As the New Orleans City Council kicked off 2021 budget hearings on Monday, two clear themes emerged that are likely to overshadow the remainder of the hearings: drastically reduced department budgets and a high degree of uncertainty about how big those reductions will be.
Some of the city’s top industries — notably tourism and food services — have been severely impacted by the COVID-19 pandemic. As a result, tax collections are down, and expected to stay that way well into 2021.
The city’s general fund budget is projected to shrink by roughly $92 million compared to what was originally budgeted, pre-COVID-19, for 2020 — or roughly $46 million less than what the administration now expects to spend this year. Departments and agencies citywide are facing cuts up to 40 percent with Mayor LaToya Cantrell proposing partial furloughs or pay cuts for most city employees through next year.
The City Council has to approve a budget by Dec. 1, but it will have to do so with far less reliable information than usual.
“This is the big cloud hanging over a lot of the revenue forecast and budget meetings, there’s just a lot of things we don’t know about how 2021 is going to work out,” City Economist Randall McElroy told the City Council on Monday. “We still have a lot of uncertainty. Relative to a normal year, this is an entirely different ball game. From year to year, things are generally pretty consistent. Then in 2020 we were blindsided, and we’re still finding out how this is going to go.”
Top of the list of uncertainties is the trajectory of the virus.
“The major factor of course is public health conditions. If public health, which has been steadily improving, takes a big turn for the worse, this is going to change everything,” McElroy said. “On the other hand, if public health conditions improve beyond what we expected, if the vaccine is distributed faster than we thought, that would help. But we kind of just have to wait and see.”
He said that if economies across the world continue to suffer, so too will the local tourism economy. Travel restrictions could also play a role. Even more unclear is the level of confidence and trust that individual tourists will have in travel safety.
“Some people will not do anything, will not return to normal life until there’s a vaccine,” McElroy said. “Some people with a higher taste for risk will continue doing this.”
Right now, the city is projecting an $8 million increase in sales taxes compared to current projections for 2020, but that would still leave the city with about $50 million less in sales tax revenue than it expected to have in 2020 before the pandemic hit. Revenues from hotel and motel taxes in 2021, meanwhile, are expected to be roughly a third of what the city initially expected to collect this year.
Federal aid an unanswered question
Another unpredictable variable with big budget implications is future federal policy and aid.
“When we were making these slides up initially for the revenue estimating conferences, of course the election had not happened yet and we didn’t know how that was going to turn out, certainly not well enough to make any plans off of it,” McElroy said.
Since passing the federal CARES Act in March, Congress and President Donald Trump have stalled on another round of federal stimulus and aid legislation. But over the weekend — days after the Nov. 3 election — former Vice President Joe Biden was declared the winner of the 2020 presidential election.
Democrats were able to hang onto their majority in the House of Representatives. But it’s unclear who will control the US Senate. Runoff elections for both of Georgia’s Senate seats will happen in December. If Democrats win both, they would create a 50-50 tie. That would essentially create a Democratic majority because Vice President-Elect Kamala Harris would be able to cast the deciding vote if the Senate is deadlocked.
“We have a clearer picture after the election,” McElroy said. “But we still don’t know what sort of things will be worked out in Congress, how long this will take. This is another where we’re all sitting on the edge of our seats waiting.”
The lack of federal aid is one of the central reasons the city is expecting less money in 2021 than in 2020. Recurring general fund revenues, like sales taxes and property taxes, are actually expected to increase by $48 million from what the city currently expects to take in this year. But overall general fund revenues will be roughly $46 million lower largely due to two large, one-time payments the city received this year. That includes $58 million from CARES Act funding and $45 from a lawsuit against Harrah’s Casino, according to the city’s presentation on Monday.
If federal aid or other unexpected funds do come into the city next year, the top priorities will be reducing reliance on the city’s reserve funds and to make up lost employee pay due to the furloughs, city officials said.
Property tax revenues are far more predictable than sales and hotel taxes. The city expects to see an increase in property tax collections next year despite a controversial initiative by the Orleans Parish Assessor Erroll Williams that slashed the property values of hotels and other businesses across the city.
According to the city’s presentation on Monday, the total value of all the taxable property in the city fell by 2.6 percent, or $114 million, in large part due to Williams’ commercial property valuation cuts.
At the same time, new property taxes approved by voters last year are taking effect, which will provide additional funding for City Park, the Department of Parks and Parkways and the Audubon Commission. Those new taxes, combined with the drastic reduction in assessed property values, will leave the city’s general fund with a slight, half percent increase in property tax collections.
Library faces staff cuts due to tax proposal
While the size of the property tax collection is fairly predictable, it’s not yet clear what some of it will be used for. That’s because on Dec. 5, Orleans Parish voters will go to the polls to decide on a Cantrell-backed tax initiative that would reshuffle and rededicate a package of property taxes expiring at the end of 2021.
Under the ballot proposal, more property tax revenues would be dedicated to infrastructure and maintenance, housing programs, early childhood education and economic development. On the flip side, the proposal would cut the New Orleans Public Library’s property tax collections by roughly 40 percent. If the ballot fails to gain approval from voters, the current revenue allocation would remain the same and the city would likely put forward another ballot proposal next year to renew the millages.
That uncertainty was reflected during Monday’s budget presentation from the director of the public library system, Gabriel Morely.
“Our 2021 budget request is going to be a little squirrely this year, because we proposed our budget and then a lot of things happened,” he said.
In his presentation, Morley presented the exact same overall revenue budget that the Library was approved for this year — roughly $21 million. But that would only be plausible if Cantrell’s ballot proposal fails.
“What we’ve tried to do is propose a budget that is very similar from last year’s and then back off it as we need to. If the millage renewal is approved in December, then we know we have 21 vacancies currently. We can leave those unfilled, that saves us about $1 million. … Another $1 million we can nickle and dime out of the operating budget.”
He said that if the millage proposal passes, the library will whittle down its budget over the next three or four years to match its lower dedicated revenues, using its reserve fund to fill in gaps.
“We know we can incrementally chip away at our budget and get it down to the point where over the next two, three, three-and-a-half years we can get to a place where our expenses match our revenues.”
He said that the easiest way to chip away at that budget is to simply not hire new people for unfilled positions.
“What we’re trying to do is accomplish this through attrition,” Morley said. “We typically have a 10 to 13 percent annual attrition rate, and if we can maintain that same attrition rate over the next two or three years, that gets us down to where we want to be, while we supplement the budget with the fund balance.”
That would mean up to a 36 percent staffing cut at the library over the next three years. Some council members asked how that would affect the library’s operations.
“When the discussion regarding the library’s millage was taking place, it was stated that it would not adversely affect you all or cause shortening of hours or layoffs, and that was assured to us on this council that that was not going to happen,” Councilman Jay Banks said. “And I want to know, is that still the case or is there any adjustment to that? Because that’s not what I signed on for.”
Morley said that the cuts wouldn’t be noticeable to the average patron. He said that there were inefficiencies in some of the libraries’ designs that can be streamlined to provide the same services with less staff.
“At this time we don’t have any adjustments,” Morley said. “We intend to have every facility open for the same amount of hours.”
“I was very disheartened when your budget is being cut when we talk about the millage,” Councilwoman Kristen Palmer said. “And I just want to make sure it doesn’t negatively impact your operations. I think it’s something we’ll have to watch very closely in the coming years.”
The City Council has scheduled budget hearings every day this week and Monday of next week starting at 9 a.m. Hearings will continue on Tuesday of next week if necessary. The City Council will then have to vote to approve a 2021 budget by Dec. 1.