The $1 Billion Question: Do the Tax

Public Tourism, Safety Conventions,Sports Public Education Transit Protection Parks Flood Streets General Municipal THE $1 BILLION QUESTION Do the Tax Dedications in New Orleans Make Sense? A Report from the Bureau of Governmental Research | NOVEMBER 2015 THE $1 BILLION QUESTION BGR Taxation & Government BGR Board of Directors Finance Committee Officers John C. Hope, III, Chairman Mark A. Mayer, Chairman Kelly R. Brown Norma Grace Hardy B. Fowler, Vice Chairman Hunter G. Hill David A. Kerstein Ludovico Feoli, Secretary Nathalie G. Simon James M. Williams J. Storey Charbonnet, Treasurer Luis Zervigon Past Chairman J. Kelly Duncan BGR Project Staff Board Members Celeste R. Coco-Ewing, President & CEO Toya Barnes-Teamer Peter Reichard, Director of Research Nicolas G. Bazan Paul Rioux, Principal Author Robert W. Brown Stephen Stuart, Senior Analyst Kelly R. Brown Caroline Zetzmann Calhoun Edgar L. Chase III Acknowledgment Maureen Clary Joseph S. Exnicios BGR acknowledges Janet R. Howard, BGR’s former President & James P. Favrot CEO, for her work on this project. Vaughan Fitzpatrick Joseph I. Giarrusso III Norma Grace Glenn W. Hayes BGR Hunter G. Hill John C. Hope, III The Bureau of Governmental Research is a private, non-profit, David A. Kerstein independent research organization dedicated to informed public H. Merritt Lane, III policy making and the effective use of public resources for the im- Martin Mayer provement of government in the New Orleans metropolitan area. Anthony Recasner Nathalie G. Simon This report is available on BGR’s web site, www.bgr.org. Robert J. Whann, IV James M. Williams Dennis Woltering Become a Member Alan J. Yacoubian Luis Zervigon To preserve its independence, BGR relies on financial support from a diverse membership of individuals, corporations and Honorary Board foundations. To find out how you can become a part of BGR, go Harry J. Blumenthal, Jr. to www.bgr.org/membership or call us at 504-525-4152 x108. Louis M. Freeman Richard W. Freeman, Jr. Ronald J. French David Guidry Hans B. Jonassen Diana M. Lewis Anne M. Milling R. King Milling George H. Porter III Lynes R. Sloss Sterling Scott Willis BUREAU OF GOVERNMENTAL RESEARCH 938 Lafayette St., Suite 200 New Orleans, LA 70113 Phone 504-525-4152 Fax 504-525-4153 www.bgr.org Publication Design: Peter Reichard EXECUTIVE SUMMARY local sales tax rate, which was 1% in Chart B: Change in Tax There has been much discussion in recent years about 1965, is now 5%. Revenues, 1965-2015 the City of New Orleans’ inability to address basic The local hotel tax needs and meet its financial obligations. Citizens are rate, which was also Local Tax Revenues well aware that their streets are in a shameful state, that 1%, has ballooned to (in millions) water lines are broken and that the City owes firefight- more than 15% for 1000 ers tens of millions of dollars to settle judgments. They most hotel rooms.2 800 are also aware that the City lacks the resources to address these issues. Property, sales and 600 hotel tax revenues 400 But what they may not realize is that the scarcity of have nearly tripled, 200 resources plaguing City government does not extend rising from an infla- 0 to all government entities in Orleans Parish. They may tion-adjusted $352 1965 2015 not realize that, over the course of several decades, sig- million in 1965 to $1 Note: 1965 revenues are in 2015 dollars. nificant new taxes have been imposed and dedicated to billion today. Yet the special purpose entities. They may not be aware that chronic underfunding certain local tax-recipient entities are so flush with rev- of basic city services and infrastructure persists. enue that they have been amassing significant surplus- es. One of these entities continues to receive substantial Multiple factors have contributed to the problem. One tax dedications for a project that never came to fruition. of them is the proliferation of tax-recipient bodies. In 1965, all local taxes were dedicated to a handful of The problem of service and infrastructure deficiencies entities that provided basic government services and is not new to New Orleans. A half century ago, BGR infrastructure: the City, the Sewerage & Water Board, released a report entitled Dimensions and Solutions of the Orleans Parish School Board and a citywide levee New Orleans’ Financial Dilemma. It noted that basic district. A large portion of the new taxes levied since municipal services and infrastructure were starved for then has gone to a multitude of other entities, includ- funding. ing the Regional Transit Authority, the Ernest N. Morial New Orleans Exhibition Hall Authority, the Louisiana Since then, tax rates for entities in New Orleans have Stadium and Exposition District, the New Orleans Con- increased significantly. The local millage rate has dou- vention & Visitors Bureau, the New Orleans Tourism bled from an estimated 74 mills1 to 148.7 mills. The Marketing Corp., the Audubon Commission, the New Orleans Public Library and the Or- leans Parish Law Enforcement Dis- Chart A: Changes in Orleans Parish Tax Rates, 1965-2015 trict. The total number of entities re- ceiving dedicated tax revenues now Millage Rate Sales Tax Rate Hotel Tax Rate exceeds 60. 