The city of New Orleans government is facing what appears to be its biggest fiscal crisis in at least a decade, brought about by the ongoing coronavirus crisis. For months, officials in Mayor LaToya Cantrell’s administration have said they have done everything they can to avoid drastic cuts to city personnel or services.
But recently, Cantrell has made clear that those cuts are unavoidable.
In early October, Cantrell announced citywide personnel furloughs: one day per pay period until the end of the year for more than 4,000 city employees. And last Monday, she released a draft budget for 2021 calling for a nearly $100 million decrease to its general fund budget from what was approved in 2020.
In the midst of all that, however, it appears that Cantrell may be leaving millions of dollars per year on the table. And it’s not clear why.
In March, days before the pandemic hit Louisiana, Cantrell signed an agreement to modify and continue a century-old trust agreement that, had it been allowed to terminate, could have given the city full ownership of over 50,000 acres of donated land that generates millions of dollars per year, primarily due to land and oil and gas leases on the property.
The land was donated in 1914 by Edward Wisner, a philanthropist, banker, and newspaper editor from Michigan. Wisner established a trust — administered by the mayor of New Orleans, as trustee, and an advisory board composed of representatives from the five groups of beneficiaries, including Wisner’s heirs.
The trust was supposed to terminate after 100 years, in 2014. And the city, under former Mayor Mitch Landrieu, even went to court to ensure that it would terminate as scheduled and come under the city’s control. But after winning that legal battle, city officials and advisory board members continued to approve short-term extensions, effectively keeping the trust alive well after its expiration date.
But the March agreement, signed by Cantrell, purportedly eliminates the need for any further extensions. It says the trust will be continued into perpetuity. If allowed to stand, that will mean the city will have to continue to share more than 60 percent of the proceeds from the land with the other signatories, including 40 percent to the heirs. Between 2015 and 2019 alone, the money that went to beneficiaries other than the city totalled nearly $21 million — $12.6 million of which went to the heirs — according to an analysis, obtained by The Lens, of Wisner Trust financial records.
Asked for comment, officials in the Cantrell administration didn’t explain their reasoning for approving the agreement. The Lens requested interviews with City Attorney Sunni LeBeouf, whose office signed off on the extension, and officials from Cantrell’s office. All declined
The modification agreement came as a shock to members of the City Council, who say they were not part of the decision. Cantrell signed it without the council’s approval, though the city’s charter requires modifications to trusts to go before council members.
On July 15, months after the deal was signed, the council’s Ad Valorem & Dedicated Revenue Special Committee met to discuss the trust. At the meeting, Councilmember Kristin Palmer expressed her dismay about the March agreement.
“I’m just kind of shocked I am walking into this meeting without being briefed by the administration on a Wisner Donation that clearly states in the original trust that it reverts back to the city of New Orleans, and all the assets do. But no, lo and behold, all the nice rich people that benefit from the trust can continue now to benefit in perpetuity,” she said.
The agreement appears to be fraught with other legal issues as well, said Monica Hof Wallace — a Loyola Law professor who specializes in trusts — after reviewing the agreement.
“The original trust definitely terminated,” Wallace said.
Brief history of the trust
In 1914, Edward Wisner put 50,000 acres of land he owned into a trust, the purpose of which was to provide the city of New Orleans with resources for education, beautification, and human services, among others. He also earmarked streams of funding for homes for the ill, the poor, and retirement homes for city’s elderly teachers, firefighters, and policemen.
Wisner established that the trust would have four beneficiaries — the city of New Orleans, Tulane University, the Salvation Army and Charity hospital, now part of LSU. The mayor of New Orleans was designated as the trustee, whose job is to administer the trust in accordance with the purposes specified by the creator.
The trust was to have a 100-year term, at the end of which the city would become the sole owner of the land.
A year after creating the trust, Wisner died.
