In The News › With tax revenues all tied up, can New Orleans meet its needs?: Celeste Coco-Ewing

With tax revenues all tied up, can New Orleans meet its needs?: Celeste Coco-Ewing

By Celeste Coco-Ewing

Guest columnist

The Times-Picayune

December 11, 2015

Celeste Coco-Ewing is president and CEO of the nonpartisan, nonprofit Bureau of Governmental Research.

From crumbling streets to leaky waterlines to major drainage upgrades, New Orleans faces critical infrastructure needs that would cost billions of dollars to satisfy. It also must grapple with new financial obligations, such as the costly court-ordered reforms at the city jail and the tens of millions of dollars owed to firefighters and their beleaguered pension system.

Given the sweeping scope of the city’s fiscal predicament and the many pressing needs, as a practical matter, it may well be necessary to raise additional revenue through tax increases in the near term. Any proposed tax increase should be given close scrutiny as it is put forward. Having said that, policymakers also owe it to the public to find a way to deploy existing tax revenues optimally and should simultaneously take steps toward that goal.

To lay the groundwork for a reassessment of local tax dedications, BGR recently released a report analyzing where local tax dollars go – “The $1 Billion Question: Do the Tax Dedications in New Orleans Make Sense?” A key finding is that local tax rates have increased dramatically during the past half century. Today, the local sales tax is five times higher than it was in 1965. The hotel tax is 15 times higher, and the millage rate has doubled. The inflation-adjusted revenue from these local taxes has nearly tripled, to $1 billion.

But despite these huge increases, the city finds itself in a financial bind.

Part of the reason for this is the exponential increase in the number of tax dedications to special-purpose entities. In 1965, all local taxes went to four entities that provided basic government services: the city, the School Board, the Sewerage & Water Board and a citywide levee district. Since then, the number of entities with local tax dedications has ballooned to 32, not counting the 29 security and neighborhood improvement districts.

Many of these dedications were established in an ad hoc manner, with little or no consideration of whether Orleans Parish’s limited taxing capacity was being put to the best use. To make matters worse, many permanent and long-term tax dedications have not been revisited as circumstances changed over the decades.

An example of the problems inherent in such an ad hoc approach to taxation played out last year, when the city sought the Legislature’s authorization to ask voters for a 1.75 percent hotel tax increase. The bill failed as tourism officials voiced concerns that the total hotel tax rate in New Orleans would have been too high.

To the extent that these concerns had merit, it should be noted that a major portion of the city’s hotel taxing capacity – more than $36 million in annual revenue – had been consumed by two taxes and an assessment that were imposed during the last 15 years without voter approval or a public assessment of competing needs. They include:

  • A Legislature-authorized 1.75 percent assessment approved by hoteliers last year for a private non-profit that promotes tourism and conventions.
  • A 1 percent tax for the Regional Transit Authority, large portions of which are shared with the Convention Center and a tourism promotion entity, that was imposed through a court settlement – even though a voter-approved ballot proposition explicitly exempted hotels from the RTA’s sales tax.
  • A 1 percent tax the Legislature imposed in 2002 to fund a Convention Center expansion. Although the project was scrapped shortly after Hurricane Katrina, the tax remains in place and has helped the Convention Center amass a staggering $200 million surplus.
    Whether tax dedications like these make sense now is a question that both policymakers and the public need to ask. Ultimately that question should be answered through a comprehensive look at how well the tax allocations align with New Orleans’ needs.

Because the vast majority of the underfunded needs concern the city, the mayor must take the lead in conducting such a review. BGR urges Mayor Mitch Landrieu to identify the most clearly justified opportunities to redeploy funding to meet basic needs and craft an agenda for the 2016 legislative session. We also call on him to lead the effort in undertaking a comprehensive re-evaluation of tax dedications and develop a broad plan to address the community’s priorities in advance of the city’s 2017 budget.

Mayor Landrieu cannot do this alone. He will need the support of citizens and New Orleans’ legislative delegation to enact the necessary changes. Given the city’s financial dilemma and its limited taxing capacity, New Orleans cannot afford the status quo.

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