New Orleans Mayor LaToya Cantrell is asking the City Council for permission to borrow up to $100 million to fill a projected budget gap that she expects the coronavirus crisis will create, according to two City Council members.
Earlier this month, Cantrell estimated the city was looking at a $150 million budget shortfall this year, largely due to lost sales tax revenues from businesses shuttered by city and state emergency orders. The council plans to vote on the measure at its next regular meeting on May 7.
Council members Joe Giarrusso and Jared Brossett both told The Lens that there are still questions that need to be answered before they can cast their votes. They said that information is still lacking regarding how the $100 million will be spent, how the projected shortfall was calculated and what exact method of borrowing the administration plans to use.
“We haven’t seen that yet,” Giarrusso said. “Look, we understand there’s going to be circumstances where the city might need money. But what is that for? What does it cover? Is it for the services themselves or paying the personnel who perform those services?”
The council expects the administration to answer those questions and more at a budget committee meeting on Tuesday. But even without detailed financial information, both council members acknowledged that the city was facing unprecedented economic difficulties, and that a measure like this was likely inevitable.
“I fully understand the point that there is going to more likely than not be a significant hole in the budget without a federal bailout,” Giuarrusso said. “So how do you smooth that over? I think certainly [a certificate of indebtedness] is the way to do that.”
Cantrell has argued that the current level of federal coronavirus aid is insufficient for cities like New Orleans. A March emergency declaration from President Donald Trump will allow local and state governments to recover 75 percent of their expenses related to combating the global pandemic. But those costs for New Orleans are relatively low.
According to documents provided to the Council last week, the city had spent $3.3 million on the coronavirus response as of April 22. That’s less than the estimated costs of two other recent disasters. The October collapse of the Hard Rock building and a December cyberattack on city government had taken a $14 million toll on the city’s budget as of February.
Most of the larger costs associated with the city’s coronavirus response have been covered by the state and the federal government, such as the field hospital set up at the Ernest N. Morial New Orleans Convention Center or the two hotels that are being used to house some of the city’s unsheltered homeless.
The $3.3 million the city has spent on the response will be dwarfed by the amount of money the city expects to lose from sales taxes and other revenue sources. The city’s vital hospitality and tourism industry has come to a grinding halt, and it’s far from clear what impact the pandemic will have on travel for the rest of the year, let alone 2021 and 2022.
The CARES Act provided $150 billion in aid for state and local governments, of which $1.8 billion is going to Louisiana. New Orleans will likely see some of that money. Commissioner of Administration Jay Dardenne has said the state plans to share about $810 million of that with parishes.
New Orleans, the largest city in the state and the epicenter of the crisis in Louisiana, isn’t eligible to apply directly for federal aid. That’s only available for municipalities with over 500,000 residents.
Whatever funding is passed through to New Orleans, the money provided to the state in the CARES Act will only cover expenditures, not revenue losses.
“The past eight months have been difficult for the city of New Orleans, from the Hard Rock collapse to the cyber attack to of course the current public health emergency presented by COVID-19,” Brossett said. “And we are just about a month away from hurricane season. We are facing dire financial circumstances. My biggest concern is to make sure that basic government services will be covered for the remainder of fiscal year 2020: fire protection, police, public safety, EMS and of course a big concern is public health and sanitation. That’s core government services.”
Brossett said that Cantrell hasn’t sent over her full requested resolution yet, so it’s still somewhat unclear what method of borrowing the administration is proposing, and how the debt would be paid off. The Cantrell administration did not answer questions from The Lens about the structure of the proposed debt.
No matter what method of borrowing used, Giarrusso said, the city has to think about how the debts will affect future budgets.
“It isn’t a freebie,” he said. “Every year you’re going to owe a certain amount of money. And that reduces the services you can provide.”
A lot of questions
Throughout April, the City Council has been trying to get more information from the Cantrell administration about the financial impacts of the coronavirus crisis. Brossett, as chair of the council’s budget committee, was especially concerned.
The council was more in the dark on the city’s finances than usual even before coronavirus found a toehold in Louisiana. That’s in large part due to the city’s prior crisis — the December cybersecurity attack that debilitated the city’s operations for months.
“Thus far, the Administration has not submitted any Budget related reports to either the Council or the Budget Committee this year,” said a April 16 letter from the full City Council to Chief Administrative Officer Gilbert Montaño. “Each time the Council has requested this information, we are told the information is unavailable due to the December 2019 Cyberattack. However, in order to complete and submit an application to the State Bond Commission, as the Administration desires, or to complete the required annual audit, the administration must provide much more detailed information than what the Council is requesting.”
The letter then went into over two pages of questions, asking about expected revenue losses, fund balance statuses, furlough and layoff plans, the state of the city employee pension system and updates on the financial impact of the Hard Rock collapse and Cybersecurity attack.
Last week, the administration responded with some of the requested information. It sent revenue collections projections for the first three months of 2020, coronavirus response costs, operating expenditures so far in 2020, personal spending forecasts for 2020 and a workforce status update.
There are more questions from the council’s letter that remain open than have been answered, but Brossett and Giarrusso said the flow of information is improving.
“The initial information from the administration was a starting point,” Giarrusso said. “And then the budget committee next week is the next step. And we want to make sure that we have enough information as possible knowing that there’s likely to be a large, looming hole in the budget.”
In a statement, Cantrell’s office said that Montaño and Chief Financial Officer Norman White would be at the council’s budget committee meeting on Tuesday to “present a comprehensive update on the financial status of the city.”
Tuesday’s preliminary agenda includes a “comprehensive update on the city’s 2020 budget” from Montaño, as well as a personnel spending and revenue collection forecasts from Montaño and White.