The nonpartisan think tank the Bureau of Governmental Research released a new report on Monday with a split decision on the two property tax renewals that New Orleans voters will decide on during the Dec. 11 election. BGR is supporting the renewal of a property tax dedicated to the public library system that’s worth roughly $10 million a year, while the group opposes the renewal of a tax dedicated to affordable housing and blight alleviation worth roughly $3.5 million a year.
Both of BGR’s judgments largely came down to planning and accountability. The New Orleans Public Library has created a 10-year plan that delineates how it would use the tax proceeds, while the city hasn’t created a clear spending plan for the new housing funds, the report argued.
City officials told BGR that the affordable housing needs in New Orleans were so great that there was no risk the housing tax would produce more revenue than needed to address the problem. The BGR report appeared to agree with that sentiment, and it was generally supportive of a dedicated property tax for affordable housing. But it argued that the city had to do more legwork before asking voters to approve it.
“New Orleans’ significant housing affordability problems have expanded since the onset of the pandemic and require carefully crafted policy solutions,” the report said. “However, critical gaps in the City’s planning and accountability for the tax undermine its potential effectiveness.”
The library and housing taxes are two of four city property taxes expiring at the end of 2021. Last year, Mayor LaToya Cantrell’s administration brought forward a plan to renew those taxes a year earlier than necessary. But the plan would have also redistributed the proceeds of the tax. Vitally, it would have cut roughly 40 percent of the library’s annual budget and rededicate that money to other purposes.
Voters soundly rejected Cantrell’s plan in 2020 after significant public pushback against the library cuts. (BGR issued a report opposing the plan as well.)
This year’s proposal did not originate with the Cantrell administration. Instead, the City Council took the charge to put renewals for the library and housing taxes on the ballot, while allowing the other two to expire without a vote. The Cantrell administration has appeared supportive of both renewals.
Even if both renewals are approved, the city’s property tax rate will drop slightly next year. But that decrease may be short-lived.
The Cantrell administration recently announced its intention to ask voters in April to approve a new property tax dedicated to early childhood education. That tax would be much larger than any of the four taxes expiring this year. If either the housing or the library tax renewal is approved, and voters approve the early childhood education tax in April, the property tax rate would rise from its current level starting in 2023.
In support of the Library tax
The library tax that’s up for renewal on the December ballot is an essential funding source for the library system, one of two dedicated property taxes of roughly the same size that make up the vast majority of its budget. If it isn’t renewed, according to the report, the library would immediately start reducing hours, collecting fewer new materials and scaling back other Library initiatives. After three years, the reduced budget would force branch closures, library officials told BGR.
Unlike Cantrell’s 2020 plan, this year’s ballot measure would maintain the library’s property taxes at the exact same level.
In 2020, the Cantrell administration sold its plan to cut the library’s budget by arguing that the Library’s large budget surplus indicated that it was getting more than it needed. Currently, the Library has a $13.3 million surplus, equivalent to roughly 70 percent of a normal annual budget.
Advocates of the Library tax renewal argue that the fund balance doesn’t come from a lack of need or the Library’s inability to spend the money. The Library originally accrued a large reserve during the two years that followed the 2015 approval of the Library’s other major property tax. In 2016, just weeks after that election occurred, the Library’s budget doubled. And it took time to adjust to that new level of funding, Library officials have argued.
But starting in 2018, the Library adjusted to its new, higher budget and started spending more than 97 percent of its annual revenues.
The Library fund balance then increased significantly during the coronavirus pandemic, due to forced city-wide budget cuts and a scaling back of traditional library services that couldn’t be offered during lockdowns and other COVID restrictions.
The BGR report says that the Library has clearly outlined how it would spend the proceeds from the tax renewal and spend down its budget reserves, allaying concerns that the tax is larger than what’s needed. The Library plans to spend down its excess reserves, according to the report, by expanding adult literacy programs, childhood skill development, digital literacy and workforce development initiatives, small business development, mobile services and library access.
The report notes that the maximum tax allowed in the ballot initiative is higher than what the Library is asking for. The ballot allows a maximum 4-mill property tax, while the library is asking for a 2.58-mill tax collection.
The ballot measure only allows a maximum rate of 4 mills. (A mill is equal to one-tenth of one percent of a property’s assessed value.) The actual rate is set by the City Council, which plans to set the rate at the Library’s requested 2.58-mill rate. The only reason the Library would ask to increase the rate, according to the report, is if overall city property values dropped and caused a reduction in Library revenue. In that case, the Library would only request an increase large enough to keep revenues consistent, according to the report.
Finally, the report confronts the abrupt resignation of the Library’s director, Gabriel Morley, earlier this month. His resignation came shortly after reporters with WWLTV questioned the city over whether Morley actually lived in New Orleans — a requirement for most city employees. WWLTV obtained records indicating that Morley may have been living in a home he owns in Hattiesburg, Mississippi.
