In The News › N.O. recovery cash on slippery ground

Jun 17, 2007

Source: Times-Picayune

N.O. recovery cash on slippery ground

N.O. recovery cash on slippery ground
Posted by By Michelle Krupa, staff writer June 17, 2007 8:52PM
Categories: Rebuilding/Recovery

When New Orleans Mayor Ray Nagin hit the streets in 2004 to stump for a $260 million bond issue, he pitched a list of more than 130 capital projects — including roads, parks and libraries — that he said would be completed with the borrowed cash.
With nearly every neighborhood slated to get at least a thin slice of the pie, voters overwhelmingly supported the measure, approving a proposition on the November ballot by a convincing 2-to-1 margin.
Less than 10 months later — before the city could sell any of the general obligation bonds — Hurricane Katrina blew through town and thoroughly reshuffled the priority list of public assets in need of repair.
Now, with whole sections of New Orleans stuck in rebuilding limbo, Nagin and his recovery czar Ed Blakely have been reworking the capital projects list to reflect the new reality.
But while the bond-issue money appears to be the most solid piece of Blakely’s otherwise tenuous financing package for the city’s $1.1 billion recovery plan, a Nagin spokesman said recently that the revised list is not yet set — and may never be.

“This list will become more solidified as a result of the process we are undertaking, but it will always be a living list, depending on the urgency of projects,” spokesman James Ross said by e-mail, adding that the docket of new projects is being drawn up by the Office of Recovery Management and the City Planning Commission. Ross declined to provide a current draft.
Without a list, it is hard to know whether city officials are staying within the narrow legal framework that voters authorized. Generally, government entities cannot spend tax money for purposes not specifically endorsed by voters, or by their legislators, according to bond attorneys and several opinions issued by the Louisiana attorney general.
And therein lies the rub. While Nagin promised dozens of specific projects in speeches and propaganda leading up to the vote, the 2004 ballot named only 11, with the rest of the work condensed into general categories.
Public Works Director Robert Mendoza said last week that he intends to adhere precisely to the list of 32 street improvements advertised by Nagin in 2004, even though the projects did not appear on the ballot. He said that as he understands it, his department has no wiggle room to change projects.
“Until we hear that we’re not obligated to build Oak Street, we’re obligated to build Oak Street,” Mendoza said, referring to one of the projects that Nagin originally pitched.
While the city expects to tap federal highway and recovery dollars to cover a portion of the jobs, possibly freeing up bond issue money to pay for additional projects, Mendoza said he plans to complete the mayor’s original list first.
Though technical, the question of whether the city must adhere strictly to its original list of projects will be critical Wednesday when the Board of Liquidation-City Debt, the agency that oversees City Hall’s borrowing, is slated to consider whether to authorize the sale this year of the first $75 million in bonds. The city’s bond attorneys are expected to weigh in.
Failing to meet the legal standard could hamstring the bond sale, further delaying the recovery. It also could mean that city officials will have to risk going back to voters already plagued with sky-high insurance and utility bills to ask for a new debt authorization more closely aligned to post-storm priorities.
City Councilwoman Shelley Midura, who has reviewed the issue, said the city must balance its need to rearrange priorities with maintaining the faith of residents who supported the measure 2 1/2 years ago.
“If there is discretion, I want (Blakely) to have those tools,” Midura said. “But people do have expectations about how that money will be spent.”

