DALLAS - The New Orleans City Council on Monday night adopted a $1.16 billion operating budget for 2009 after rejecting Mayor Ray Nagin's call for a $24.5 million property tax increase.

The council narrowly complied with the statutory requirement to adopt a balanced budget for the next year by Dec. 1. The 7-to-0 vote by the council took placed at 9:30 p.m. at the end of a contentious 12-hour session.

Earlier in the day, the council voted down Nagin's proposed tax increase, which would have reimbursed the city for expenses associated with evacuating thousands of residents as Hurricane Gustav hit the Louisiana coast on Sept. 1.

The council also went against the mayor's wishes by moving the final $10 million from a $240 million federal Community Disaster Loan, provided after Hurricane Katrina in 2005, into the 2009 budget to make up for the rejected tax increase. Nagin's proposed budget had reserved the $10 million for 2010.

After the final vote, an irate Nagin said he would take the full 10-day period allowed to determine if the budget is truly balanced before deciding whether to sign the budget, veto it, or let it become law without his signature.

"I want to put it on the record that I'm predicting in 2010 we're going to have a financial train wreck," Nagin said at the budget session. In addition to the $24.5 million lost in 2009 with the council's refusal to increase the property tax, the mayor said it would cost the city another $25 million in lost revenues for 2010.

"We won't be able to sustain the current level of services," he said. "2009 will be a challenge. 2010 will be a train wreck."

The council averted most of the potential shortfall from the rejected tax by placing only $325,000 into the city's emergency fund rather than the $14.7 million requested by Nagin. However, the federal government's decision to reimburse local governments for 90% of their expenditures related to Hurricane Gustav rather than the required 75% should provide the city with an additional $6 million.

Nagin said the decision to spend the one-time loan funds on recurring expenses rather than saving it for capital needs in 2010 would imperil the city's ability to sell its general obligation bonds.

His proposed budget called for sales of $55 million of general obligation bonds in 2009 and $50 million in 2010 from a $260 million authorization in 2004. The city sold $75 million of the bonds in 2007, but had to pull back a $80 million bond issue earlier this year due to market conditions.

"We are deviating from the financial plan we presented to Wall Street," he said. "Don't expect us to sell any bonds this year. We are going to have $135 million of bonds sitting on the sideline because of this budget."

New Orleans' general obligation bonds have unenhanced ratings of Baa3 from Moody's Investors Service, BB from Standard & Poor's, and BBB-minus from Fitch.

Councilman Arnie Fielkow told Nagin that he should have cut the original budget rather than insisting on a tax increase after it drew immediate council opposition. Nagin should have been looking for budget cuts rather than additional revenues, he said.

He also criticized the mayor for giving the council only 30 days to review a budget of more than $1 billion.

"When we start $24 million in the hole, that's a pretty high mountain to climb," he said.

Fielkow said the council would not have allocated the remaining federal loan funds "had it not been for an absolutely foolish proposal to put a property tax out there."

Nagin rejected the criticism.

"I gave you a sound budget that was sustainable for you to consider and you rejected that," he said. "This is going to cause problems tomorrow, and in the future."

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