BGR Report Warns New Orleans Reserve Funds at Risk Amid Budget Uncertainty

NEW ORLEANS — After months of unclear back-and-forth from city leaders regarding the city’s financial standing- sparked by the Mayor pulling out of a multimillion dollar settlement with the Orleans Parish School Board- a new report released by the Bureau of Governmental Research gives us more insight. The report, which was already in the works before the settlement news, finds the city’s money management practices need some work. Plus, they say the city’s rainy day fund is depleting — quickly. 

BGR says federal COVID money “kept the city budget very liquid” and helped the city’s reserve. “The amount of money that we had as kind of a backup really increased in recent years,” BGR CEO Rebecca Mowbray said. But it’s at risk of dipping once again, they say. 

Over the next few years, BGR says the reserve could be at risk. BGR says they look to experts who say the city should have at least 17% of its total budget in its reserve, but New Orleans could soon be below that minimum. 

“If the city doesn’t have a certain amount of money in reserve, then there’s always the risk that if we have a disaster, you have to have services that are cut, or they’re looking for a new tax or a fee, or things like that, that the you know, services that the city is able to deliver will be more stable if they have some money, you know that they can draw on if they need to,” Mowbray said. 

Plus, according to the report, the city lacks a policy guide to limit and determine when it can pull from the reserve. Instead of planning financials years out, BGR says New Orleans does it year by year. 

“We didn’t see any of those safeguards in the process, and that concerns us,” Mowbray said. “We’re about to fall below that minimum threshold for having money in reserve, and that is a point to really take stock and be like, okay, we haven’t had a policy to protect our spending in the last few years. If you’re going to do it, now is the time.”

But possibly most concerning is the lack of agreement on where the city stands financially, Mowbray said. Since the Mayor pulled out of the settlement, there’s been conflicting information on whether or not the city is in financial crisis. Mowbray says everyone should be on the same page. 

“How can we have an effective discussion about the city’s budget if, like, people can’t even agree about how things look,” Mowbray says. 

In a statement to WWL, Louisiana Council member Giarrusso said:

The City’s policy goals should be clear and understandable.  That is why the Administration and Council started the budget process a month earlier this year, discussed the reserves/fund balance, and prepared and circulated budget documents before the budget was adopted.  It is also reasonable to expect policy goals but it is also equally reasonable to understand those goals may shift depending on what happens at the national and state level.  We should be preparing for the present and future, including how we leverage the cash on hand to ensure we can fund projects New Orleanians agree are needed.  

The mayor’s office released the following statement: 

The City appreciates the work of Bureau of Governmental Research (BGR). However, the narrow lens through which BGR portrayed the City’s financial picture needs further context.

First, the Administration would like to assure the public that the City is on a solid financial footing and provide a more complete picture of the realities of running a city. The City would certainly benefit from maintaining a higher dollar amount in reserves, as discussed. The Administration has worked to secure an unprecedented and historic amount of reserves that  still allows the competing priorities of meeting the current needs of the community and preparing for future contingencies, all while done without an increase in taxes.

Following the increase in the City’s unassigned fund balance in the General Fund from -$33.3 million in 2018 to $245.1 million in 2022, the City has thoughtfully appropriated these one-time dollars to build an unprecedented $100 million in Emergency/Disaster Reserve. The City has replaced lost revenues following the pandemic, increased compensation for City employees, and funded dozens of important projects and initiatives to invest in the city’s future. As our three-year plan to deploy these accumulated reserves comes to an end in 2025, the City plans to maintain the $100 million Reserve and the $33 million Savings Fund and reduce fund balance expenditures to restore structural balance in 2026, along with maintaining current tax rates. 

Managing a city comes with significant and varied costs, especially when executing long-term strategies and responding to emerging needs. The City has dedicated $150 million to improve police recruitment and retention, modernize technology, upgrade vehicles and equipment, and provide better facilities. The amount of $60 million was spent on infrastructure improvement, maintenance, and enhancement projects across New Orleans, leading up to Super Bowl LIX, which will benefit communities for years to come.

Significant funding is also regularly provided to external agencies that provide key services, including $168 million to the Sewerage and Water Board over the last few years and $132 million to criminal justice agencies in 2025 alone. Investing in public safety, improved infrastructure, successful large-scale events, and the modernization of City services is costly, however, these investments bring real and essential benefits to New Orleans by reducing crime, creating economic opportunity, and enhancing quality of life.

The City has weathered several incredible challenges in recent years, including the cyber-attack, COVID-19 pandemic, great resignation, extreme weather events, and the New Year’s Day terrorist attack. Meanwhile, this Administration has grown City employee wages, made key investments, and maintained a stable budget.

BGR’s advocacy for spending less on current needs in order to prepare for future contingencies stands in stark contrast to what the Administration has heard from the community. People are in need now, they do not want higher taxes, and they expect a high level of service and responsiveness from the City of New Orleans. When both ends of the advocacy spectrum are disappointed in a policy decision, that usually means that the policy has found an appropriate middle ground.

Regarding the New Orleans Police Department’s (NOPD) preliminary deficit numbers for 2024, BGR provided an incomplete picture. Projections and actuals provided prior to the City’s audited annual financial statements being released are preliminary. Projection methodologies often omit anomalous transactions, and reconciliations during annual audits often result in revisions to surpluses or deficits reported during the ongoing budget year. Characterizing a projection compared to a preliminary actual as “impossible” shows a misunderstanding of the numbers being reported, and conclusions should not be drawn until final, audited numbers are available, which is usually on June 30 of the following year. 

The Administration agrees with some of the recommendations in BGR’s report and has been actively working to draft a policy on the use of fund balance, but the reality is that fund balance policy and multi-year financial planning must be balanced with the real necessity of meeting the needs of the community without overburdening taxpayers. As the Administration continues to both prioritize fiscal responsibility and adequately fund essential City services and initiatives, safeguarding the City’s fund balance remains a top priority.

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