The new year presents a chance to make a fresh start as a new mayor and three new council members take office.
At the end of 2025, the city of New Orleans scrambled to contend with a burgeoning financial crisis that prompted all three major credit rating agencies to downgrade the city’s ability to pay its bills. The city had to borrow $125 million to meet payroll as the outgoing mayor and city council clashed over how to stanch the flow of budgetary red ink. The council overrode the mayor’s veto to pass a 2026 budget that includes $150 million in cuts, including furloughs for some employees.
This financial meltdown jolted the public’s already shaken confidence in the city, which went from having huge surpluses fueled by federal pandemic relief funding to huge deficits in the span of just a few years.
Having taken short-term steps to stave off a fiscal collapse, city officials now have an opportunity to address the root causes of the crisis andcbuild financial guardrails to help ensure we never end up in this situation again.
To help guide this effort, the Bureau of Governmental Research has laid out a three-step framework for strengthening the city’s financial management practices in a series of recent reports. The steps include:
- Developing a multiyear financial plan to account for anticipated changes in revenue and spending;
- Working to achieve a structurally balanced budget that covers the full costs of responsibly running city government, without using reserves or other one-time money; and
- Adopting a policy to manage and safeguard the city’s financial reserves or “rainy day” fund as the city rebuilds them
BGR recommends that the city administration develop at least a five-year financial plan that it annually reviews and updates with input from the city council during the public budget hearing process. The plan would serve as a strategic roadmap to help the city rebuild its financial health, make responsible moves on new revenues and spending reductions, and adjust to future changes in its finances and needs before a crisis arises.
The plan should guide the city toward achieving a structurally balanced budget. This is a higher standard than the balanced budget requirement in the city’s charter, which simply states that projected revenues must equal or exceed planned expenditures. There are two potential problems with this approach:
- The budget could be balanced by using one-time revenues, such as reserves, that the city cannot count on in subsequent years; and
- The budget could be artificially balanced by underfunding certain responsibilities, such as employee pensions and facilities and streets maintenance.
A structural balance occurs when annually recurring revenue equals or exceeds the recurring expenditures needed to adequately maintain services and infrastructure, without using reserves. This is a relatively simple yet powerful concept that can help the city set priorities while ensuring the budget meets the true costs of city government and is sustainable year after year.
Finally, BGR recommends that the city adopt a policy to guide and limit spending from its reserves to ensure an adequate financial cushion for emergencies. Government finance experts recommend that municipalities maintain at least two months of expenses in reserve, or about 17% of their general fund operating budgets. The city fell far short of this minimum threshold for many years, until the federal pandemic relief funding helped the city bolster its reserves.
But several years of spending from the reserves coupled with the onset of the financial crisis have erased those gains. This shows the importance of a policy to safeguard the reserves for when the city really needs them. Given New Orleans’ vulnerability to disasters, city officials and consultants should strongly consider a reserve level higher than 17%.
These recommendations are essential to restore New Orleans’ fiscal health and rebuild the confidence of credit rating agencies, debt markets, state officials and most importantly, New Orleans residents, many of whom have opted to leave in recent years, according to census figures. To reverse this trend, the city needs a sustainable budget that better addresses residents’ immediate and long-term needs while dealing responsibly with any fiscal emergencies.
Public officials should choose to take these steps as soon as possible to ensure a brighter future for New Orleans in 2026 and beyond.
Rebecca Mowbray is the president and CEO of the Bureau of Governmental Research (BGR) a private, nonprofit, independent research organization dedicated to informed public policy making and the effective use of public resources for the improvement of government in the New Orleans metropolitan area. She may be reached via email at rmowbray@bgr.org.
