New Orleans secures $125M state lifeline with tight oversight

(The Center Square) — The State Bond Commission on Wednesday approved a $125 million loan for New Orleans to bridge a mounting cash shortfall, pairing it with sweeping controls that don’t include a state takeover. Under the structure, the state will give the city the money in the form of revenue appreciation notes. It will be repaid with revenue from reliable and predictable sources like sales taxes. The city’s payroll will need a weekly sign-off from the legislative auditor, but not a fiscal administrator as Gov. Jeff Landry had suggested after the city initially asked for help in October. The stopgap allows the city to avert immediate risk to its payroll and buys time. But by the city’s and state’s own account, New Orleans must cut spending, rebuild its reserves, budget transparently for recurring costs like overtime pay and possibly amend its charter to require a balanced budget.And because the financial hole was built over multiple years, the city will likely need to return for additional, but smaller, short-term borrowing in the next few budget cycles while it rebuilds its reserves and reins in spending.“It’s not unusual to do a (revenue appreciation note)…you don’t fix a deficit this large in one year. It requires multiple years,” City Council President J.P. Morrell said in an interview. “The metric of success is making sure that [the borrowing] gets smaller each year…the goal is that number has to go down.” Rebuilding the city’s reserves could include revenue measures and liquidating long-idle city property, Morrell said. Mayor-elect Helena Moreno called the $125 million “bridge funding” to keep essential services running until deeper efficiencies and cuts can take hold. She had predicted deep cuts without the state’s help. Officials said the note carries roughly a 3.5% interest rate, with JPMorgan Chase as the lender.“We’re working to pay back as quickly as possible…this is an opportunity to build a right-sized government,” Moreno said, noting her transition team is analyzing every department and that the current budget is “not workable.”To manage the turnaround, Moreno’s transition fund has retained two outside advisory firms, Public Financial Management and HR&A, paid for by private business donors.Cash-flow projections presented to the state showed the city had an October deficit of about $14.6 million that was growing past $70 million and expected to peak at roughly $125 million. Another cash gap is anticipated in May 2026.Morrell said next year’s city budget will shrink and that an ordinance creating a special fund for the $125 million is meant to “display the city’s accountability,” with public meetings with the auditor every Wednesday for the life of the fund. Morrell also suggested amending the city’s charter to require a legally balanced budget, a change that would need voter approval. Legislative Auditor Mike Waguespack outlined the guardrails the city agreed to: all proceeds flow into a dedicated fund for payroll; no withdrawals occur without written concurrence from his office; weekly reporting and concurrence meetings continue for the duration of the borrowing; and the auditor’s team will conduct a detailed review before funds are used. Failure to follow the terms can trigger suspension of transfers.The city will compensate the auditor’s office at $125 per hour for the additional work, and the oversight will continue even after the note is repaid.Attorney General Liz Murrill, who stressed the state does not seek to take over the city’s finances, said the problem stems from overspending and budgeting practices that masked true costs — especially overtime — during and after the influx of federal pandemic aid.“There’s been three years of deficit spending,” Murrill said, calling the previous near-zero overtime budget an “intentional failure to budget for costs you know you’ll have.”Waguespack echoed that assessment, citing pandemic-era hiring that was not scaled back, persistent overtime pay that is “out of control” and a backlog of payables “not in the system” that could intensify cash pressures without tighter reins.State Treasurer John Fleming and former Recovery Authority head Paul Rainwater said the structure the city and state agreed to can work if paired with sustained discipline.