Budget breakdown

Without tipping his hand to what projects might make the new list, Nagin in April assured members of the Board of Liquidation that his administration would follow the expressed purpose, if not the precise letter, of the bricks-and-mortar agenda he laid out in 2004.
“We’re going to honor the spirit and the intent of the bond issue that the citizens passed,” he said.
What voters saw at the polls, however, were six short paragraphs that named only a handful of projects, including improvements to City Hall, the New Orleans Museum of Art, Brechtel Park and the criminal courts complex. The rest of Nagin’s proposed items were offered in such categories as “recreation facilities” and “public buildings and facilities.”
The proposition also included a strict budget breakdown: $162.9 million for roads and infrastructure, $45.5 million for city buildings, $43.5 for parks and $8.1 million for libraries.
City leaders may be free to shift course on some projects, provided they adhere to the budget framework, bond attorney Meredith Hathorn said during the April meeting. A significant shift, however, would create problems.
“Any deviation would require a new election,” she said.
With the Board of Liquidation slated to meet this week, it remains uncertain how far off the beaten path City Hall plans to steer, and Hathorn would not speculate last week on how much latitude officials might have.
Blakely said in a recent interview that some jobs formerly designated as high-priority could be replaced by new projects deemed more critical to neighborhood revival. In some cases, a project on the 2004 list, such as new playground equipment, may make it to the new list but wind up at a site across town.
In line with his $1.1 billion recovery plan, Blakely said he intends to concentrate a portion of the bond issue money — about one-third, or $83.5 million — in 17 target zones where city officials have said they plan to spend public dollars on infrastructure repairs and tax incentives to lure private investment.
A chart that Blakely gave to Board of Liquidation members shows that his budget matches exactly the spending categories laid out in the proposition. But the recovery chief has offered no specifics on which new sites might trump old entries on the 2004 priority list.
“What were doing is we’re trying to match the projects with the zones. So a library is a library is a library, you know. If we move the library a block or two and put in the zone, we’re fulfilling both objectives,” Blakely said.
“Certain streets are designated, but it doesn’t necessarily say what block you’re doing on that street, all right,” he said. “So if we can move that block into one of our zones, that’s what were doing. But were going to be within the intent of the legislation.”

Differing opinions

On that point, however, Mendoza’s view differs. The only flexibility he sees in the roads list may be in the use of $40 million allotted generally for use in each of the City Council’s five districts. Mendoza said he may ask district council members to pool the cash into a revolving fund to jump-start projects slated for FEMA reimbursement. When the federal money arrives, the bond issue money would be returned to the district kitties.
Janet Howard, executive director of the Bureau of Governmental Research, said it would be foolish for city officials to blindly adhere to their previous plans if the law allows latitude to address the post-Katrina environment.
The New Orleans watchdog group opposed the bond issue in 2004, saying it was too hastily crafted. Though Nagin stumped for the measure for months, he kept the comprehensive list of projects under wraps until two weeks before the vote.
“We obviously have a different set of circumstances than existed in 2004,” Howard said. “The city needs to re-evaluate how it’s using bond proceeds in light of those changed circumstances.”
However, without knowing the legal latitude or consulting her board, Howard would not speculate on how broad the changes should be.
Former state Rep. Sherman Copelin, whose New Orleans East Business Association spent $20,000 in 2004 on a TV commercial urging voters to oppose the bond issue in part because they claimed it was hastily planned, said he would support changing the list now to focus on the target zones as long as the new projects get the nod from a City Council review panel.
“As long as they agree that before they approve those projects that they bring the list before the committee and have an opportunity for public comment, I think it ought to work fine,” Copelin said. “But right now, I just don’t have enough information.”
Midura said any alterations must be made with an eye toward long-planned projects, including some in areas that may not have suffered much flooding.
“Whatever discretion there is, I want to support Blakely, but I don’t want to redirect resources from places that have been waiting for years for their projects,” Midura said. “I really do understand why they want to use it, but they can’t lose the confidence of the voters.”
Blakely said residents, even those whose neighborhoods did not flood, seem willing to consider a revised priority list weighted toward recovery projects.
“Even when I was on the West Bank and I told people what we were going to do, they said, ‘Hey, OK,’ “ the recovery chief said.

Shaky finances

In terms of the overall recovery, the bond-issue money is critical.
Of the five financing streams designed to support Blakely’s $1.1 billion recovery plan, none is more stable than the city bonds.
Two other allocations, totaling $174.4 million, are in the hands of the Louisiana Recovery Authority, which is waiting for city officials to submit paperwork so it can release the money, in the form of federal block grants.
The LRA is holding an additional $324 million that Congress freed up last month when it voted to waive local governments’ obligation to pay 10 percent all storm repair costs. The state agency has long said that sum, if released, would go New Orleans. But with a shortfall in the Road Home program estimated between $2.9 billion and $5 billion, the LRA now says it may have to use the cash to fill the gap.
Perhaps most tenuous of the potential recovery coffers are “blight bonds.” Blakely early on suggested the city easily could leverage $300 million using abandoned properties as collateral. But the windfall has proved elusive, and now Nagin is trying to cobble together $40 million in private grants to use as security to borrow $200 million.

Michelle Krupa can be reached at or (504) 826-3312.

Jun 17, 2007

Source: Times-Picayune

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