The New Orleans City Council voted Thursday to request permission to issue $125 million revenue anticipation notes to fund its payroll in November and December.
Unless the city provides the state bond commission with a detailed explanation of how it wound up in this predicament and submits a plan of how to avoid a recurrence, it is possible the commission will reject the city's request, City Council President Jean-Paul Morrell said Wednesday. "They will see [the request] and they will portray it as throwing money into a fireplace."
New Orleans Chief Administrative Officer Joseph Threat said at an emergency budget committee meeting Wednesday that he discovered Monday the city didn't have the money for November and December payrolls. Later, Morrell said the city could make the November payroll if it used its rainy-day fund, a stance Threat confirmed.
New Orleans' fiscal year coincides with the calendar year and the city gets the bulk of its ad valorem taxes in late January, said Jason Akers, managing partner of Foley & Judell, the city's bond counsel. This will allow the city to pay off any RANs issued.
The city could get permission from the commission to draw down only as much of the $125 million as it needs, Akers said. The RANs would mature in either six or 12 months, he added.
"We haven't seen any large spread widening in New Orleans credits but remember the name usually trades cheap and there is always a give in the new issue market when one of their credits is selling a new issue," said John Mousseau, vice chairman and chief investment officer of Cumberland Advisors. "That's been true for many years. Some intermediate to longer New Orleans GO bonds seem to be trading in the +40-45 range and I would say that they were close to 30-35 spread at the start of the year so yes, some erosion.
"The key is to not let the situation worsen and while the note … will help, some budget tightening will certainly happen," Mousseau said.
The Louisiana Legislative Auditor Mike Waguespack released a report last week projecting the city would have a $159.8 million deficit this fiscal year unless changes were made.
"With the New Orleans City Council passing a resolution to apply for a $125 million loan to address their budget deficit, the State Bond Commission is positioned to assist," a spokesman for state Treasurer John Fleming, who chairs the commission, said Thursday. "We have a preliminary plan to hold an emergency meeting of the State Bond Commission next week. Since there is an ongoing special session [of the state legislature], we are contacting our members to determine the best time to hold the meeting."
Threat told the budget committee Hurricane Katrina-related needs and the
The city is pursuing Katrina-related funding and has asked for a $120 million advance, with expectations of spending about $300 million on the rebuilding projects.
The city expects to get $30 million in the near future from the federal government and the rest will come from the general fund, at least in the short run, Threat said.
Elevated overtime and other expenditures caused the shortage, said Romy Schofield-Samuel, New Orleans Director of Finance. A terrorist attack on New Year's Day in the city's French Quarter led to a spike in police overtime, Moody's Ratings said earlier this month.
The city also spent heavily preparing to host the 2025 Super Bowl and cleaning up after a snowstorm in January, Moody's said.
The city's water board owes the government $87.5 million, according to LeNitrah Hassan, deputy chief administrative officer for infrastructure. The city has sent a demand letter, Threat said.
Moody's
The city's GO bonds are rated A-plus by S&P Global ratings with a stable outlook and A by Fitch Ratings with a negative outlook.
Mayor-elect Helena Moreno asked how the problem with payroll had come up so quickly.
Threat said it was because he believed the FEMA extension was close to being approved before the government shutdown.
