The city of New Orleans expects to spend $20 million on its response to the coronavirus crisis, projects a $137 million budget shortfall this year and plans to maintain a spending and hiring freeze until the end of the year and possibly through the first half of 2021. That hiring freeze is expected to engender a $16.7 million general fund surplus in 2020.
Those are a few of the details from a Monday press conference with Mayor LaToya Cantrell, as well as presentations and documents that the Cantrell administration will present to the City Council at Tuesday’s budget committee meeting. The press conference comes three days before the City Council will consider giving Cantrell permission to borrow $100 million to cover the projected budget shortfall. The council will consider the request at its regular meeting on Thursday.
Council members, in particular budget committee Chair Jared Brossett, have been hounding the administration for more information on the city’s financial position. In an April 16 letter to Chief Administrative Officer Gilbert Montaño, City Council members said they hadn’t received a single budget report from the administration in 2020. Earlier in the year, the administration said the lack of reporting was due to the December cyberattack against the city.
“In order to complete and submit an application to the State Bond Commission [for the $100 million borrowing request] as the Administration desires … the Administration must provide much more detailed information,” the council’s letter said.
New documents, uploaded with the budget committee’s Tuesday agenda, answer some of the basic questions on the proposed $100 million debt. The debt would have interest rates of six percent or less, according to a May 1 letter from Montaño to the council, and will be paid back in 15 years or less. The city will pay the annual debt service using an existing property tax of 13.91 mills, used for general city services, “and additionally or all revenues to be received by the city.”
Montaño’s letter did not provide detailed responses on how the $100 million figure was calculated or what exact costs the money could be used for. Instead, Montaño notes that even with approval, the city may not borrow the entire $100 million.
“The $100 million represents a ‘not to exceed’ amount in which the actual amount will be determined after necessary budget adjustments,” the letter said.
$130 million to $170 million shortfall
The amount of money the city will ultimately need to borrow is still far from clear. The city has already spent $4.5 million responding to the coronavirus crisis, and expects to spend $20 million by the end of the year. At least 75 percent of those costs are expected to be covered by FEMA.
The bigger issue for the city are the revenue losses due to the crisis. Business and travel restrictions have brought the city’s vital hospitality and tourism industry to a sudden halt. It’s still unknown when travel restrictions will be lifted and businesses will reopen. But even then, it’s difficult to predict how individuals will adjust their travel behaviors independently after the government restrictions are released. And we still don’t if there will be a resurgence of the virus in the fall.
At Monday’s press conference, Montaño presented three scenarios that lead to budget shortfalls of $130 million, $150 million and $170 million, depending on how quickly the city reopens. The Cantrell administration appears most focused on the $130 million scenario.
Under that scenario, according to Montaño’s presentation, major events will return in October, 90 percent of tourists in driving distance return by July and 90 percent of tourists in flying distance return by October.
In his letter to the Council, Montaño predicted the city will collect $137 million less in revenue than it budgeted for this year. Almost that entire gap is due to lost sales tax revenue. Sales and other tax collections are projected to be $111 million less than expected, meaning the city will only collect 58 percent of what it thought it would. Under current projections, sales taxes — usually by far the city’s largest single source of tax revenue — will come in at about $153 million by the end of the year, $14 million less than property taxes. Budgeted pre-coronavirus projections had 2020 sales taxes at $264 million.
Property taxes, largely collected in the first quarter of the year, are not projected to take a hit this year.
The city will also see major losses in the fines and forfeitures category. Those collections are projected to be $13 million, or 33 percent, less than what the city budgeted for.
Most of those losses are still predictions. Revenue collections from January through March of this year appear to be relatively stable compared to 2019, according to a revenue collections report from the administration. The administration made those projections under the assumptions that all major 2020 events and conventions are postponed, that hotel occupancy will be under 10 percent through June and will remain under 15 percent into the fall and that visitors will remain cautious to travel even after restrictions are lifted.
The documents also include some good news. The city’s projected budget hole got a little smaller in March when the city instituted a city-wide spending and hiring freeze. The city expects to save $16.7 million on personnel spending this year. That doesn’t include furloughs or layoffs. The savings are mostly due to the city’s hiring freeze, Montaño said on Monday.
The city has not made any decisions on staff furloughs or layoffs. Those might depend on department needs. Department heads were told to submit budget reduction documents last week, which could include operating costs, staff or a mix of both. Those were not made available on Monday.
Montaño said on Monday that the administration expected “potential departmental savings” to be between $35 million and $50 million. Those anticipated savings, plus the $16.7 million reduction in personnel spending, reduces the deficit from $130 million to somewhere between $63 million and $78 million.
How that remaining gap will be filled will depend on how much of the city’s coronavirus expenses are reimbursed by the federal government.
The federal CARES act provided relief funding to states and some local governments to cover expenditures, not revenue losses, resulting from their response to the coronavirus. Local governments representing populations of under 500,000, like New Orleans, cannot apply directly for aid. The state of Louisiana is receiving $1.8 billion as a state, and Gov. John Bel Edwards’ administration plans to pass through 45 percent of that — or $810 million — to parishes, but details are not yet available.
But Cantrell made it clear that while they were hoping and fighting for more federal aid, they were not relying on it.
“Even as we focus and fight for the federal dollars that we are advocating for to help aid the city in the revenue losses that we are experiencing, but we’re not facing this with the thought of the cavalry coming from the federal government, but more of wanting to save ourselves and come up with a strategy that we can deploy and we can have confidence in.”
While it’s not clear exactly how the city will close the budget hole without federal aid, Cantrell and Montaño presented some ideas on Monday. Both mentioned potential savings in the sanitation department by cutting down the number of trash pickup days. Cantrell said that by reducing trash pick up to one day a week in the French Quarter, the city had saved $800,000.
“It is very unique across the country to have 2 trash pickups a week,” Montaño said. “So certainly things like that have to be on the table.”
Other potential savings could come from reduced parking and traffic enforcement as more people remain at home and off the roads. He mentioned closing city “centers” for some days of the week, police overtime savings from cancelled special events, cutting janitorial contracts for city buildings that are currently unoccupied and encouraging early retirement.
In his letter to the council, Montaño also said the city is looking at federal Community Development Block Grants and law enforcement grants run by the federal Department of Justice to fill the gap.
But the administration is also planning for the worst if none of those funding plans pan out.
“Furloughs and layoffs remain a possible outcome if the federal funding allocated to the city is insufficient in replacing the lost revenues,” the letter said.
“I want to be clear: nothing is off the table,” Montaño said in an email to department heads last month. “I would like you to look at your personnel and other operating expenses; I would like to know if any of your department’s assets can be liquidated, or contractual spending can be decreased, just to name a few.”