In response to Mayor Nagin’s briefing today on the city’s 2010 budget and cuts in programs and services, the District A Neighborhood President’s Council released its findings. Brad Fortier, CFP®, an actively involved member of the group that was established to advise on New Orleans’ budget process, offered the following statement:
“If an operation finds itself spending more money than it makes, then the choices are really quite simple: make more or spend less. The City’s lack of any real economic development has forced us to spend less, which translates to cutting city services.
The City’s current situation is the result of three primary factors:
City expenses exceed revenue – The City is rebuilding in its pre-storm footprint with smaller population and tax-base.
National Recession – Contrary to local perception and the Nagin administration’s characterization of New Orleans as a “great place to ride out a recession,” we are seeing that the City is not immune to the effects of a national recession.
Debt – Various expenses, such as recent legal settlements and FEMA reimbursement costs, are overwhelming the already stretched budget.
One of the shortcomings to surviving in a perpetually depressed economic state is illustrated in our significant dependence on sales tax revenue to financially operate each year. This is largely attributable to the City’s primarily tourism based economy. New Orleans remains vulnerable to variables that deter business and consumer travel such as national recessions, incidents of terrorism, and rising costs resulting from inflation (primarily transportation related commodity prices, namely oil).
In addition, the recession’s effect on the financial markets has forced the city to add substantial amounts of new money, public tax dollars, to the city pension to keep it in compliance with governmental regulations. The City is confronted with the same challenges many private citizens are facing in light of the drop in value of their personal retirement accounts over the past year. Governmental rules dictate that governments use tax dollars to bring account balances up to arbitrarily defined levels to remain in compliance and avoid hefty fines and the potential loss of critical tax advantages. These untimely expenses, as well as the corresponding rising costs of employee health benefits being paid by the city are contributing to a large part of the deficit.
It is also important to note that many, if not all, of the City’s capital projects are being funded by federal disaster money, which has been fully allocated. This means that the current practice of tapping into these funds to meet general operational expenses can not continue.
If at some point in the future city government concludes that it can no longer cut vital city services it will then forced to create more revenue, which translates to raising taxes. Potential tax increases will directly be related to the level of economic growth we are able to achieve locally. This is precisely why economic growth is so vital to our long-term recovery.
Although the message at times seems bleak, there are many things to be optimistic this New Year as we take stock of what we have accomplished together. All we need to do is realize that everything required to ensure a secure and prosperous future in this magnificent city is not only already here, but clearly exemplified in each and every one of the hard working citizens who call New Orleans home.
The inevitable multicultural prosperity that awaits the people of New Orleans requires nothing more than our recognition that we all prosper from a growing economy. It cures everything from our roads to the grassy coast that stands guard over our fragile existence in this place.”