In The News › N.O. urged to consider bankruptcy

Apr 6, 2006

Source: Baton Rouge Advocate

N.O. urged to consider bankruptcy

N.O. urged to consider bankruptcy
Groups say all options should be on the table
By JOE GYAN JR.
New Orleans bureau
Published: Apr 6, 2006

NEW ORLEANS — The city and the Orleans Parish School Board are “teetering on the edge
of a cliff” and should consider bankruptcy as a possible post-Hurricane Katrina recovery
tool, two government watchdog groups suggested Wednesday.

The city is “one month away from running out of cash” and has “no plan in place for
dealing with the cash flow problem,” and the School Board is dealing with “chronic cash
flow problems” and would be running a deficit “were it not for federal disaster-related
grants and loans,” the Public Affairs Research Council of Louisiana and the Bureau of
Governmental Research said in a joint report.

“For a devastated community, continuing to shoulder pre-Katrina debt loads and
obligations may interfere with its ability to create the conditions needed for recovery. In
that context, bankruptcy is a legitimate line of inquiry and should be evaluated,” the
PAR/Bureau of Governmental Research report, titled “Municipal Bankruptcy in
Perspective,” suggests.

PAR and the Bureau of Governmental Research call on the state and distressed local
governments to “embark immediately on a joint effort to assess and address their
financial problems and needs.”

“The problems are not going to disappear on their own,” the groups say in their report.
PAR and Bureau of Governmental Research, which say they are not taking a position for
or against using the bankruptcy law, note that the bankruptcy option has been removed
from the table for local governments by state officials concerned about the stigma of
bankruptcy and its potential effect on other governmental entities in the state.

The groups say the state must now “take the next step and provide alternative means of
relief,” such as tapping into relief funds and programs provided by the federal
government for hurricane relief. The groups say the state’s options for assisting local
government entities with their fiscal crises include:

· Providing grants or loans through the Gulf Opportunity Zone tax credit program.

· Allocating Community Development Block Grant funds to local government
expenses.

· Using general fund revenues.

· Picking up the cost of unfunded mandates or other amounts owed the state, such
as unemployment compensation.

BGR President and Chief Executive officer Janet Howard said the bankruptcy option
“should not be foreclosed without a thorough evaluation of all the short-term and longterm
costs and benefits for the community.”

“It is a matter of a hard-nosed analysis,” she said.

The report also looks at the financial condition of selected local entities in hard-hit St.
Bernard and Cameron parishes.

PAR President Jim Brandt said many of the state’s local entities affected by hurricanes
Katrina and Rita fortunately have resources or options they can draw upon to avoid
resorting to the courts.

“Some entities outside of New Orleans may require some additional assistance, but this
need appears relatively small compared to the magnitude of the fiscal distress in New
Orleans,” he said.

Cameron’s local government entities “appear to be the best situated” of the entities
reviewed by PAR and BGR, the report says, but St. Bernard “faces a very uncertain
future.”

“Although debt levels are not high, more than 80% of the parish’s population has been
displaced and most of its housing destroyed,” the report says of St. Bernard.

New Orleans, which has fired 3,000 city workers, faces “tremendous challenges” — debt
levels approaching $1 billion, a greatly reduced population to support that debt, and
dramatically lower tax revenue, the report adds.

“Its ability to survive and rebuild a healthy community will depend on a number of
unknowns, including whether its tax base can be restored to its pre-Katrina level in the
near future,” the report says.

PAR is a nonprofit, nonpartisan group that studies state issues. BGR is a nonprofit,
independent New Orleans think tank that studies public policy.

Copyright © 1992-2006, 2theadvocate.com, WBRZ, Louisiana Broadcasting LLC and
The Advocate,

Apr 6, 2006

Source: Baton Rouge Advocate

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