DALLAS — The Louisiana State Bond Commission gave its approval Thursday to a plan by New Orleans to avoid a budget shortfall in 2012 with a $16.5 million refunding.
Andrew Kopplin, the chief administrative officer in Mayor Mitch Landrieu’s administration, told commissioners that refunding the $75 million of certificates of obligation from 1998 would push $15 million of debt service into 2013.
Without the relief, Kopplin said, the city would have to cut the proposed 2012 budget to resolve a $25 million budget gap from 2010. New Orleans plans to fill $10 million of the gap with reserve funds from various city agencies and courts, he said.
The refunding proposal passed by a 9-to-3 margin.
The city faced a debt service payment of $7.5 million on Dec. 1 and a similar payment in December 2012, Kopplin said.
“This refunding will give us $15 million over the next 15 months to fix potholes, repair streets, and hire police,” he said. “This is the best way for us to move forward.”
State Treasurer John Kennedy, who chairs the Bond Commission, voted against the proposal. He said approval of the New Orleans refunding would set a precedent that could allow other local governments to delay debt payments when revenues don’t match expenditures.
Kopplin said the refinancing would add $170,000 to the debt service owed, but Kennedy said the true additional cost was $899,000.
“It’s like maxing out a credit card and then getting a new credit card to pay the first one except that this credit card fee is $1 million,” Kennedy said.
Kopplin said the city’s position is that it is investing $170,000 to get $15 million in budget relief.
Landrieu inherited a budget shortfall of $100 million when he took office in May 2010, he said. The city’s spending in 2008 and 2009 topped revenues by $90 million and totaled $75 million more than the council had appropriated.
The accumulated $25 million deficit from 2010’s budget, which resulted from the earlier overspending, must be resolved by the end of 2012 by state law, Kopplin said.
“We’ve sold the big car, we’ve sold the big house,” he said. “We have our act together, and we live within our means.”
Kennedy suggested issuing revenue anticipation notes to provide the $15 million, but Kopplin said that could not be accomplished by the Dec. 1 deadline.
“You should have started earlier,” the treasurer said.
Issuing more debt would endanger the city’s already shaky bond rating, according to Kopplin.
Moody’s Investors Service earlier this month placed $699 million of New Orleans’ debt on review for possible downgrade due to “deteriorated financial performance.”
The move affected $529 million of outstanding A3-rated general obligation bonds, $25 million of Baa1 limited-tax GO bonds, and $117 million of Baa3 pension obligation bonds.
New Orleans’ GO debt is rated BBB by Standard & Poor’s and Fitch Ratings.
Commission director Whit Kling Jr. said New Orleans’ debt is part of a larger, future refinancing plan dealing with pension bonds issued in 1983 and refunded 1998.
“This is just one step of a multi-stage refinancing,” he told the commission. “It is a component of a continuing refinancing plan.”