In this letter to the Mayor and City Council, BGR suggests the City of New Orleans develop a strategy to requalify for tax-exempt status for future bond issues. This would save interest costs for taxpayers financing infrastructure and other capital projects.
Discovering the Issue
While conducting research for a report on the City’s budget, BGR discovered that the City had lost the certification to issue tax-exempt bonds because of its delays in spending bond proceeds. The Internal Revenue Service requires municipalities to spend 85% of the money within three years for the bonds to qualify as tax-exempt. The City repeatedly failed to meet this requirement and had begun issuing more costly taxable bonds, which carry higher interest rates.
BGR’s research showed that the City’s problems with spending bond proceeds in a timely manner began after Hurricane Katrina. The City received federal reimbursement for some capital projects that it had planned to fund with bond proceeds. The City often had difficulty finding other uses for the local money because of spending restrictions in the voter-approved bond propositions.
BGR found that the City had issued $265 million in taxable bonds from 2013 to 2019 at substantial additional cost. For example, $65 million in taxable bonds that the City issued in 2015 will cost taxpayers an additional $9.8 million in interest payments over the 30-year life of the bonds.
BGR’s May 2019 letter to the mayor and City Council recommended that the City develop a strategy to qualify for tax-exempt status for future bonds. In response to BGR’s letter, Mayor LaToya Cantrell agreed with BGR’s assessment and said the City would take steps to meet the criteria for tax-exempt bonds.
Following Up
Later that same year, BGR reinforced its recommendations in an analysis of a November 2019 ballot proposition authorizing the City to issue $500 million in new bonds. BGR supported the proposition but said the City should not issue bonds until it qualified for tax-exempt status.
After voters approved the proposition, the City administration waited to begin selling the bonds until its bond counsel certified that the City met the criteria for issuing tax-exempt bonds. The City sold the bonds in two segments in September 2021 and August 2024. Of the total $500 million issued, $468 million received tax-exempt status (the remainder was for affordable housing projects that did not qualify for the exemption). The Board of Liquidation, City Debt, told BGR in 2025 that the tax-exempt bonds will save the City and taxpayers an estimated total of $88.5 million in interest costs over 30 years.
Controlling interest costs is particularly important to a city like New Orleans that has vast infrastructure needs that will likely require substantial funding from bonds to address. Lower interest rates make the City’s bond financing go further.
GRA Award
In July 2025, BGR was honored for Outstanding Policy Achievement for its efforts to encourage the City of New Orleans to meet the criteria for issuing tax-exempt municipal bonds.