NEW ORLEANS - The Bureau of Governmental Research (BGR), a private, nonprofit, and independent research organization based in New Orleans, released the report “Improving Financial Management Practices for the City of New Orleans” on April 7, highlighting concerns about the City’s financial management practices.
“The public has a keen interest in the City maintaining adequate financial reserves. For one thing, they help avoid cuts to essential services and increases in taxes or fees during financial crises,” said Rebecca Mowbray, BGR’s President and CEO. “A reduction in the City’s reserves also could lower its credit rating, driving up taxpayer-funded borrowing costs for capital projects such as street improvements.”
Established in 1932, BGR conducts research on public policy issues, including government structure, budgeting, finance, ethics, and public procurement to advance informed public policy and the effective use of public resources.
“The recent dispute about a proposed $90 million legal settlement between the City of New Orleans and the Orleans Parish School Board has raised concerns about the City’s financial health,” BGR said in a statement. “It also revealed troubling disagreements within the administration about the extent of any problems.”
The conflict with the School Board centers around the city's practice of retaining 2% of property taxes intended for school funding, a practice OPSB deemed illegal, leading to a lawsuit filed in 2019.
In Nov. 2024, a settlement was announced, with plans for the city to pay $90 million to OPSB, including two $10 million installments. However, the first payment, due by December 2024, was not made, with city officials citing budgetary constraints and unforeseen expenses as reasons for the delay.
Mayor LaToya Cantrell later withdrew from the settlement agreement, stating that it had not been finalized and citing financial instability concerns. This decision was met with surprise from both the OPSB and the City Council, leading to public disputes and calls for greater financial transparency.
In March, Civil District Court Judge Nicole Sheppard ruled that while the full $90 million settlement was not legally binding due to procedural issues, the city was still obligated to pay the first $10 million installment.
In its “Improving Financial Management Practices for the City of New Orleans” report, BGR cites the City Council’s lack of a multi-year financial planning system, a lack of a policy to manage "rainy day" reserves, and inadequate public transparency about reserves and spending.
BGR states that this has resulted in inaccurate budget projections including the delayed discovery of a $42 million deficit in the New Orleans Police Department’s 2024 budget which reflects significant discrepancies between projected and actual expenditures.
In a statement, Mayor Cantrell emphasized the administration's commitment to fiscal responsibility, highlighting the successful negotiation of the Fair Share Agreement, which secured $50 million in upfront funding for the city's infrastructure needs, along with $26 million in annual recurring revenue.
"While public safety and public health are a top priority, my Administration recognizes that these cannot be improved without also addressing other prevalent issues in our City, such as affordable housing, workforce development, economic opportunities and mobility, youth programming and infrastructure."
But the BGR report states that financial discrepancies threaten the City's financial stability, especially as COVID-19 relief funding is running out, potentially leaving reserves at dangerously low levels. “The financial windfall is over,” the report states. “Three years of spending could reduce the reserves available for emergencies to $116.5 million by the end of this year. This would be below the minimum recommended level of two months of expenses, or $158 million.”
According to BGR, the $116.5 million estimate is conservative. As the City’s reserve decline, a continuation of the downward trend could return the City to its pre-pandemic history of insufficient reserves.
Recommendations
BGR’s report stresses the importance of maintaining adequate reserves to avoid cuts to services and higher borrowing costs. It also highlights internal disagreements within the City’s administration regarding the severity of the financial situation.
BGR recommends creating a policy for General Fund reserves, developing a multi-year financial plan, improving spending projections, and increasing public transparency through annual reports and regular budget reviews.
BGR is governed by a board of citizens and does not accept public funding or government contracts.
