magnifying glass on budget

Coronavirus response to leave ‘gigantic hole’ in New Orleans economy; Cantrell weighs layoffs

By Anthony McAuley

Source: The Times-Picayune | The New Orleans Advocate

March 17, 2020

The coronavirus outbreak and the efforts to slow its spread are set to levy a massive toll on the New Orleans economy, with the hospitality sector already seeing a sharp downturn in business and officials warning about likely cuts to city government.

Some New Orleans hotels are down to skeleton staffs amid the cancellations of conventions and events. Shuttered bars and restaurants that are now take-out only are being forced to lay off workers. And on Tuesday, while announcing that the city would allow business owners to delay sales tax payments, members of Mayor LaToya Cantrell’s administration said layoffs and furloughs of city workers may be coming.

“If we don’t make some of these important and drastic decisions now, it’s going to hurt us much more in the future,” said Chief Administrative Officer Gilbert Montaño, noting that the coronavirus response has already cost the city $1.5 million.

The number of coronavirus cases in New Orleans has surged in recent days, forcing Gov. John Bel Edwards and Cantrell to take severe steps in an attempt to slow its spread through the city and state. On Monday, Edwards announced that bars, gyms and several other businesses serving large groups would be closed. Gatherings are limited to 50 people are fewer, with Cantrell going further and requiring that New Orleans residents limit gatherings to the size of a small family.

Though the full economic impact of the coronavirus in New Orleans can’t be tallied until it has run its course, it is already clear that it will cause major disruptions to the New Orleans workforce, a sharp downturn in tourism and upheaval for the city’s spending plans, including efforts to upgrade crumbling infrastructure, according to John Williams, dean of the University of New Orleans’ business school.

“It’s going to leave a gigantic hole in the New Orleans economy. Gigantic,” said John Williams, strategy professor and dean of the business college at the University of New Orleans.

The moves by public officials to ban gatherings comes on top of other widespread disruptions across the U.S., the cancellation of major events and business gatherings in New Orleans, a suspension of operations by the major cruise operators for at least a month, and the widespread cancellation of flights by airlines. On Tuesday, the New Orleans Jazz and Heritage Festival was postponed until the fall.

“There is a lot of concern being voiced by our members,” said Kurt Weigle, CEO of the Downtown Development District, a quasi-government body promoting development of the city’s business district. “Many think they can weather this in the short-term: two to four weeks. But anything beyond that and the level of concern rises substantially.”

One of the first concerns, said Williams of UNO, is employment in the tourism industry. Already, the industry has a hard time attracting and retaining staff and the virus could see thousands of the 100,000 or so workers in the city’s hospitality sector laid off, he said.

Even if the crisis does blow over in a couple of months, Williams fears it could do lasting damage to the sector.

The city’s tourism and business travel sector attracts nearly 20 million visitors to the city each year and accounts for more than $9 billion in spending, according to the latest economic impact study by New Orleans & Co.

In one indication of the contraction, the 1,100-room Sheraton New Orleans on Canal Street is now “operating as a 200-room hotel,” according to a senior staff member, putting it at less than 20% occupancy, compared to levels of around 70% to 80% on average.

Mark Philip, a commission-based salesman with Reinhart Food Services, said Monday’s lock-down will have implications that run all through the supply chain.

“It’ll impact not just me but everybody at the warehouses, the trucks who deliver to the warehouses, the manufacturers,” Philip said.

The city government’s finances also are vulnerable, with hotel tax alone accounting for about 5% of the city’s general tax fund. Another 50% is raised from sales taxes as well as taxes on video poker and alcohol, which are driven to a large extent by visitors, according to the Bureau of Governmental Research, an independent think tank.

Weigel said that as well as the hospitality sector, “there is also deep concern about other small businesses and the people who provide services to small businesses and how they’re going to be impacted.”

The New Orleans Business Alliance on Monday said it had set up a fund aimed at the city’s “gig economy” workers, which it estimates makes up about 8% of the citywide labor force. The economic-development group provided $100,000 and aims to raise at least $500,000 to aid workers that include musicians, drivers, arena and festival production staff, many of whom are on contracts that provide little or no cover for such crises.

Still, while such efforts are welcome, Weigle said, they will need to be supplemented by massive government assistance.

“We don’t have the giant corporations that they have in places like Seattle and New York that are sitting on literally billions of dollars in bank accounts and can step up and say they’ll continue to pay people for the next 30 days and beyond,” said Weigle.

On Tuesday, the Trump administration said it was pushing to include cash payments to Americans as part of a $850 billion stimulus package, though Treasury Secretary Steven Mnuchin declined to provide an estimated amount. The Small Business Administration also said they would be cutting some red tape to make it easier for states to qualify for some crisis loans for small businesses.

Staff writer Jeff Adelson contributed to this report.

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