A 'perfect storm' exposes budget troubles for New Orleans; city may have to borrow to pay bills

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A cash flow problem that may leave the city of New Orleans without enough money to pay its bills for the rest of the year is due in part to the fact that it has not received an expected $120 million advance from the Federal Emergency Management Agency, a reality that city officials blamed not just on the ongoing federal government shutdown but also on policies leveled by the Trump administration against “sanctuary cities” that don’t cooperate with federal government’s hardline immigration policies.

The city may now be at risk of not having enough funding to cover payroll for thousands of its employees.

The news comes as the city stares down a $160 million budget deficit that will require it to spend down its reserve fund as well as adopt new revenue-generating measures — all while it prepares and passes its budget for next year.

Now, the city will likely have to take on debt in order to cover its bills for the rest of the year — in addition to implementing cost-saving measures across the board. But given the city’s dour financial outlook, it might be difficult for the city to easily access a line of credit.

“I can tell you that the council was not aware that (the federal funding), pretty much, was the determining factor on whether or not we’d be making payroll for the end of the year,” Councilmember Helena Moreno, who takes office as mayor of New Orleans in less than three months, said at an emergency budget hearing held by the New Orleans City Council on Wednesday.

That $120 million in FEMA funds was supposed to come as part of the $2 billion Joint Infrastructure Recovery Request program, wherein the city and the Sewerage & Water Board pooled federal post-Katrina recovery funding to work together to fix long-neglected roads and drainage infrastructure. The city, which was slow to spend the money at first, has since signed extensions with FEMA, so that it can continue to upgrade infrastructure, especially roadwork.

Though such FEMA funds are usually paid as reimbursements for work already performed, for the roadwork, the city negotiated an advance payment system, The Times-Picayune reported.

According to interim Chief Administrative Officer Joe Threat, the city put in a request in August to again extend its agreement with FEMA, so it could continue to receive regular advances on that funding. While that request got approved by regional administrators, it has been sitting on national administrators’ desk without movement, Threat said. Now, with the federal government going into its third week of a shutdown, there appears to be little movement on paying the $120 million expected by city officials.

“In the change of the administration and the way FEMA looks now and the whole federal government, there was an initiative to claw back grants, cancel grants and close out the Katrina disaster,” Threat said at the Wednesday council hearing.

But the shutdown wasn’t the only factor throwing this program into question, city Director of Intergovernmental Affairs Arthur Walton said. It was also the fact that the Trump sees New Orleans as a “sanctuary city,” meaning it limits its cooperation with federal immigration enforcement.

FEMA did not immediately respond to a request for comment.

The New Orleans Police Department and the Orleans Parish Sheriff’s Office both have policies, imposed by federal court orders, that place limits on their employees working with federal immigration authorities and prohibiting them from conducting their own immigration investigations. Trump previously threatened to withhold funds from New Orleans because of those so-called “sanctuary policies” during his first term in office.

The Trump administration has repeatedly attempted to cancel congressionally authorized funding to states and local governments that don’t pledge full cooperation with the president’s hardline immigration agenda. Earlier this year, President Trump issued an executive order directing Attorney General Pam Bondi and Homeland Security Secretary Kristi Noem to withhold federal funds from sanctuary jurisdictions.

Along with New Orleans, other Democratically-led states and cities have faced similar threats and losses of funding in Trump’s second term. Last month, a federal judge ruled that the administration could not withhold funds from states simply because they are not using their resources to conduct immigration enforcement — which is legally a federal matter, not a state or local one. More recently, Trump has tried to withhold funding from local governments because, the administration says, they “promote or advance” diversity, equity and inclusion — or DEI — programs, also prompting litigation.

Walton said that he traveled to Washington to speak with the New Orleans congressional delegation about the possibility of extending the JIRR program — and ensuring the city could access federal money for road repair.

But he added that the delegation is also considering another step: removing New Orleans from a Trump administration list of sanctuary cities.

“So, they’re in the process now of advocating having us removed from the list,” Walton said.

The announcement of the cash flow issue — paired with the continuing conversations over the deficit — has spooked city workers, who fear that they may not be paid through the end of the year.

Amanda Fallis, a librarian at the New Orleans Public Library and president of the union representing city workers, told Verite News that city workers must be paid — and should not be a casualty as city officials work to stabilize the budget.

“We were kept in the dark by the administration, and (the) budget they have obfuscated should not be balanced on our backs,” Fallis said, adding that a lack of transparency has been a hallmark in the union’s relationship with the Cantrell administration for the past eight years.

Union members planned to hold a press conference at City Hall on Thursday, where they would demand the city not engage in any furloughs or layoffs of city workers because of the budget crunch.

Union members hope that Moreno will keep her campaign promise to support city workers in-house and minimize the number of contractors.

“We can make this city work with the employees we have and the budget hole that’s been created if we receive a new and dynamic administration that sees the value of prioritizing open communication, transparency, training and developing its existing workforce,” Fallis said.

The question of how bad the city’s financial situation is has been a persistent one this year, first prompted by Mayor LaToya Cantrell’s decision early this year to withdraw from a $20 million legal settlement with the Orleans Parish School Board. At the time, Director of Finance Romy Samuel warned that the city could not afford the settlement, but there was little consensus or communication from the Cantrell administration about the actual extent of the city’s budgetary challenges.

There were also questions about the impact of a New Year’s Day terror attack — and the resulting high-level, expensive security that followed as the city hosted the Super Bowl and Mardi Gras. Typically, that level of security would be eligible for federal reimbursement, but that did not come. And months later, the city appeared to be tens of millions in the hole for overtime pay.

It is not clear why the city did not get reimbursed for that spending.

There was also a snowstorm in late January, which blanketed the city with nearly a foot of snow, but the city did not get a federal emergency or disaster declaration, making it ineligible for reimbursement by FEMA, leaving the city on the hook for the costs incurred by the storm.

But those two events alone do not explain the extent of the deficit.

The city also overestimated the amount of money it would receive in general fund revenue by more $100 million, with the state’s top auditor calling the initial projections overly optimistic. This is not the first time that the city has over-projected its general fund expenditures — or outspent the general fund. But it has been cushioned in recent years by a large influx of federal dollars and a high reserve fund.

“It was a perfect storm,” Romy Sameul, the director of finance, said at the meeting, pointing to overtime, revenue loss and measures taken by the state and federal governments.

For Nellie Catzen, the executive director for the Committee for a Better New Orleans, which runs a program to educate and involve residents in the city’s budgeting process, the latest iteration in the budget saga is yet another example of why more transparency into the city’s budget is necessary.

“This would not have been a surprise to anyone if we all had the information that we need about public funding, public budgeting and where we are on a regular basis,” Catzen told Verite News. “We have been demanding transparency for a long time. We have gotten very little from this administration around creating more visibility into spending, both for people outside City Hall and, importantly, for people inside City Hall.”

While she acknowledged that many of these budget stressors could not be entirely foreseen, Catzen also stressed that more transparency would have been critical in mitigating the impact of those stressors. And crucially, in her opinion, there wouldn’t be continuing, new revelations about the extent of the deficit had there been regular reporting on city spending.

“Had our system been transparent, we could have been more responsive to the situation as it was developing rather than now, on the back end, having to see how the dust has settled and see what a horrible situation we are in,” Catzen said.

As to how she hopes the council will approach stabilizing the budget, Catzen hopes that the city won’t lean on well-worn austerity measures, like slashing the city services that residents rely on.

“I’m more interested in efficiency than austerity,” Catzen said.

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This story was originally published by Verite News and distributed through a partnership with The Associated Press.