On Aug. 19, moments after the city's chief economist warned that Mayor Ray Nagin's successor could face a $43 million budget hole in 2010, the outgoing mayor walked toward waiting news cameras gathered in the chambers of the New Orleans City Council. Asked if the city's financial posture was as dire as the one of 1986, Nagin gave a measured reply: "I ... don't ... know." Nagin then announced that he and the council might have to consider cost-cutting measures adopted by other governments, including a four-day work week.
It's been done before. The city last tried the four-day work week during a $30 million budget crisis that unfolded in the summer of 1986. Sidney Barthelemy was mayor, having just taken office after defeating then-Congressman Bill Jefferson in a runoff election to succeed Mayor Dutch Morial.
Barthelemy inherited a $30 million deficit from the Morial administration. In addition, the state — facing an $800 million deficit amid declining oil and gas revenues — slashed $25 million in annual revenues to the city, according to a 2005 master's thesis by Lyle Kenneth Perkins, a graduate student in LSU's history department. "Barely one month into his tenure, Barthelemy stood before the majority-black City Council and lamented that an independent financial review conducted by the New Orleans Business Council had confirmed the gravity of the city's budget woes," Perkins wrote.
In July 1986, Barthelemy and the council unveiled plans to ease the crunch with 700 layoffs — including 20 percent of the 1,000 fire department employees and 10 percent of NOPD's 1,700 employees — along with streamlining measures and a mix of fee increases and service reductions. In addition, Barthelemy asked voters to approve a $195 annual property service charge to raise a total of $5 million. Despite the endorsement of three former mayors — Victor Schiro, Moon Landrieu and political rival Dutch Morial — voters emphatically rejected Barthelemy's proposed service charge in a 61-39 percent vote.
The city also enacted a four-day workweek for 5,600 city employees, Perkins wrote, not including hundreds of Sewerage & Water Board workers, who also were affected. Another 200 city workers were laid off. One-third of all fire stations were closed. "And all city workers who retained their jobs suffered a 20 percent pay cut for the remainder of the year," Perkins wrote. The City Council also approved a 1.5 percent earnings tax, which was ultimately declared unconstitutional by the courts.
In 1987, the city returned to a five-day work week and fire stations reopened. Laid-off city workers, however, remained jobless. After his inauguration, Barthelemy sparred with critics who said he lacked a vision for the city. "I had a vision all along, but you can't drain the swamp until you get the damn alligators out," Barthelemy told Gambit in May of that year.
Barthelemy's "swamp" deepened, however. A series by New Orleans CityBusiness investigative reporter Ron Ridenhour turned up hundreds of thousands of dollars in uncollected city sales taxes, and allegations of favoritism toward politically connected business owners. City tax collectors were indicted, though Barthelemy's integrity was never questioned.
Things began to turn around when, buoyed by the city's successful bid to attract the 1988 Republican National Convention, Barthelemy and the city's legislative delegation secured $50 million in state funding for expansion of what is now the Ernest N. Morial Convention Center, a major source of state and local tax revenues.
Brandt, who headed the Bureau of Governmental Research (BGR) during most of the Barthelemy Administration, says Nagin cannot expect much help from the state today. "It will be more and more difficult for any city to come to the state for additional relief today because Gov. [Bobby] Jindal's streamlining commission is looking to reduce state expenditures for local functions," said Brandt, now president of the Public Affairs Research Council. The Jindal administration is using $1 billion in federal "stimulus" funding from the Obama administration to bail out the state this year and next year, Brandt said.
"The best the city could hope for would be additional authority (from the state) to raise its own revenue," said Brandt. "(The city) can do nickel and dime stuff with fees and permits, but that's not going to get you out of the hole."
The city has relied on federal loans to balance its budget since Hurricane Katrina hit in 2005. Brandt estimates New Orleans lost about one-third of its revenue base after Katrina. Meanwhile, city economist Jerome Lomba said last week that federal stimulus funding may not show up in city coffers for another six months to two years.
After the bad news was delivered, Nagin said he would not ask the city council to erase the deficit by raising taxes: "I am not going there again," he said. The city council has refused the mayor's request for tax hikes two years in a row.
On the brighter side, Nagin said, "Property tax collections are still good. Sales tax collections are still growing." A municipal hiring freeze remains in place, and the city finance department is targeting thousands of delinquent sales tax accounts for collection. City officials also announced a sales tax amnesty period (from Oct. 1 to Dec. 4).
As for a more long-term solution to the budget — that may be up to the next mayor.