In the 1920s, Wisner’s widow, Mary Wisner, sued the trust, claiming that it had robbed her of her share of the community property and seeking to set aside the donation. In 1933, the city resolved the dispute by adding the Wisner ladies as a fifth beneficiary group. The settlement established the Wisners as recipients of the largest cut of the income — receiving 40 percent — which they then shared with their attorneys — while the city receives 34.8 percent. LSU’s Charity Hospital and Tulane each receive 12 percent of the revenue, and the Salvation Army receives 1.2 percent.
In the 1950s, oil was discovered on the property. Royalties from oil and gas production and industrial leases began to produce a steady revenue stream which continues today. Now, much of Port Fourchon, which serves more than 90 percent of deepwater oil production in the Gulf of Mexico, is located on the land and pays rent to the trust. Altogether, the trust generates anywhere between $3 and $9 million per year.
The Wisner land is not only important to the City because of the revenue it generates, it also serves an important environmental function.
“The corpus is tied to a significant amount of wetlands — not just the Port. It’s significant in the acreage. Anything there should also … make sure that it is protected in a way that also protects the city of New Orleans,” Palmer said. “If there’s anything that’s happened in the past 100 years as well, it’s that we know these wetlands protect us from future storms.”
In late 2012, as the trust was nearing the end of its 100-year term, Landrieu asked a Civil District Court judge to rule on how the city could use its Wisner proceeds. The dispute centered on grants the city was handing out with its part of the money. The heirs argued that the mayor should be removed as the donation’s trustee for failing to consult the trust’s advisory board before issuing those grants.
Later in the proceedings, Landrieu argued that the trust should be dissolved and that the heirs never should have received a share of the trust revenue to begin with.
Neither side got exactly what they wanted. A district court judge and the Fourth Circuit Court of Appeals held that the trust would terminate in August 2014, and declined to remove Landrieu as trustee. But the appeals court also held that Landrieu did have to obtain the advice and consent of the advisory board before doling out grants.
Despite the fact that the trust was supposed to end, the advisory committee voted for years to extend the trust’s existing management structure, because the trust was “engaged in ongoing business operations which require the continued effective and efficient management by the committee.”
The March 2020 document
In March 2020, Cantrell and representatives of the other four groups of beneficiaries signed an agreement that claimed to ratify the continued operation of the Wisner Donation Trust in perpetuity.
Upon termination, the City was to become the sole owner of the 50,000 acres of land, and “free to dispose of any or all of the said lands in such manner as the City Government may direct,” according to the original trust document. If the trust indeed legally terminated in 2014, it would mean that over the past six years, the trust continued to pay out millions to the beneficiaires, including a group of private individuals, when they were not legally entitled to receive that money.
“I think the city could have taken the position that after termination of that trust in 2014, the corpus of the trust belongs to us,” Wallace said.
In an interview last week, Councilmember Kristin Gisleson Palmer said the city should have taken that position.
“To me, it was very clearly the original intent that the corpus of the trust belongs to the city of New Orleans. Not to anybody else,” she said.
“We owe it to the citizens of the City of New Orleans to see … especially now, post-COVID — is there a way to derive a recurring revenue stream that would benefit the city of New Orleans?” she said.
Cantrell signed the March modification agreement less than a week before Louisiana recorded its first coronavirus case. By the month’s end, the city and state — along with much of the rest of the country — would be under a strict stay-at-home order. The crisis, which some expected to subside in a matter of weeks, has stretched on and on.
Mass business closures and layoffs led to a global recession. Locally, the fallout gutted the tourism and hospitality industry, one of the city’s main economic drivers and a source of millions of dollars in tax revenues.
Cantrell was initially looking at a $150 million shortfall this year. Much of that was filled with so-called “one-time money,” including tens of millions in federal CARES Act money passed through the state. Still left with a $40 million hole to fill, her administration freezed hiring, limited overtime, renegotiated contracts and furloughed more than 4,000 city workers.
