These local governments in Louisiana are facing huge shortfalls in revenues

Bradley Cryer, the assistant auditor whose job is to check the finances of Louisiana’s cities, towns, and villages, recently brought a stack of papers with color-coded tabs to the Legislature.

About 700 local governments and government-assisted agencies couldn’t finish their annual audits in time because of the coronavirus pandemic. About 50 extension requests is usual. He asked legislators to grant the extensions. Otherwise, the agencies wouldn’t be able to receive state and federal funds.

The stack was a “canary in the mine,” warning of dramatic impacts from the economic shutdown caused by COVID-19 on the agencies that provide local law enforcement, road maintenance, sanitation, and supplements for public schools, said Cryer, the CPA who is director of local government audit services.

And the mine is unstable. The latest calculations, more optimistic than four months ago, estimate parishes will receive about $1.1 billion, or 7.5%, less than what would have been collected over the next five years, according to a Louisiana Legislative Auditor’s report released Monday. Nearly a third of the parishes will still be in the red in 2025.

Louisiana Legislative Auditor Report on financial impact of COVID-19 and Hurricane Laura on local government

Louisiana municipalities and parishes, as well as sheriffs, school boards and other local agencies pay for services with sales taxes, property taxes, some oil and gas revenues, and gambling proceeds in those places allowing casinos and video poker stops.

Louisiana’s gross domestic product, a measurement of economic activity, has plunged 6.2%, according to the U.S. Commerce Department. Hotels and restaurants, which fuels a lot of this state’s economy, has declined 26.8% as part of the COVID-19 pandemic that brought the national economy to a standstill, the Commerce Department calculated.

Long before anyone outside the medical community had ever heard of a coronavirus, many of Louisiana’s cities and towns already faced financial difficulties that, if not stanched, would become the obligation of the rest of the state’s taxpayers.

Fifteen towns and villages were considered “fiscally distressed,” meaning auditors are working with elected officials to keep them from state takeover.

Cryer hopes to update the “fiscally distressed” list in the next couple of weeks. “We’re looking at 20 on the fiscal distress list and maybe 20 more behind that, what we look at as marginal,” he said.

“Nobody right now, that we know of, is in immediate danger of failing,” Cryer said.

Going into 2020, a record seven municipalities had been or were in the process of appointing a state administrator whose job is to push elected officials aside, then unilaterally make the budget cuts, personnel layoffs, debt payments and fee increases necessary to keep the town out of bankruptcy.

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Then in March retail shops closed, businesses shut down and laid off employees as most everyone was ordered to “stay-at-home” to try to slow the spread of the highly infectious and often deadly COVID-19. Collections of sales and property, called ad valorem, taxes plummeted, hobbling municipal and parish governments ability to pay for local services. The numbers were staggering – up to $1.1 billion less than expected revenue collections in fiscal years 2020 and 2021, the Legislative Auditor’s Performance Audit section estimated on May 7.

An updated report, released by the Legislative Auditor Daryl Purpera, early Monday morning, isn’t as grim. It’s not good news either.

The new report added into its calculations the estimated effects of Hurricane Laura, which made landfall Aug. 27, and revenues from casinos, which were closed when the calculations in the May report were made.

Now, up to $860 million less revenues are expected. The range of revenue losses now runs between $180 million and $203 million for fiscal year 2020 plus an optimistic $342.9 million to a pessimistic $657.3 million through June 2021 – still hefty deficits to cover. Auditors provided three calculations: one was optimistic, calculations based on a short economic shutdown and swift revival; a second pessimistic scenario in which economists didn’t see a fast recovery; and the third, an average estimate, which was between optimistic and pessimistic.

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The average amount of revenue losses for local government is estimated at $714 million for the fiscal year that ended June 30, 2020 and the fiscal year ending in nine months on June 30, 2021.

“These new projections anticipate a larger reduction in ad valorem taxes than our previous report did, but a smaller reduction in sales taxes and overall revenues. Under the average scenario, the 10 most affected parishes – in descending order – would be Orleans, Jefferson, East Baton Rouge, St. Tammany, Caddo, Calcasieu, Lafayette, Bossier, Ascension and Ouachita,” Purpera wrote state Senate President Page Cortez, R-Lafayette, and House Speaker Clay Schexnayder, R-Gonzalez, on Sept. 17.

The new report also calculated that over the next five years, local governments will collect between $508.3 million optimistically and pessimistically $2.2 billion less than what is on the books in March. The average loss is estimated to be $1.1 billion by 2025.

Twenty-two of the state’s 64 parishes – a third of the state – still will be in the hole come June 30, 2025, that is, not collecting the same amount of revenues that were on the books in March.

Then there’s $176 million of taxes in 46 of 64 parishes that expire at the end of the year. “The non-renewal of these taxes could result in additional revenue losses for local governments if voters do not renew these taxes,” the report stated.

The upside is that sales taxes hadn’t uniformly fallen as deeply as initially expected. That came as surprise to local officials, said John Gallagher, the executive director of the Louisiana Municipal Association who based his analysis on talking with mayors around the state.

Gallagher’s anecdotal assumptions were confirmed by the auditor’s new report. “Data from Louisiana local governments show that some parishes, such as East Baton Rouge and Lafayette have seen drastic reductions in sales taxes while others, such as St. Landry, have seen modest increases since the state of the pandemic,” the report stated.

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Gallagher said local officials were noticing an uptick in sales at local stores. “Makes sense, consumers were frequenting the stores near their homes,” he said.

What hurt, turned out to be the big cities, like Baton Rouge and New Orleans, whose population size doubles each day as workers commute to their jobs. Lunches are now being eaten around the kitchen table rather than at downtown restaurants. That bottle of milk isn’t being picked up on the way home but purchased down the street, Gallagher said.

“Under the average scenario, 46 (73%) of the 63 parishes that levy a sales tax are projected to experience a decrease in sales taxes during fiscal year 2021, with Orleans Parish having the largest declines, including 12.7% in fiscal year 2020 and 29.3% in fiscal year 2021,” the auditors wrote. In terms of dollars, the largest reductions are in Orleans, Jefferson, East Baton Rouge, St. Tammany, and Caddo parishes.

Kenner Mayor E. Ben Zahn III said at a recent LMA forum that businesses along Williams Boulevard where he cut ribbons a couple years ago are starting to shut down unable to weather the pandemic-related economics. Sales tax collections are down about 40%, customers at the Louis Armstrong New Orleans International Airport and at the Treasure Chest casino are down almost 90%. Police are still being paid but he’s seeing a $20 million shortfall in the $78 million budget for the 66,000 residents.

“Kenner is not unique,” Zahn said, asking the U.S. Congress to pass a stimulus package that would help state and local governments cover a reduction in revenues.

“We don’t need forever help, but we need help now,” Zahn said.

COVID and Laura revenue impacts through Fiscal Year 2025

                                 

  • Orleans                 $6.5 billion expected     $260 million less
  • Jefferson               $5 billion expected        $129.5 million less
  • East Baton Rouge  $2.9 billion expected      $49.5 million less
  • St. Tammany         $4 billion expected        $41 million less
  • Lafayette               $2.8 billion expected     $36 million less
  • Ascension              $1.9 billion expected     $21.8 million less
  • All parishes           $58 billion expected       $1.05 billion less

Source: Louisiana Legislative Audit report of Sept. 20, 2020

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