Parish government’s financial dumpster fire has gotten a lot of attention over the last couple of years. That side of the LCG ledger can’t fix roads, drainage or parking garages. All that smoke has clouded over an emerging problem on the city side, generally regarded to have a healthy financial situation. Things aren’t quite what they seem.
I’ll admit that before I sat down to read Mayor-President Joel Robideaux’s proposed budget — released last week here — I assumed the city to be flush with cash. While the parish has effectively zero dollars in its general fund, the city at one time carried north of $50 million in reserves. That’s more than double the 20% minimum reserve set by LCG’s fiscal policy.
Digging into the numbers, a much more troubling financial reality comes into focus. Despite Robideaux’s best efforts to cut costs and freeze spending, the city’s general fund is projected to lose more than $5 million per year both this year and next. It will continue to lose money until 2023. Altogether it’s going to take at least $15 million worth of savings to balance the city’s checkbook over at least the next four years.
I say “at least” because this budget projects that city government’s revenues will grow by 2% per year over the next few years. But all of the city’s largest sources of revenue — property taxes, sales taxes, and ILOT — run the risk of growing slower, if at all. There’s even a chance they could shrink.
Property taxes generate $27.7 million for the city, but growth has already flatlined to less than 1% the last two years running. Lafayette Parish Tax Assessor Conrad Comeaux projects that minimal growth to continue for the next five years. And in a down economy, there’s always the possibility that total assessed property values can shrink as vacancy rates in apartments, offices and retail shops rise.
Sales taxes generate $28.1 million for the city, but that income hasn’t grown faster than 2% since 2013. It actually fell every year from 2014 to 2017, before climbing again in 2018 at a 1% pace. This year has gotten off to a good start, and hopefully that continues, but retail sales face tough competitive headwinds, not just from Amazon but also retailers in other cities in the parish. Think of it this way: Every time someone shopped at the Walmart in Carencro instead of the one that recently closed on the Northside, the city of Lafayette lost sales tax revenue.
ILOT, the payments LUS makes to the city “in lieu of taxes,” generates the third most revenue at $23.8 million. ILOT revenue is projected to hold steady over the next few years, but even that projection might be optimistic. That’s because the amount LUS pays in ILOT to the city is calculated based on LUS’s profitability relative to its financial needs. Where this could become problematic is that LUS’s revenue is projected to fall — from $255 million to $243 million in next year’s budget — while its expenses could rise to pay for a series of major capital investments that are needed, like replacing or repurposing its coal plant. Even without all those capital investments accounted for in this budget, LUS’s “capital available for outlay”— effectively its profit — is projected to drop from more than $19 million to less than $6 million per year by 2022. It’s a little fuzzy as to what exact threshold would trigger a reduction in ILOT, but LUS appears to be heading in that direction.
In a nutshell, property taxes, sales taxes and ILOT account for almost 80% of city government’s revenue, and recent history shows that money flagging, not growing at the 2% clip used in this year’s budget. And that’s a problem.
Because if there’s less revenue feeding into these projections, the city’s financial position will deteriorate further and faster. The less growth, the greater the strain on the city’s general fund balance, and the longer it will take before the city can start paying its bills without relying on depleting its savings to fill the gaps. And this would only get worse if the city’s income were to stop growing or, worse, start shrinking.
Keep in mind that every dollar of fund balance spent on patching holes in the budget is a dollar we can’t spend on new projects that improve infrastructure or encourage economic development. With a $50 million fund balance, the city theoretically had almost $30 million available to invest in the community without having to raise taxes or rededicate that money from other purposes.
Instead, the city’s burning through its savings just to keep the proverbial lights on. That means the city’s finances aren’t really in a good position; rather, they’re just in a less bad position than the parish’s.