Report: Bureau of Governmental Research opposes Cantrell-backed tax proposals on Dec. 5 ballot
By Michael Isaac Stein
Source: The Lens
November 16, 2020
In a report released Monday, the Bureau of Governmental Research, a local nonpartisan think tank, came out against a package of proposed property tax changes backed by New Orleans Mayor LaToya Cantrell. Cantrell’s tax plan is being put to Orleans Parish voters as three separate ballot initiatives in the Dec. 5 election. Early voting begins on Nov. 20.
The overall plan is to rededicate a group of property taxes that generate approximately $25 million a year. The new dedication would take roughly $6.5 million from the New Orleans Public Library system and distribute the funds to economic development, housing initiatives and infrastructure maintenance. The mayor’s plan would also carve $1.5 million from the Library budget to pay for an existing early childhood education program.
Overall, the changes would result in the library losing 40 percent of its property tax collections. The city has said that the cut wouldn’t have any detrimental impact on the library system, but it’s unclear how that is possible.
The report says that while some parts of the plan may address critical funding needs in the city, the Cantrell administration has failed to give voters “adequate information for decision making on taxes that would run for 20 years.”
“All propositions have significant flaws, despite the compelling needs they might address,” the report said. “Voters are asked to approve a nearly 40% revenue cut for public libraries without a strategic plan or a clear roadmap for right-sizing their budget before their reserves run out. The proposal further asks voters to increase taxes for infrastructure, housing and economic development without any spending plans.”
The report specifically pointed to the economic development funding as a source of concern. The city’s economic development fund has been historically used to fund a $2.5 million partnership with the New Orleans Business Alliance, the report said. The city has said it wants to use the money to build more in-house staffing and programming for economic development while continuing a smaller partnership with the business alliance.
According to the report, the city is working on a new strategic plan for economic development. But that plan hasn’t been finalized or released yet.
“The lack of a detailed spending plan for the economic development tax is a greater concern. Economic development initiatives, by their nature, are less tangible and certain in their results. If the City does not have a clear plan for how it will use the tax revenue and measure results, it opens the door for waste. … Considering the City’s position that the tax is essential to respond to urgent economic and workforce development issues, it should be able to demonstrate readiness and capacity to direct revenue to well-developed initiatives.”
All of those concerns were underscored in the report by another consideration: There isn’t a compelling need to renew these taxes this year. All of the taxes being renewed and adjusted don’t expire until the end of 2021. That means if voters reject the renewal propositions, the existing taxes will remain in place for another year.
“City officials said they are seeking to replace the taxes a year before they expire to achieve a level of stability amid the fiscal crisis,” the report said. “They also want to expedite reallocation of some tax revenue to new priorities, such as early childhood education and vehicle replacement. But with the City facing a multi-year financial recovery, voters may question whether it is prudent to lock in tax dedications for 20 years.”
Nevertheless, Cantrell’s recent public statements have cast the tax package as an urgent, immediate need. In a recent video posted by Cantrell’s Facebook account, Cantrell was asked what would happen if the millage proposals failed to pass.
“That will mean that we’ll have to fill a gap of around $23 million,” she said. “It would have an immediate impact to our operations in 2021 unless we’re able to fill that gap.”
But even if all three budget proposals fail, the city would end up with the same amount of tax revenue in 2021. And as the BGR report points out, the city has some flexibility to realign what the existing taxes are used for.
“If voters reject the propositions, the City could levy the existing taxes for another year. It could adjust the individual tax rates for 2021 to achieve some of its reallocation goals without increasing the overall tax rate. The City could then return to voters in 2021 with tax propositions informed by a clearer picture of the City’s finances. The City would also have more time to address shortcomings in some of its plans for using the tax revenues.”
At a roundtable meeting on the proposal on Monday, Cantrell maintained that the cuts to the library budget would come with no reduction to library services or programming.
“No, we’re not cutting them at all,” she said.
She also said that the proposal would be a property tax decrease. However, she was referring to a reduction from the originally authorized tax rates, not what is actually being levied currently. Under the Mayor’s plan, the tax rate would remain consistent with 2020 levels.
The BGR report notes that voters face a challenge in judging each individual proposition since they’re all part of the same overall plan. The city split the proposal into three ballot propositions because the state’s 200-word limit made it impossible to fully describe the changes in one proposition, according to the report.