But as the year comes to a close, COVID-19 is still here. Hundreds of businesses are either closed or operating at a limited capacity. And the millions of tourists that visit the city each year— along with the sales tax revenue that comes with them — are likely not coming back any time soon. And it does not appear that the city can expect more than the $53 million the state has committed in CARES Act money, about one-quarter of what city officials said they should have received.
When Cantrell proposed her 2021 budget last week, the message was clear: the city expects next year to be worse.
“Despite all of our efforts, that of the council, of our residents, we have to be aware that the city of New Orleans is currently experiencing an unprecedented fiscal crisis as a result of this pandemic,” she said at her budget address. “And as I mentioned earlier, during a fiscal crisis, the demands of our public, of our residents, do not decrease. They only increase. And we are forced to do more with less.”
Specifically, less money and less staff. Cantrell’s proposed 2021 general fund budget is nearly $100 million below the 2020 budget. And it also proposes cutting about 300 “full-time equivalent” positions from city departments. And furloughs of city employees are expected to continue into next year.
In a late October interview, Aaron Mischler, president of the city’s firefighters union, questioned why the city would relinquish a potentially lucrative revenue stream like the Wisner Donation.
“If the mayor is not seizing on an opportunity to put more money in the coffers when they are making cuts, especially to public safety, that’s troubling,” he said.
To Palmer, what’s just as troubling is where that money will be going instead.
Continuing payments to the heirs
At the July 15 City Council Committee meeting, Amanda Phillips, administrator and land manager for the Wisner Trust, opened with a presentation giving a historical overview. However, after less than 10 minutes, she and Clair Durio, counsel for the trust, were instead fielding questions from the council about why the trust didn’t terminate six years ago, and who benefits from its continued operation.
“Wow. I am just so shocked y’all quietly signed a document that continues this for the heirs in perpetuity,” Palmer said at the meeting.
Since 2015 alone, the Wisner Trust appears to have paid out over $12 million — 40 percent of the total proceeds — to a group of over 50 private individuals collectively known as the Wisner heirs, though that is a misnomer.
Only 22 of those individuals are from the Wisner line. The other 34 are descendants of the attorneys who worked for Mary Wisner — Edward Wisner’s widow — during her lawsuit against the trust in the 1920s and 1930s. (In 2002, the Wisner heirs unsuccessfully sued to oust the heirs of the attorneys by arguing that their one-third cut of the 40 percent Wisner heirs’ share constituted an unreasonably excessive fee for services rendered, but they lost).
For almost a hundred years, these families have been receiving income from the Wisner Trust. Furthermore, according to a 1980 opinion from the Office of the Attorney General’s chief deputy tax collector, they have been able to receive income from the Wisner property without having to pay property taxes on it, since the ownership of the property is vested in the city — a tax-exempt public body — not the beneficiaires.
The agreement Cantrell signed in March claims to allow these private individuals, and the other beneficiaries, to continue receiving that income forever.
The Lens contacted two of the Wisner heirs. One did not respond. The other, Stephen Green, declined to comment and referred The Lens to attorney John Pearce. Pearce did not respond to repeated requests for comment.
But Wallace, the Loyola law professor, said that’s a legal impossibility.
“Beneficiaries may wish to extend the income stream as long as possible, but there are limitations in the [state] Trust Code for non-charitable, private beneficiaries. The term can’t be perpetual,” she said.
Some charitable trusts may continue in perpetuity. However, a trust that has both charitable and private beneficiaries — as does the Wisner Trust — is considered a “mixed trust.” In this case, the part of the trust that favors private beneficiaries will be governed differently than the part that favors charitable beneficiaries, Wallace said.
At least as applied to the private part of the trust, perpetuity is not an option, Wallace said.
At the July 15 committee meeting, representatives for the trust focused on the benefit that maintaining the status quo has for the City.
