In The News › BGR: Taxes in New Orleans may not be funding city’s priorities

BGR: Taxes in New Orleans may not be funding city’s priorities

By Jeff Adelson

The Advocate

November 10, 2015

Rather than bolstering public safety or fixing the city’s streets, much of the tax money that New Orleans collects is going to agencies devoted to promoting tourism, according to a new report from the nonprofit Bureau of Governmental Research that raises questions about whether dedicated taxes are funding services that are out of step with the priorities of residents.

The report, released Tuesday, focuses on the large sums of money collected in taxes for dedicated purposes — such as the sales and hotel taxes that now flow to the Convention Center — and notes that while the city receives about 41 percent of the $1 billion collected in New Orleans, officials only have a say in where about a quarter of the total is spent. The rest is dedicated to specific purposes by law, limiting the administration and City Council’s ability to use it for other priorities.

The accumulation of “ad hoc” dedicated taxes over the last half-century has left the city struggling to come up with the money to meet residents’ needs even as some agencies and organizations are flush with cash, according to the report.

The report argues Mayor Mitch Landrieu’s administration should review all taxes being collected in the parish and then pursue changes in next year’s legislative session aimed at freeing up money that now is dedicated to particular uses so that city officials can decide how it should be spent. That would allow the city to increase spending on residents’ priorities while keeping taxes at the same rate, according to the report.

“The tax dedications were approved in piecemeal fashion over the course of many years with little planning and accountability,” according to the non-partisan think tank. “The allocation of resources that evolved from this ad hoc process has not been re-evaluated in the context of changing conditions and current needs. Given the limited public funds to satisfy those needs, New Orleans cannot afford to continue down this path.”

The report comes as the City Council is considering a nearly $600 million budget for next year. Growing revenue from sales and property taxes has helped fill the city’s coffers. However, Landrieu and other city officials have estimated about $100 million more is needed to meet their goals. The issues raised by the report also mirror debates at the state level, where the proliferation of dedicated taxes and other revenue sources that can only be used for specific purposes has driven what have become yearly cuts to higher education and health care, the two main unprotected areas of the budget.

Education and public safety each receive about 24 percent of the taxes collected in the city, according to the report. That’s followed by tourism, conventions and sports, which get about 14 percent of the total taxes.

The report takes particular aim at the Convention Center and Convention and Visitors Bureau, both of which are funded by dedicated taxes.

The Convention Center has nearly $200 million in reserves, almost five times the $40.2 million it needs to fund it’s operations each year. That money was largely accumulated through a quarter-cent sales tax on food and beverages in the city and a 1 percent tax on hotel rooms, both of which were imposed by the Legislature in 2002 and which were intended to pay for an expansion that was scuttled after Hurricane Katrina.

“These self-imposed reserves are clearly excessive, redundant and far beyond what best practices would recommend,” according to the report. “It is impossible to justify them at a time when New Orleans faces so many critical unmet needs.”

There has been discussion of redirecting some of that money to help develop a private hotel near the convention center and make improvements to the streets in the area, which together would cost about $150 million, though that effort is still in the planning stages.

An additional hotel assessment of 1.75 percent is split between the Convention and Visitors Bureau, the New Orleans Tourism Marketing Corp. and the city, which must spend the money on public safety and improvements in the French Quarter.

At the time it was proposed in 2013, BGR argued against that tax and said it would prevent other hotel taxes from being imposed for more general services. That theory was born out last year, when the city failed to get a general hotel tax passed at the Legislature.

The report also calls for rethinking a 1 percent sales tax dedicated to the New Orleans Regional Transit Authority, suggesting it could be overly generous given the 68 percent decline in ridership the agency has seen over the past 30 years. That funding allowed the agency to pay for the $41.5 million expansion of the Rampart Streetcar line, something the report suggests should have been largely paid for by the federal government.

More study should also be given to the Tax Assessor’s Office, which receives 2 percent of all property taxes collected in New Orleans regardless of its budgetary needs. That’s led to a situation where the Assessor’s Office has routinely racked up surpluses of about $2.8 million and now has about $7.7 million in reserves, more than its yearly operating expenses, according to the report.

“It is time to review current taxes in New Orleans and identify those that are ripe for rededication to basic municipal needs,” according to the report. “The city is the only general purpose government entity in the parish and the one in the direst financial straits. Therefore, the mayor must take the lead in pursuing all appropriate changes to local tax dedications.”

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