When the mayor-president says at a press conference announcing his decision not to seek re-election, “I can say today without qualification that Lafayette is in the best financial position it’s ever been in,” you want to believe him.
But just three days earlier Joel Robideaux should have given everyone pause when he used outrageously optimistic revenue projections to justify his push to transfer $18 million from the library. His remarks (and figures) don’t accurately represent Lafayette’s financial position.
The problem that his numbers ignore is one of the greatest fiscal challenges facing LCG: the flatlining of local property tax revenue.
Making the most of history
Here’s what he sent members of the Lafayette City-Parish Council last Tuesday, a few hours before their vote on his plan to call an election to move library funds to drainage, roads and bridges:
Library’s Financial Projections (in millions)
Robideaux’s forecast assumes that the revenue generated by the library’s two remaining millages will grow at an average of about 7% per year for the next 11 years. That means the net taxable value of all property in the parish would increase at the same rate, which would more than double the total value of property during this timeframe.
To accomplish this much growth would require adding more than $20 billion worth of new real estate development, new inventory (which is taxed as property), or new increases in the value of existing property to our parish over the next decade.
In his email to the council, he explained his methodology for producing these projections. “I used two decades of historical growth rates to build the spreadsheet,” he wrote. “History is no guarantee of future results, but it is the best indicator we have.”
And in a sense he’s right. When you look at the average growth in net taxable value of property in Lafayette Parish over the last 20 years, we grew at around 7% annually.
But what he leaves out are the more relevant indicators of more recent history, especially the past couple of years.
Over the last 10 years, we grew an average of 4.3% per year. In 2017, it was less than 1%. In 2018, less than half a percent. And if you talk to Lafayette Parish Tax Assessor Conrad Comeaux, he’ll tell you that we’ll be lucky to break even this year.
Not only that, 2020 is a reassessment year. That reassessment is based on average property values in January 2019. Since those values were flat, Comeaux’s projecting minimal growth over at least the next five years.
This raises a serious question. Has Robideaux been formulating policies on the assumption that LCG will have tens of millions of dollars more to spend in future years than can be reasonably expected?
Making an example of the library
To demonstrate what happens when you’re overly optimistic about your revenue projections, let’s jump back into Robideaux’s numbers, only this time instead of his ambitious 7% growth, we’ll use the more realistic 2% growth that the library forecasts in its budget:
Library’s Financial Projections (in millions)
The best way to understand the difference between these projections and Robideaux’s is to take a look at what happens to the library’s fund balance in each scenario:
You’ll notice that these are slightly different outcomes. If Robideaux’s revenue projections are right, the library would have a fund balance of more than $19 million and rising. If the library’s are right, its fund balance would turn into a $25 million deficit and continue to fall.
Of course, the deficit scenario would never actually happen given how conservative library officials have been in their budgeting and fiscal management. If library revenue only grows 2%, they won’t increase expenses 2% per year as Robideaux projects. Eventually they will cut overhead and reduce services as needed to keep the budget solvent.
But either way, Robideaux’s rose-colored crystal ball risks a shortfall in the library’s budget. He based his policy proposal on an assumption that the library would collect $44 million more over the next 11 years than the library’s own budget projects.
And let’s not forget: 2% year-over-year growth in net taxable property values is not even close to a worst-case scenario. From 1984 to 1988, the net taxable value of all property in Lafayette parish shrank by more than 40%.
While we’re not at any real risk of a contraction of that magnitude, it shows what’s possible during an economic downturn, and that there’s no guarantee property tax revenue will always go up.
Why is this happening to us?
The total value of property in Lafayette Parish is getting pummeled on multiple fronts.
The oil and gas industry’s 2014 collapse is obviously the biggest drag. Fewer people are working, and they’re making less money on average, according to the Bureau of Labor Statistics. Fewer businesses are operating, and those that remain are often holding less inventory.
We’ve also had increasing vacancy rates for apartments and offices. And even though lots of homes are being sold, it’s a buyer’s market, so sales prices are flat or even down in some neighborhoods.
Meanwhile, our retail sector continues to take hits big and small, from local family shops closing to national chains like Walmart and Sears. And that fall will likely continue due to national trends that show no sign of slowing.
There is some new development happening, but it’s all pretty modest. There are no new River Ranches on the horizon to catalyze large-scale development to keep driving Lafayette’s growth. And redevelopment of areas with great potential like the Oil Center and Downtown are only just starting to build momentum.
With all these factors in play, it’s hard to see how Lafayette’s property tax revenues can get back to 7% annual growth in the next few years. Doing so would require billions of dollars to be invested in real estate development as well as the full recovery of the oil and gas industry or the rise of another industry to replace the billions of dollars and thousands of well-paid jobs lost over the last few years.
While Lafayette has the potential to get back to that level of growth eventually, I don’t think it’s safe to assume that it will happen any time soon.
No time for old data
Lafayette’s financial position demands sober analysis based on realistic projections of where we’re heading. We can’t simply look backwards and assume that past performance guarantees future success — not when our economic reality has shifted so significantly due to many different forces. And especially not when we have a parish population that’s still growing, putting greater strain on infrastructure that’s aging at a time when budgets are tightening and revenue is flatlining.
Don’t get me wrong, I support Robideaux from an aspirational perspective. The kind of growth he projects is the kind of growth I want to see Lafayette have and that I believe we are capable of achieving.
But it’s fiscally irresponsible to determine how to spend millions of taxpayer dollars based only on a best-case scenario for future revenue, especially when those decisions could affect the financial health of a vitally important public agency like the library.
Choppy financial waters still lie ahead. Now is not the time to congratulate ourselves on weathering this economic storm. While we should remain optimistic that our situation can and will get better, we also need to be pragmatic in taking objective stock of our current trajectory so we have the best chance of surviving the storms to come.