“This has been examined by all of the members of the Advisory Committee, and now the members of the board, in making a decision that [the property] has far more value to all of beneficiaries, including the city of New Orleans, as a going concern, and an operating concern, which is why they extended year after year,” Claire Durio, attorney for the trust, said. “And this was done with the knowledge and consent of the City of New Orleans, and for its benefit.”
But Adam Swensek, attorney for the City Council, raised a question.
“There is no requirement that the property be owned in trust for the city to continue to keep the asset and recover this benefit, am I correct? You don’t need a trust for the City to be a landlord.”
He went on to say regarding the idea of the trust continuing in perpetuity, including the part that benefits the heirs, “How do we legally justify a perpetual trust in favor of private individuals?”
Edward Chase, Jr. — a trust law expert and author of a prominent treatise on Louisiana trust law — who appeared in the meeting as an “independent trust attorney,” seemed to avoid answering Swensek’s question.
“The private part of the mixed trust is governed by the Trust Code, and the charitable part is governed by the statutes on charitable trusts.” He said. “And I believe a charitable trust — I think that’s the answer to the question. So then the next question is, “is there a durational limit on charitable trusts?”
When Swensek asked again about a time limit on trusts that favor private individuals specifically, Chase hedged — “I had not considered, in writing the memorandum that the parties operated under in reaching their agreement, the question of a perpetual mixed trust … I did not look at that specific question.”
No council approval for new agreement
It isn’t clear why Cantrell signed on to the March 2020 “Ratification, Extension, Modification and Amendment” of the Wisner Trust, given all the apparent legal problems with it, and the potential revenue loss that may follow. But the agreement does not appear to have been run through the proper channels.
Months after the mayor signed, Councilmember Helena Moreno inquired if either the Board of City Trusts or the City Council was involved in the process leading up to the signing in the July 15th Committee meeting.
“I personally don’t remember being involved,” Moreno said at the meeting.
Claire Durio, attorney for the trust, responded no, the Board of City Trusts was not involved.
As for the council, Durio said, “Our interaction was with the Mayor’s Office. I don’t know what happened beyond that with the city, since the mayor was designated as the trustee.”
According to the March agreement, the mayor signed in both her capacity as representative for the city as a beneficiary, and in her capacity as trustee of the Wisner Trust.
When asked whether the City Council had approved the modification, Councilmember Palmer said “No, it has not been brought to the City Council. We have not voted on it.”
However, as the City’s representative, the Mayor likely would have been required to seek the City Council’s approval before signing off on a trust modification. Under the city charter, the mayor can’t “modify any trust except upon approval of the Council and, when necessary, a court of proper jurisdiction.”
But the March agreement was pushed through, without council approval, just as some council members started asking questions.
Palmer said that the issues with the Wisner Trust first caught her attention after she was reelected to represent Council District C in 2017, a seat she had previously occupied from 2010 to 2014.
“I brought this situation up to the Council — when I first got back on to the Council — that there should be a process to look at the Wisner Trust fund, because I knew that it was up in 2014. I knew that it was operating outside the parameters of the original trust document.” she said.
“I was looking at it from the perspective of the corpus of the trust — that is, most of Port Fourchon, and a lot of land and assets — and [whether it] would it make sense to put a dollar amount on those assets and to figure how they could be recurring revenue generation for the City of New Orleans moving forward the next hundred years.”
In February, Moreno sent a letter to Phillips, the trust’s administrator, inquiring about its status. The letter asked questions about how and why the trust has continued to operate as if still active since 2014.
In March, shortly after the letter was sent, Cantrell signed the perpetual extension.
“I brought this to the council, and to Councilmember Moreno, and that’s how it got on to the [Ad Valorem Tax] committee. ….But then the next thing we found out about was after the fact of the March 2020 signing,” Palmer said.
“I didn’t know anything about this 2020 agreement until after the fact, so I’m hoping that we could get some answers on how to move forward in a way that upholds the spirit of the trust, and allows the city of New Orleans to have more recurring revenues, because that is what is owed to people.”