New Orleans faces deep budget cuts after governor recommended rejecting request to sell bonds

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A push by top state officials that could have led to a takeover of the city of New Orleans’ finances has stalled after city leaders on Wednesday withdrew a request to borrow $125 million to address a massive 2025 budget shortfall. Now, without the loan, the New Orleans City Council and Mayor LaToya Cantrell’s outgoing administration will likely have to pursue deep cuts to head off a $160 million deficit, as well as immediate cash flow problems that could jeopardize the city’s ability to pay its workforce.

“The city of New Orleans, both the administration and this council, are going to move forward without the $125 million on the table, and we are going to make cuts and adjustments to the budget accordingly,” said Council President JP Morrell at a City Hall press conference on Wednesday afternoon.

The news comes just one day after Gov. Jeff Landry urged Republicans on the state Bond Commission to reject the city’s request to sell revenue bonds to help cover the shortfall. In that same post on social media, Landry also called on the members of another state board, the Fiscal Review Committee, to hold an emergency meeting to examine the city’s finances.

At the meeting, which was scheduled for late Wednesday afternoon, the three Fiscal Review Committee members — state Attorney General Liz Murrill, Treasurer John Fleming and Legislative Auditor Mike Waguespack — were also going to consider whether to begin the process of appointing a fiscal administrator for New Orleans. But Waguespack cancelled just hours before the 4:30 p.m. meeting time.

“So, we decided that it wasn’t necessary at this point in time to do the (Fiscal Review Committee) meeting,” Waguespack told Verite News, noting that state and city leaders were at an impasse over the best way to proceed to address New Orleans’ financial situation. “I decided to cancel the meeting to allow a little more time to kind of work out the process.”

Waguespack said that as chairman of the committee, he alone can call or cancel meetings, though he said that he typically has conversations with Murrill and Fleming to decide whether it’s appropriate to meet.

Fiscal administrators essentially take over the duties of local governments. They are empowered not just to formulate budgets, but also to hire and fire personnel and approve contracts unilaterally, without the consent of elected officials. The move would’ve effectively defanged city leaders, including Mayor-elect Helena Moreno and the New Orleans City Council.

According to Moreno, city officials were told that should they move forward with their bond request, they’d be opening the door for the fiscal administrator to come in for “an indefinite amount of time.”

“I will not stand for having a fiscal administrator come into the city of New Orleans; that is essentially the state coming in and taking over the city,” Moreno said. “A fiscal administrator has the ability to approve expenditures, to approve and cancel contracts. Really, it’s about somebody coming in to run the city, and so we all stand together united against having a fiscal administrator come in.”

She also said that they had the support of U.S. Rep. Troy Carter and the New Orleans delegation in the state legislature in standing opposed to a state-led takeover of the city. However, Moreno added that she was open to working with the state to come up with different options, including other, less intrusive forms of oversight, in order to get access to funds for the city.

The cancellation of the $125 million short-term revenue bond request — which City Councilmembers previously compared to a high-interest payday loan — was one in a series of moves that the City Council made on Wednesday to stave off state intervention into the city. In a specially-called council meeting early in the day, councilmembers also passed a resolution to stop any planned purchases — from their own offices — that could affect the 2025 budget. (The resolution does not impact executive branch contracts, which account for the overwhelming majority of city purchasing.) And they formally requested the Legislative Auditor to perform an investigation into how the city has managed its finances, including looking into budget and accounting practices as well as practices related to overtime, contracts and federal funding, going back to 2022.

Waguespack said that he would be working with the New Orleans Office of Inspector General to decide how to proceed with the investigation, which he estimated could take anywhere from three to six months.

Without the prospect of immediately accessing $125 million in emergency funding, the city will now have to make difficult decisions in order to cover its cash shortfall.

Councilmembers speaking at a press conference Wednesday afternoon said they are now chasing down money through a few different avenues. They will continue to seek out tens of millions of dollars owed to the city by the Federal Emergency Management Agency for ongoing road and drainage work, and are considering reallocating unspent American Rescue Plan Act dollars. They have also asked the Sewerage and Water Board to pursue reimbursement for millions of dollars the agency is owed by the state, which the agency, in turn, owes the city. The city will also be spending down part of the deficit with a portion of its over $200 million reserve fund.

However, even if those measures are able to cover a substantial portion of the city’s deficit, the city will likely still have to shrink its workforce through furloughs — and potentially layoffs.

“Everything is on the table,” Morrell said. “We’re going to claw back all the money we can, and we’re going to see if that’s enough to make sure that essential services are funded and city workers are paid.”

Previous administrations, such as Mayor Mitch Landrieu’s and Mayor Ray Nagin’s, have dealt with major shortfalls with hiring freezes and temporary furloughs, which are temporary or part-time suspensions of city workers. But the city has already implemented a hiring freeze. And at the press conference, Morrell warned that furloughs would not be enough to cover the deficit.

“We cannot furlough our way out of this,” he said. “A day of furlough in the entire city is a million dollars. Even if we furloughed everyone through the end of the year, it would not serve the deficit.”

City leaders say they will also continue to pursue other measures to dramatically limit the city’s expenditures through the end of the year.

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