New Orleans Needs a Sustainable Budget to Meet Residents’ Demands

• Bureau of Governmental Research
							
						

This BGR NOW report re-emphasizes key recommendations to help preserve and strengthen the City of New Orleans’s financial health.

Overview

The City of New Orleans is at a tipping point. As the races for mayor and City Council heat up, frustrated residents are demanding better City services and infrastructure. Meanwhile, the City’s improved post-pandemic financial position is at serious risk as the 2025 budget is on pace for a $102.5 million shortfall, with new costs looming in 2026 and beyond.

Against this backdrop, this BGR report that provides recommendations for the current mayor and council to improve the City’s financial management practices as they prepare and adopt the 2026 budget. They should hand their successors a more financially secure City government to better address residents’ needs and deal responsibly with any fiscal crises.

The report follows BGR’s April report entitled After the Windfall which found the City has a limited window to safeguard financial gains it made during the pandemic thanks to nearly $400 million in federal funding. Just five months later, that window has narrowed even further. The $102.5 million projected deficit is due to a $30.5 million reduction in estimated revenues and personnel costs that are running $72 million over budget, primarily from soaring overtime. The City also faces tens of millions of dollars in looming costs – such as deferred maintenance of infrastructure and facilities – that aren’t part of the deficit but will put additional pressure on the City’s budget.

To deal with these challenges, BGR urges the City administration and council to improve their financial management practices by (1) working to achieve a structurally balanced budget that covers the full costs of responsibly running City government, (2) developing a five-year financial plan to get there, and (3) adopting a policy to manage and safeguard the City’s financial reserves or “rainy day” fund. These findings are summarized below; read more by clicking the button above or clicking here to download the full report.

A Structurally Balanced Budget

The City’s charter requires it to have a balanced budget with projected revenues that equal or exceed planned expenditures. However, this is a relatively low hurdle that does not ensure the budget is financially sustainable. It allows the City to achieve balance with one-time revenue, such as reserves, that it cannot count on for future budgets. Also, the budget does not have to provide sufficient funding for certain City responsibilities, such as maintaining infrastructure and facilities at acceptable levels. This pushes those costs onto future budgets and future taxpayers. The City has had problems in both these areas. It relies on reserves to balance the budget and chronically underfunds preventive maintenance.

To confront these shortcomings and improve the City’s financial stability, the report calls on the mayor and council to strive for a structurally balanced budget. This is when annually recurring revenues equal or exceed the recurring expenditures needed to adequately maintain services and infrastructure, without using reserves. A structurally balanced budget is a relatively simple yet powerful concept that can help ensure the budget meets the true costs of City government and is sustainable year after year.

 

A graphic explaining structural balance for the City of New Orleans budget

 

A Five-Year Financial Plan

Attaining a structurally balanced budget might take several years or longer and will require careful planning. BGR’s report urges the City to begin developing a five-year financial plan that accounts for significant anticipated changes in revenue and spending. The plan should identify funding strategies to meet looming costs and high-priority needs. This will help ground the 2026 budget deliberations in a better understanding of the City’s finances and needs, even if a more comprehensive five-year plan cannot be completed until the next administration and council take office.

A summary of looming costs facing the City of New Orleans as of September 2025

A summary of declining and uncertain revenues for the City of New Orleans as of September 2025

Managing Reserves

A key to achieving a sustainable budget is to maintain adequate reserves to help avoid cuts to essential services and increases in taxes or fees during financial emergencies. Government finance experts recommend that municipalities maintain at least two months of expenses in reserve, or about 17% of their general fund operating budgets. Experts say disaster-prone cities such as New Orleans should consider a higher level. As shown in this report, the City’s reserves skyrocketed from just $13 million before the pandemic to a high of $344 million in 2022. But three years of spending from the reserves could reduce them below the minimum recommended level of $133 million by the end of this year.

Part of the problem is the City lacks a policy to manage its reserves and limit spending to ensure an adequate financial cushion. Both BGR and the City’s financial consultants have called for the City to develop and adopt such a policy this year. Establishing a policy on reserves now is important to support continuity in managing fiscal issues into the next mayoral and council terms.

Conclusion

The City of New Orleans is at a critical juncture in its fiscal history. While it emerged from the pandemic in a better financial position, those gains are at risk due to looming costs and declining revenues. The City administration and council have a choice. They can stick with their current financial management practices and risk sliding back to a more tenuous position. Or they can work to improve those practices, including a five-year financial plan and a policy for managing its rainy day fund. Doing so would achieve a more sustainable budget to better address residents’ immediate and long-term needs and deal with any fiscal emergencies.

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