New Orleans is selling a portion of future revenues from the Caesars casino lease for $102.6 million in immediate cash to rebuild its depleted emergency reserves. In a new report, BGR finds the deal is a creative response to the City’s fiscal crisis, but safeguards should be put in place on the proceeds.
THE ISSUE
The City’s fund balance has collapsed from $344 million at the end of 2022 to just $35 million today. This crisis was triggered partly by spending down a $100 million emergency reserve that was established in 2023 with no restrictions on its use and no public transparency requirements.
To address this emergency before hurricane season and reassure rating agencies ahead of upcoming bond sales, the City is proposing to sell the right to collect $16.3 million per year in Caesars casino lease payments (for approximately nine years, June 1, 2026 through July 31, 2035) in exchange for $102.6 million upfront. The New Orleans Building Corp. board and the City Council plan to vote on Tuesday, May 5 and Thursday, May 7, respectively.
Note: The Orleans Parish School Board’s $3.8 million annual share from the casino lease is not affected by this transaction.
BGR supports the deal as a necessary step to rebuild financial reserves. However, the ordinance as introduced has no restrictions on how the money gets used.
BGR’S RECOMMENDATION
The City Council should amend the ordinance before voting to include two essential safeguards:
1. A spending restriction ensuring the $102.6 million is used only for emergency reserves, not ordinary operating expenses. (Note: After BGR raised this issue with the City in a draft of this report, the administration said it is preparing such an amendment.)
2. A public transparency requirement for regular reporting on the fund balance and use of casino revenues.
The City Council should also adopt a formal reserve management policy before the mayor proposes the 2027 budget. The City has already hired a consultant to develop this policy, which should define the appropriate reserve level, permitted uses, procedures for appropriations, and guardrails against using reserves for recurring expenses.
With all these protections in place, this deal can meaningfully strengthen the City’s financial stability.
WHAT BGR FOUND
- The deal makes financial sense as a tool for quickly rebuilding reserves, but the tradeoff is that the City forgoes approximately $148.8 million in total revenue over the nine-year term in exchange for cash today (the investor receives an 8.75% annual rate of return).
- The proposed ordinance contains no guardrails. Nothing in the current language prevents the City from using the $102.6 million for routine operating expenses, which is the same pattern that depleted the fund balance in recent years (approximately $200 million was spent from reserves without policy guidance).
- Even with the upfront payment, the City would land only at the minimum recommended reserve level of $136 million (17% of the $800 million budget). Government finance agencies recommend that disaster-prone cities like New Orleans maintain reserves above this standard threshold.
- The City has made real progress on financial transparency this year, but reserve levels need greater attention and public reporting.
- A formal reserve policy is long overdue. BGR, all three credit rating agencies (Moody’s, S&P, and Fitch), and the City’s own financial consultants have called for one for at least two years. The administration has now engaged a consultant to develop it, a critical step that the City Council should see through.