $50 million of that would be in one-time payments, including money from the state and the Morial Convention Center. That arrangement was made in exchange for a legislative OK for a controversial convention center hotel project.
The administration predicts that the recurring revenue will be $27.6 million in 2020. Of that, $20.7 would go to the Sewerage and Water Board and $6.9 million would go to a city infrastructure fund.
The Sewerage and Water Board has a 10-year Capital Improvement Plan that calls for about $3 billion of investments. Those investments include hardening the Sewerage and Water Board’s power generation, building new underground canals and repairing drainage lines.
According to Montaño’s presentation, the recurring money from the fair share deal is the only significant planned annual spending on the improvement plan after 2022, leaving most of it unfunded.
In a brief interview after the meeting, Montaño said that there were a number of options for filling the gap, including federal grants and new bonds.
“The Sewerage and Water Board is trying to clean up their books the best they can so they can go to the market for more debt,” he said. “There are definitely long term strategies, but sadly, the situation we’re in is kind of like treading water. We can’t swim until we get our heads above water.”
‘The city is not funded the way that this city needs to be funded’
The common theme throughout Montaño’s presentation: the city needs a lot more money to fulfill necessary infrastructure and other public good projects.
“This city is not funded the way that this city needs to be funded,” Montaño said.
He said that while last year’s general fund revenue was about $700 million, it should be closer to $800 million.
The deteriorating condition of the city’s roads is another area that, according to Montaño, will need more cash. He said that the city will need to spend between $200 million and $250 million just to raise the average pavement condition to “fair.” It would take $5 billion to repair all the streets rated “poor” or below. And that doesn’t include investments in green infrastructure such as permeable cement.
Although the $7 million per year in city infrastructure from the “fair share” deal won’t fill the entire funding gap, it will still help. The Department of Public Works will hire 42 additional maintenance staff and purchase 29 new pieces of equipment including three pothole patchers. The money will also help establish three “exclusive ditching crews” to help improve street drainage and “will lead to 72,000 catch basins being cleaned on a 2-3 year cycle.”
Montaño discussed other potential new sources of revenue the city is eyeing. The first is $500 million in new general obligation bonds over the next three to four years. That money would be spent on a variety of things, from streets to public safety to libraries. But the most significant “project category” would be affordable housing, according to Montaño.
“When I’m looking at the bottom line, abatements and such as an incentive for affordable housing are really going to become almost a liability on the operating side,” he said. “So what else can the city do to address a significant need within Orleans Parish?”
The answer, he said, is for the city to build affordable housing projects itself, rather than the Housing Authority of New Orleans or a private developer, likely on land the city already owns. The city would then find a third party to operate the facility, which he said could perhaps be the Housing Authority of New Orleans.
“This is completely new to New Orleans and Louisiana, but not new to the country at all,” he said.
The other major revenue source being sought by Cantrell’s administration is a property tax increase. From 2010 through 2018, property taxes dedicated to financing general obligation bonds was 25.5 mills. That was lowered to 22.5 mills in 2019. The administration wants to raise it back to 25.5 mills in 2020.
“What this provides is something the city has never had: a maintenance program,” Montaño said. “The city has never had an identified maintenance program.”
That means rehabilitation to roads and drainage systems and money to purchase assets with a lifespan of less than a decade, such as software and vehicles.
“It baffles my mind is that we don’t have a replacement strategy,” Montaño said. “We have goals but never actually a strategies we can implement to address vehicle replacement, software and computers, the things that run everyday operations for the citizens of New Orleans we don’t have a dedicated resource for.”
The money could also go to cyber security.
“I really want to beef up our cyber security measures,” he said. “I have a little bit of concern about where we are on that.”
But council members were somewhat hesitant to endorse the millage increase. Currently, the Orleans Parish Assessor’s Office is reassessing property values throughout New Orleans, something the office has to do every four years. And skyrocketing home values in recent years are forcing some homeowners to face stark increases in the property taxes they owe.
“In plain English, what will the public lose if this does not happen?” asked Councilman Jay Banks.
“Because we’re on a 2000 calorie diet every day, eventually over time you’re going to see the city erode,” Montaño said. “If this doesn’t move forward, what you see is going to get even worse.”
Both the bonds and the property tax require approval by New Orleans voters. On Thursday, Montaño said, the City Council will be considering ballot language for both the millage hike and the $500 million in new issue bonds. If passed, both measures would appear on the November 16 ballot.