DALLAS – The outlook for New Orleans debt was moved to negative from stable by Fitch Ratings Sept. 30 because of concerns over the city’s ability to absorb mandated public safety spending and an underfunded pension plan.

The Fitch move affects $462 million of general obligation debt and public improvement bonds of the city and the New Orleans Board of Liquidation, rated A-minus.

The outlook was also changed to negative for $24.1 million of Audubon Commission tax bonds rated A-minus and $195.9 million of limited tax refunding bonds from 2012 rated BBB-plus.

New Orleans expects a positive fund balance at the end of 2013, the report notes, with a surplus of up to $14 million after years of budget cutbacks and fund transfers, Fitch analyst Steve Murray said in his report.

However, funding an $11 million police consent decree and contributing $6 million to $23 million for a replacement Orleans Parish jail may require increases in the property and sales taxes. Raising the levies would require voter and legislative approval, Murray said, which would be difficult.

New Orleans is appealing a lower court decision ordering it to pay $17.5 million to a city firefighter pension plan.

In April, District Judge Robin Giarrusso ordered the city to "immediately budget, appropriate and pay" $17.5 million plus interest to the fund after deliberately underfunding the pension system.

The city contended that the state-mandated plan was too lax and provided overly generous benefits, but Giarrusso said the city had to follow current law.

“An unfavorable final ruling will mean a larger annual contribution and additional spending pressures,” Murray said.

New Orleans issued taxable fixed-rate bonds supported by a property tax in October 2012 to refund $109.2 million of outstanding pension bonds.

Capital needs for the next five years are estimated at $450 million, mostly for street repair projects. New Orleans will fund its capital budget with $105 million of GO bonds remaining from a 2004 authorization and $228 million from federal disaster relief aid.

The city’s GO debt is rated A3 with a negative outlook by Moody’s Investors Service and BBB stable by Standard & Poor’s.

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