Executive Summary
On December 5, voters in the City of New Orleans will decide whether to authorize the City Council to levy a property service charge on real estate. The charge is to be based on the size of the parcel of property—presumably the land, though land is not specified in the proposal. The proposed charge is estimated to generate $47.7 million a year.
The primary intended uses of the new revenues include pay raises for most city employees and for all public school employees. The proposed property service charge, if approved, would be the largest single operating revenue measure approved by voters in the city’s history. Previous attempts to gain voter approval of a smaller version of a property service charge were defeated in 1986 and twice in 1990.
The BGR Board of Directors, at its October meeting, concluded that the property service charge proposal was seriously flawed and voted overwhelmingly to oppose the proposal. This report outlines the basis for BGR’s opposition.
BGR concludes that the current proposal has serious deficiencies and omissions, is misleading to the public, and—despite the unprecedented size of the proposed revenue increase—would do little to address the serious, fundamental fiscal plight of the City.
Misleading Nature of Proposal
BGR is very concerned that the public may vote for this proposal thinking that this additional revenue will solve the city’s fiscal crunch and that it will pay for the employee raises its approval will obligate the School Board to provide. In fact, this proposal would accomplish neither of those purposes.
Impact on City Budget and Fiscal Problems
This proposal would have only a minor impact on the city’s fundamental budget problems in 1999 and beyond. Only $5 million at most, less than 11 percent of the total funds generated, would be used to address the projected shortfall in the 1999 budget (which the City estimates at $31 million and BGR estimates at between $41 and $43 million).
Most of the funds would go for new expenditures (pay raises, longer library hours, more police) or to replace existing revenue (amusement tax). So the service charge proposal, if approved, would not even provide a one-year “fix” of the city’s budget problems. This proposal certainly does not address the problem of closing the long-standing gap between continuing obligations and actual resources, and the City has put forward no other plan for doing so.
Possible Legal Problems
This report identifies a number of potential legal problems with the proposal, including the questionable constitutionality of the proposed transfer of funds from the City to the School Board and the vague and imprecise nature of the election resolution and ballot language. For example:
t The proposed transfer of funds from the City to the School Board may be unconstitutional since funding public schools is not a legal duty and obligation of the City.The Cooperative Endeavor Agreement between the City and the School Board, which presumably will set out the terms of the transfer, has not yet been made available for public review.
t The election proposition and the ordinance just introduced to adopt the service charge fail to define key terms which are essential to a clear understanding of how the service charge would be levied and collected—including what the charge will be applied to (land, surface area of ground-level improvements, surface area of multi-story improvements) and who is to pay (owner or lessee).
No Plan for City Pay Raises
With regard to the use of the funds, there is at this point no approved pay plan specifying how the major portion of the city funds will be used. There are no dollar amounts or percentages setting the proposed expenditure of funds in either the election resolution approved by the City Council or in any other legally binding document.
No Need for Across-the-Board School Pay Raises
The School Board is committed by union contracts and by verbal commitment to a six percent across-the-board raise for all school board employees if this proposal is approved by voters. BGR has already gone on record as opposing across-the-board raises for school employees and as opposing any raises in the absence of (1) a strategic plan that links spending with improved student learning and (2) a program of productivity incentives for employees. Even if one supported the across-the-board raise, the current proposal is inadequate. It will provide only $13 million of the nearly $17 million needed to pay for the six percent raises the first year.
Problems with the Property Service Charge as a Funding Mechanism
BGR sees a number of problems with this property service charge proposal as a funding mechanism, whatever the funds were used for:
t the large number of exemptions from the proposed charge;
t the inequities in imposition of the charge;
t difficulties in administration and collection of the charge; and
t the non-deductibility on federal or state tax returns, except as a business expense.
Other Options
Finally, BGR firmly rejects the often-repeated notion that the City has no other options than the present property service charge proposal. Other options are identified below.
No homestead exemption on New Orleans’ municipal millage. The elimination of the homestead exemption on municipal millage would be a far better and more progressive alternative. This change would also make New Orleans’ application of the homestead exemption consistent with that of every other city in Louisiana.
Council-enacted service charge. A more immediate option would be for the City Council to levy an increase in the city’s service charge for specific services. This action can be taken without voter approval and could include a sunset provision to encourage the homestead exemption change.
No homestead exception on new school board taxes. Another “better option” would be for the Legislature to allow the Orleans Parish School Board and school boards statewide to levy new property taxes with the option that the homestead exemption not apply. Such an approach would not alter any property taxes now in place.
Revised and improved property service charge. Another option would be a better-thought-out, better-defined, and significantly revised property service charge.
Other. Finally, there remains the option of further reductions in operating expenses, either through increased efficiencies or through the elimination or reduction of certain services.
BGR Commitment
While opposing the December 5 proposition, BGR pledges its full cooperation to the City and the School Board in the review and consideration of these and all other options.
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