The city of New Orleans’ projected allotment of federal coronavirus relief funding was reduced from $150 million under a plan by Governor John Bel Edwards to less than $93 million after the state’s Republican-controlled legislature reduced the amount of funding dedicated to local governments.
That was according to a presentation from Chief Financial Officer Norman White at a Tuesday City Council budget committee meeting. White also warned that New Orleans’ allocation could shrink more as coronavirus cases spike in other parishes across the state.
White was attending the virtual meeting to explain why the administration was withdrawing a request to borrow millions of dollars to fill budget gaps for critical services. Cantrell began asking the council for permission in April to open a $100 million line of credit, as the dire, long-term economic impacts of the coronavirus crisis were clarifying.
But on Tuesday, White explained that the administration was withdrawing the request until they knew exactly how large a piece of federal pass-through funding — meant to reimburse COVID-19 related expenses for local governments — that the city would receive from the state.
Louisiana received $1.8 billion in federal funding from the Coronavirus Aid, Relief and Economic Security Act, or CARES Act. Governor John Bel Edwards had originally proposed using $811 million of that funding for local municipal and parish governments, saving $1 billion to plug gaps in the state budget.
However, the state’s Republican-controlled legislature voted to carve out $300 million of that for small business grants. Edwards signed the legislation into law last month, despite calls from New Orleans Mayor LaToya Cantrell to veto it.
White said that under the state’s formula for distributing money to local governments, the administration projected that New Orleans would receive roughly $150 million of the full $811 million.
In that scenario, “The city would not need to borrow at all,” he said.
But he said the amount of local government aid has been whittled down “somewhere around” $484 million. With the reduced overall funding, New Orleans expects “somewhere less than $93 million” for itself, White said.
He said that the state was going to distribute the funds in a series of “four to five tranches.”
“Based on the federal guidelines of submitting for eligible expenses, the city submitted roughly $48 million worth of expenses to the state, hoping to recoup that money in the first tranche,” White said. “The city is roughly receiving somewhere around $23 million. … The number we expect to receive after four to five tranches is somewhere less than $93 million.”
White said that the first $23 million could come to the city as early as this week.
“There’s a great chance that we are going to need a loan to move forward,” he said. “In addition to that, because the cases across the state are growing, it may put us in a position to receive less money.”
Though the city could theoretically have been eligible for as much as $150 million in CARES Act funding, it was not clear from Tuesday’s presentation whether administration officials project that it will realize that much in reimbursable, coronavirus-related expenditures. The federal government has provided some flexibility on how the funds can be used over the past few months, for example allowing the money to be used to help cover payroll for public safety and public health employees. But most of the city’s projected COVID-19 losses result from lower revenue collections, which are not reimbursable.
White also explained that the state’s formula for awarding relief funding is based in part on the severity of the area’s coronavirus outbreak.
New Orleans was the epicenter of the state’s outbreak and a national hotspot in the spring. But New Orleans was able to significantly slow its infection rate, a turnaround that many have credited to the Cantrell administration’s cautious approach to the pandemic.
Cantrell was early to mandate business closures and other social distancing guidelines, waited to loosen restrictions on businesses even after Edwards moved the rest of the state into the first two phases of reopening and adopted Louisiana’s first requirement that customers — rather than just employees — wear face coverings while patronizing businesses.
Cases have seen an uptick Orleans Parish in recent weeks, but at a slower rate than across much of the rest of the state. The city’s success keeping the virus under control, at least relative to other parishes, could further reduce the amount of funding it receives, White said.
“As the other cities within the state grow, the city’s portion reduces as we go forward. And there’s no real way to put our finger on what number we’re going to receive so we’re finding ourselves in kind of wait and see mode,” he said, asking the council to pause on an item authorizing the city to issue debt.
“What we’re asking is to defer this agenda item simply so we can hear back from them so we know exactly what we need going forward.”
‘We thought this would be even worse at this point’
Starting in April, the Cantrell administration was asking the council for permission to open a line of credit of up to $100 million. The resolution on Tuesday’s agenda, before it was withdrawn, was only asking for $50 million. White said the smaller request was in part because “sales tax was slightly up” from what officials expected to collect so far this year.
A new report from the Cantrell administration, presented on Tuesday, indicates that the city isn’t losing as much sales tax revenue as it predicted would happen as a result of the coronavirus crisis and subsequent lockdowns and business closures.
Collections are certainly below where they would normally be. In the first five months of the year, the city collected $11 million less in sales taxes than it did through the first five months of 2019, according to the revenue collection report. The city has only collected 28 percent of projected annual sales tax revenues through May, as opposed to 34 percent through May 2019.
But compared to the city’s dire warnings earlier in the crisis, the numbers are not so bad.
In a presentation to the budget committee on Tuesday, City Economist Randall McElroy tried to put the numbers into context.
“As we’ve all been watching, the economy isn’t doing so great,” he said. “This is reflected in our sales tax collection. This number, we’re watching this one very carefully. … So the news so far does not look great, although initially, we thought this would be even worse at this point. So I guess that’s something.”
In May, the city projected that 2020 sales tax collections would be down about 42 percent, or $111 million, from last year. Some of the worst losses were expected in April and May — heavy tourism and festival months that the city relies on to attract out of town spending and boost sales tax revenue. Those months also saw the heaviest economic restrictions so far.
The city and state started placing restrictions on business and travel in March, kept them in place through April and started “phase one” of lifting those restrictions in May. The state entered phase two in June, but has stalled there due to spiking cases across the state.
In May, the Cantrell administration estimated that the city could face a budget shortfall ranging from $130 million to $170 million, representing 18 to 24 percent of the city’s entire general fund budget.
The real collection numbers don’t show the type of catastrophe that the city expected, at least not yet. In fact, taking all revenue streams into account, the city has collected roughly the same amount of revenue through May of this year as it did through May of last year, both in terms of absolute sum and the percentage of budgeted revenue that’s already been collected.
However, the year is far from over. The progression of the coronavirus is far from predictable. And there are reasons to believe that revenue shortages could become worse in the second half of the year than the first.
One of the central reasons the city has been able to keep pace with last year’s collections is higher property tax collections this year. Last year, New Orleans underwent a controversial property reassessment that caused some people’s home values, and therefore taxes, to skyrocket.
This year, the city collected $162 million in property taxes through the first five months of the year, versus $142 million last year. But the effect of that revenue boost will appear to diminish in subsequent reports as other revenue sources continue to suffer. That’s because 97 percent of expected property tax revenue for this year has already been collected.
By comparison, sales taxes, fines from traffic and parking citations and license and permit fees are below budgeted projections for this point in the year. Those revenue sources are expected to continue to lag behind last year’s collections for the rest of 2020.
“There were fewer people driving and the schools closed,” McElroy said. “Parking collections as well are going to be way down, I’m afraid.”
Another number in the report helping to raise collected revenue is a $10 million increase in “miscellaneous” funds over last year, which McElroy said was due to a payment from the city’s 30-year lease extension deal with Harrah’s Casino, finalized in March.
“That large payment and the roll-forward of property taxes is keeping our heads at least near the water line this year,” McElroy said.