150 5% 16% 4% 12% Currently, only one-fourth of local 100 3% tax revenue is available to the city 8% government for broad municipal pur- 2% 50 poses. The remainder is dedicated 4% 1% to specific municipal purposes or to 0 0% 0% other entities. These sizable dedi- 1965 2015 1965 2015 1965 2015 cations limit the city government’s ability to provide basic services and Note: BGR adjusted the 1965 millage rate upward to reflect changes in assessment methods and exemption practices. The actual rate was 37.5 mills. infrastructure and meet pressing financial obligations. THE $1 BILLION QUESTION | BGR | 1 dedications and develop a broad plan to address the Table 1: Top Orleans Parish Entities community’s priorities in advance of its 2017 budget. By Tax Receipts, 2015 Estimates (Dollar figures are in millions.) In this report, BGR provides information essential to that analysis by creating a composite picture of where Total local tax revenues go. Specifically, BGR presents in- Entity Taxes Share formation on local tax allocations by entity and by pur- City of New Orleans $429.2 40.9% pose. It also brings to the public’s attention a number Orleans Parish School Board $255.5 24.3% of situations that illustrate the problems that can arise Regional Transit Authority $72.1 6.9% from an ad hoc approach to tax dedications. (See side- Ernest N. Morial N.O. bar on page 6 for details on taxes that the report treats Exhibition Hall Authority $58.2 5.5% as local.) Louisiana Stadium and Exposition District $56.5 5.4% Sewerage & Water Board It is beyond the scope of this report to evaluate whether (for drainage) $48.5 4.6% the overall allocation of tax dollars is appropriate. Rath- Orleans Levee District $32.4 3.1% er, the purpose is to help the public and policymakers New Orleans Convention see where local tax dollars are going and to encourage & Visitors Bureau $16.6 1.6% discussion of how well the tax allocations align with New Orleans Tourism New Orleans’ needs. Marketing Corporation $11.8 1.1% Assessor's Office $10.2 1.0% Some of BGR’s findings are not surprising. For exam- Other entities (51) $59.2 5.6% ple, two basic governmental functions, education and public safety, receive the largest shares of tax revenues. TOTAL $1,050.3 100.0% Source: BGR calculations using the methodology set forth in Appendix A. Other findings might come as a surprise either because Notes: The city's figures include its collection fees for the various taxes. of the relatively large or small shares dedicated to cer- Numbers may not add due to rounding. tain purposes. For example, 13.9% of all local tax revenue goes to tourism, conventions and sports. That is more than one and a half times the percentage for flood protection and drainage. At the lower end of the spec- The tax dedications were approved in piecemeal fashion trum, BGR found that the category that includes streets over the course of many years with little planning and received a mere 3.1%. accountability. The allocation of resources that evolved from this ad hoc process has not been re-evaluated in BGR did not conduct a systematic analysis of the ap- the context of changing conditions and current needs. propriateness of every tax dedication currently in ef- Given the limited public funds to satisfy those needs, fect. However, in the course of the research for this re- New Orleans cannot afford to continue down this path. port, BGR came across a number of taxes that stood out because they illustrate the problems that can arise from It is time for the mayor to initiate a review of the community’s spending priorities and develop a compre- hensive plan to identify and address its most pressing A WORD ON DEDICATIONS needs. Reassessing tax dedications is a key component of that planning process. Specifically, the City should In this report, BGR is not taking a position against tax carry out an initial review focused on identifying the dedications in general. Rather, the report highlights most clearly justified opportunities to redeploy funding problems that can occur when tax dedications pro- to meet urgent priorities, and do so in time to craft an liferate in an ad hoc manner and are not periodically agenda for the 2016 legislative session. Next, the City reassessed in the context of other needs.

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