BRADENTON, Fla. — As the 10th anniversary of Hurricane Katrina nears and New Orleans commemorates positive changes since the devastating storm hit, the city also still faces credit challenges, according to Moody's Investors Service.
Louisiana's largest city has improved its fiscal position since Katrina slammed the state on Aug. 29, 2005, by focusing on increasing revenues, controlling expenses, and building reserves, Moody's said in a special report Monday.
Moody's assigns an A3 rating to New Orleans' general obligation bonds. The outlook is stable.
Better sales tax collections and property tax growth have boosted New Orleans' budget in 2014 and 2015, and the city will receive $36 million from its Deepwater Horizon oil spill settlement.
The city received significant federal aid after the hurricane which, combined with local and state funding, was used to strengthen levees, build new infrastructure, and increase the city's emergency preparedness, said assistant vice president and analyst Andy Hobbs.
New Orleans also benefitted from some of the $7.84 billion of bonds allocated to the state of Louisiana by Congress in the Gulf Opportunity Zone Act. The authority to issue those bonds expired at the end of 2011.
"The recovery of the local economy is a key stabilizing factor that has driven the city's recent positive momentum, by bringing people back, rebuilding communities and revitalizing the tourism industry, which is a key source of revenue for the city," Hobbs said.
However, offsetting these positive factors are the city's rising fixed costs for debt service, pension contributions, and retiree healthcare payments, which have increased to $198 million in 2014 from $129 million in 2009, Moody's said.
"The city's fixed costs exceed 30% of its operating revenues," Hobbs said. At the same time, "the city's contribution to its pension plans fell short by $17.7 million in fiscal year 2014, and annual pension requirements are expected to increase going forward."
New Orleans' dependence on the volatile oil and gas sector, declining employment in the public sector, and below-average population growth leave the city trailing other metro areas in the south in terms of key economic indicators, he said, adding that the city's population remains about 18% below pre-hurricane levels.
"New Orleans also has weak liquidity because it used reserves to fill budget gaps during the recession," Hobbs said, adding that despite the fiscal struggles the local economy continues on a path of slow yet positive recovery since Katrina.
The returning population, reestablishment of businesses, rebuilding of residential communities, as well as revitalization of tourism have all contributed to the recovery.
The city's infrastructure is more capable of withstanding future storms given strengthened levees and other infrastructure improvements.
Over the last decade, the city has completed a significant amount of work, via local, state and federal funding, to ensure that New Orleans' infrastructure was not only repaired but improved.
"This in turn has aided confidence and induced investment in the city," Moody's said.
To commemorate the 10th anniversary of Katrina, Mayor Mitch Landrieu and city officials have planned a week of events remembering those who lost their lives, highlighting volunteerism, and noting the city's resilience.
President Barrack Obama will be in New Orleans Thursday to observe the city's rebuilding efforts. Former Presidents George Bush and Bill Clinton will be in the city Friday and Saturday, respectively.
Among the city's recent infrastructure improvements is construction of a new terminal at Louis Armstrong New Orleans International Airport, which is under way. The New Orleans Aviation Board sold $565 million of general airport revenue bonds in February to finance most of the project.
The bonds received underlying ratings of A-minus by Fitch Ratings and Standard & Poor's, and A3 by Moody's. The debt was insured by Assured Guaranty Municipal Corp.