The BGR report notes that while the unexpected change in leadership was a potential cause for concern, Library officials were confident that it wouldn’t interfere with it’s 10-year plan to utilize its full revenues.
Against the housing tax
The current housing tax that expires at the end of the year can technically be used for both housing and economic development initiatives. And until 2020, the city historically split the tax proceeds evenly between those two uses.
But in 2019, the City Council decided to lower the city’s overall property tax rate in response to huge jumps in residential property values. The housing and economic development tax was cut in half, and the city committed to using the now-lower tax just for housing, thereby keeping the housing funding stable and cutting out the entire economic development portion.
The tax renewal on the December ballot would keep the lower rate approved by the council in 2020. And this time, the only allowable use of the funds would be housing. In essence, a successful renewal would maintain the status quo.
All the tax proceeds would be deposited in the Neighborhood Housing Improvement Fund, or NHIF. The NHIF can only be used for affordable housing and blight remediation programs. The city has used the fund in recent years to aid first-time home buyers, incentivize private affordable housing development, operate homeless shelters, fund emergency rental and landlord assistance programs and demolish blighted buildings.
The housing property tax used to be the only funding source for the NHIF. But the City Council changed that in 2018 when it dedicated a nightly short-term-rental fee to the NHIF. Those nightly fees have been raised significantly since then.
The BGR report seems to support the need for NHIF-funded projects, and the need to ramp up NHIF revenues to respond to the city’s growing affordable housing crisis. But it ultimately opposed the tax based on questionable NHIF accounting records and the city’s lack of a plan on exactly how it would utilize the funds.
“City officials told BGR they did not develop a spending plan for the Housing Fund because the existing tax expires at the end of 2021 and there is no guarantee voters will approve the proposed tax,” the report said. “Officials say that if voters pass the tax, the City will use the revenue for the same types of initiatives the Housing Fund has recently supported.”
The report said that the city should list exactly what projects the money will be used for, or at least provide firm objectives for what the city is trying to achieve with those projects, such as the number of affordable units the city is trying to create or maintain.
However, city officials told BGR that some level of uncertainty is warranted, and that one of the most useful qualities of the NHIF is that it can be rapidly deployed to meet unfilled needs. Officials told BGR that the NHIF offers far more flexibility than with other housing funds, especially federal grants, which often come with strict rules. For example, the city was able to tap NHIF funding early on in the coronavirus pandemic for rental and small landlord assistance before any federal funding was available for that purpose, according to the report.
City officials also argued that it has a standing process for how to allocate NHIF dollars that requires coordination with the city’s several housing agencies, including the Housing Authority of New Orleans, Finance New Orleans and the New Orleans Redevelopment Authority.
And the city argued that ultimately, there wasn’t a risk of the tax proceeds being underutilized or going unspent, given that the funding is clearly insufficient to address the city’s acute affordable housing crisis. The BGR report seemed to agree, noting that “the tax would not generate enough revenue to fully assist New Orleans’ large population of residents with high housing cost burdens.”
The report also acknowledged the importance of retaining some level of flexibility for using the funds and the city’s coordination with other housing agencies. But according to BGR, the city “still does not give voters a clear picture of what the City aims to accomplish with the tax revenue.”
The report also brought up some questions about the city’s use and oversight of the NHIF. The report said that BGR was unable to confirm whether the city has been depositing the total housing tax into the NHIF as it committed to do in 2019. The report notes “unexplained drops in the Housing Fund’s tax revenue” in 2020 and this year, even as overall property assessments went up last year.
The report said that “The City administration did not respond to BGR’s questions regarding the total 2020 collections” and that a public records request for the information didn’t come back in time for the report’s publication.
BGR found potential issues with 2021 collection records. The report said that financial statements from September show that only $300,000 in tax revenue was deposited into the NHIF this year, even though property taxes are collected at the beginning of the year and the housing tax should have raised roughly $3.5 million. The report also says that the proposed 2022 city budget recently released by the Cantrell administration contains little information about NHIF collections or expenditures.
The report further alleges that the city stopped abiding by certain processes that are supposed to govern NHIF spending. According to the report, the process is supposed to begin with a citizen advisory committee submitting recommendations for NHIF projects. The mayor is then supposed to submit a final list of recommendations for approval by the City Council.
“However, during the two years since the pandemic began, the advisory committee and the mayor have not submitted Housing Fund expenditure recommendations, nor has the City Council adopted recommendations,” the report said.
The report is ultimately supportive of the general idea of a housing property tax, but said the city needed to do more before taking this to voters.
“Before asking voters to consider another dedicated tax for housing, the City should adopt oversight, planning and evaluation practices that will ensure accountability,” it said. “In the interim, the Housing Fund will continue to receive revenue from short-term rental fees, and the City could use its General Fund revenue to support high priority housing initiatives and leverage other housing funding sources.”