“Due to the highly interconnected nature of the tax propositions, the Library tax presents voters with a couple of conundrums. First, because it is paired with early childhood education, voters must approve the most problematic tax dedication in order to approve one of the most promising dedications.”
The City of New Orleans started directly funding early childhood education in 2018 with a small, $750,000 pilot program. It was the first local government in Louisiana to fund early childhood education, according to the BGR report. That was doubled in 2019 and doubled again in 2020 to reach $3 million in funding.
In July, the City Council was attempting to fulfill the budget promise by allocating an additional $1.5 million to early childhood education. The mayor came out publicly in opposition, saying that it was “irresponsible” in light of the coronavirus crisis and related budget crisis. The council ended up allocating the money despite the mayor’s opposition. But the mayor has cut that $1.5 million out of her proposed 2021 budget.
The mayor’s plan, according to BGR, is to replace that money with $1.5 million from the Library millage next year. Ballot Proposition 2 would not only shrink the library property tax, it would expand eligible expenditures of that money from exclusively funding the library to “maintaining and operating public libraries and early childhood education facilities and related programs in the City.”
According to BGR, the City Council would have the ultimate say on how the money is distributed between the library and early childhood education. Cantrell is recommending $1.5 million for early childhood education next year. That, combined with the cut-in-half general fund contribution, would leave early childhood education funding in 2021 consistent with 2020, at $3 million.
But if Proposition 2 fails, early childhood education would get half the funding it got this year.
“Without revenue from the proposed tax, the City says it would limit its funding for early childhood education to $1.5 million from the General Fund,” the report said. “The reduced fund- ing would halve the current number (200) of infants and toddlers served through City Seats.”
Kirby Jane Nagle, senior communications director for United Way of Southeast Louisiana, told The Lens that the group is unaware of any “plan B” to fund the program if the ballot proposition fails.
“As it is today, no,” she said. “If the millage doesn’t pass and kick in, we lose that $1.5 million.”
United Way, through its initiative the New Orleans Campaign for Grade Level Reading, has pushed the city for years to directly fund early childhood education. It recently became one of the prominent supporters of the mayor’s tax plan. Emails show, however, that the campaign wasn’t on board with the plan just months ago. In August, campaign manager Jillian Delos Reyes told Cantrell that the plan should double the amount of money dedicated to early childhood education and take the money from the economic development tax, rather than the library.
“The Campaign for Grade-Level Reading cannot support the millage proposal in its current form, which cuts overall City funding for early care and education in half and dramatically reduces funding for the New Orleans Public Library, a partner that is critical to our vision of every New Orleans child reading on grade level by the end of third grade,” the letter said.
“I urge you to work with us if we are going to successfully provide a direct funding source for early childhood education,” Cantrell responded. “Understand that ultimatums will not get us there, but working together on a path forward will.”
In an interview, Nagle told The Lens that the current proposition will guarantee funding for early childhood education for decades. She said that while the current plan isn’t ideal, the city is going through a budget crisis, almost every corner of the government was taking cuts and this was currently the only deal on the table to secure funding for early childhood education.
“For us, can we take the risk of saying we’ve got another year at getting this done?” she said. “It’s just really a risk that’s too great right now.”
The second challenge for voters — caused by the proposal’s division into a package of three separate ballot proposals — is that taxes may rise or fall depending on what passes and what fails.
One of the Cantrell administration’s top selling points for the tax plan is that it won’t raise taxes. The property tax rate will stay exactly the same, she’s said, this just rearranges how the money is spent.
But that isn’t necessarily true. Proposition 1, the infrastructure tax, and Proposition 3, the housing and economic development tax, would raise those millage rates above their current levels. Those increases are offset by Proposition 2, the library millage. In other words, to keep taxes the same, voters have to be willing to approve all three, cutting revenues for the library.
“Although the City’s goal is to keep the combined rate for the replacement taxes the same as the existing taxes, there are scenarios in which the combined rate would increase or decrease depending on voters’ decisions on the separate propositions,” the BGR report said.
In fact, there are seven possible outcomes for the city’s overall property tax rate depending on which propositions are approved.
If all three propositions are approved or denied, the tax rate will stay the same. But if the library proposal fails and one or both of the other propositions pass, the overall property tax rate will rise. If the library proposal is approved and one or both of the other propositions fail, the overall property tax rate will decline.
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