Newell: New Orleans facing profound fiscal crisis in as few as fifteen days

City budget could be in tremendous peril if sales taxes delayed

Newell Normand
March 18, 2020 - 4:45 pm

If there’s anything that really scares me about what’s going on right now, it’s concern about how and when this economy bounces back. The duration of this event is looking more and more troublesome, because the more we try to “flatten the curve,” the longer the event actually lasts.

When I think about what we’re doing here locally, a few concerns rise to the forefront. When we start modifying the manner in which we collect revenue in order to provide essential services to the city, we need to be really concerned and careful about that. When you are in retail, whether that be food and alcohol sales, hotel rooms, goods and services, etc, you act as a fiduciary, collecting sales tax on behalf of a third party. That third party is the governmental entity that had the authority to pass the sales tax. You’re obligated to forward those funds on, and that’s how we finance the government.

So the Mayor makes an announcement about the suspension of fines and penalties on late payments of those sales tax collections. Remember, you’re in retail collecting sales tax as a fiscal steward, a fiduciary - that’s not your money. The moment we say it’s okay to delay forwarding that money to the tax authority, we have created a new normal. We have created a new way of thinking about using third parties’ money for our benefit, and all of those third parties are you, me and everyone else paying a sales tax. I understand this is a crisis situation, but I balance this against what our expectations are from city government. 

I am growing increasingly concerned about whether or not we’re going to have the financial resources to fund fire and police protection. Fifty percent of the city budget comes from sales taxes, video poker taxes and things like that - that is a big source of revenue for the city. Property taxes only come at one time every year and sales taxes come every month. So there are some months where you are fat in cash, typically at the beginning of the year, and the other months you get leaner and leaner. We’re entering the lean phase now and it will only get leaner the closer we get to the end of the calendar year.

I have heard talk about a one-year plan, but it took businesses in this city three years to recover from 9/11. 9/11 was a very short event, and in the aftermath of it, we asked everyone to go spend more money, be more socially active in malls and restaurants and movie theaters. That is not how the last stage of the coronavirus is going to work, because we will still be dealing with the ills of the virus and will still have penetration from a public health standpoint.

If we believe we are going to be able to use those post-9/11 strategies in the aftermath of this pandemic, we are making a huge mistake. I said from early on, public health and fiscal health must be considered concurrently, and the decisions we are talking about making now are decisions that should have been made two or three weeks ago. And when we have a complete annihilation of a revenue source - almost all commercial activity is at a complete halt with the exception of grocery stores - and if we shutdown the city and state like we see happening in Italy and other places, I'll be curious to see what happens with New Orleans’ fund balance. Will we be able to make it through the rest of the year on a cash basis?

The Government Finance Officers Association recommends two months' general fund operating expenses to be held in fund balance. We face all kinds of emergencies here, like hurricanes, floods, oil spills and everything else. I always tried to posture our budget to have at least five or six months cash on hand - I’m not sure New Orleans has three months. If not, we are going to be in a fiscal crisis within the next fifteen to twenty days.

I think city leaders need to be more transparent about where we stand financially in this city so we can better understand some of the fiscal and economic decisions being made here. Same holds true for the state government and for every town, city and parish in Louisiana. 

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