Lagging Tax Revenues Keep Pressure On New Orleans 2013 Budget

DALLAS — New Orleans expects to see a slight increase in general fund revenues next year, but not enough to roll back a spending cut already in effect for most city departments, Deputy Mayor Andy Kopplin told the city’s Revenue Estimating Conference.

The revenue panel on Monday adopted a forecast of $491.4 million for general fund collections next year, $8 million more than the latest estimate of 2012 revenues but less than had been expected for 2012 when the panel adopted its official forecast in October 2011. The city operates on a calendar fiscal year.

“The good news is that we are projecting revenues to grow in 2013,” Kopplin said. “The bad news is that this $491 million figure is about $6 million below what was initially budgeted and approved in 2012.”

The initial estimate of $497.5 million in 2012 was lowered by the revenue panel to $484.5 million in June and to $483.6 million on Monday.

Kopplin said most city departments would see a continuance of the 3.8% reduction in annual discretionary spending ordered by Mayor Mitch Landrieu earlier this year when revenues did not match expectations.

“This is going to be stressful for all the departments” Kopplin said, “That burden is going to have to be borne again.”

The administration’s proposed 2013 budget, based on the official revenue estimate, will be presented to the City Council Oct. 29. A final budget is expected to be approved at the Nov. 30 council session.

New Orleans is also expecting higher costs for employee health benefits, worker compensation claims, and pensions as well as a federal consent decree over actions by the New Orleans Police Department in the aftermath of Hurricane Katrina in 2005, Kopplin said.

The consent decree will cost the city $11 million a year over the next five years, he said.

The revenue picture would have been even dimmer in 2013 if the city had not cut debt service costs by doing two bond refundings this year, Kopplin said.

A $170 million general obligation refunding in June provided annual savings of $1.3 million, Kopplin said, and an Oct. 11 refunding of taxable pension bonds cut annual debt service by $2 million without extending the maturities. The pension bond refunding also allowed the city to avoid a $115 million balloon payment in March 2013, he said.

An increase in the city’s bond rating with the pension debt sale is a sign that New Orleans has recovered from the 2005 hurricanes, Council member Jacquelyn Clarkson.

“We’ve taken our bonds from junk status to investment grade,” she said. “That’s not just our opinion, that’s the opinion of Wall Street.

The tax refunding bonds are rated A with a stable outlook by Standard & Poor’s, BBB-plus and stable by Fitch, and A3 with a negative outlook by Moody’s Investors Service.

The original pension obligation bonds were rated Baa3 by Moody’s and BBB-minus by Standard & Poor’s.

New Orleans’s $509 million of outstanding GO debt is rated A3 by Moody’s and A-minus by Fitch.

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