Before the coronavirus shut down the economy,cratered the oil and gas industry and shoved the world into a recession, Lafayette’s government finances were already in bad shape.
This year the city’s general fund — unrestricted dollars that fund public services — was budgeted to have an $18 million operating deficit, on track to burn through its $50 million in reserves over the next three years. The parish general fund was even worse, budgeted to have a $500,000 operating deficit and end the year with a fund balance of only $100,000 despite years of budget cuts and a growing list of unpaid bills.
Put simply: The parish is broke, and the city is accelerating in that direction. And that was before the COVID-19 pandemic. To put it mildly, both the city’s and parish’s financial circumstances and outlook have worsened significantly since then.
Mayor-President Josh Guillory announced this week that the city general fund’s revenues are now projected to fall $10 million short primarily because of a 35% drop in sales tax revenue for the second half of the year. This shortfall would increase the city’s operating deficit to $28 million for this year, putting the city’s general fund at risk of zeroing out its fund balance before the end of next year.
That’s only tallying some of the potential shortfall. LUS kicks in about 25% of the city’s roughly $100 million general fund each year through in-lieu-of-tax (ILOT) payments, and those are at risk too. The ILOT is kind of like a profit. How much LUS pays is based first on the system’s revenues — how much it collects in fees for water, electricity and sewer services — but is then modified based on the strength of its finances. If LUS is strong financially, all of the ILOT payments go into the city general fund; recently that’s been about $23 million. But if LUS is suffering financially, those ILOT payments will get reduced.
It’s too early to know how endangered those payments are, but there’s no doubt LUS is suffering financially. Many of its biggest customers, like the Cajundome, UL and Stuller, have been essentially shut down for weeks and using way less electricity. With unemployment in Lafayette Parsih at roughly 20% and rising, it’s inevitable that more and more people won’t be able to pay their light bills. To ease the burden on people out of work, LUS waived disconnections. Analysts widely expect bond ratings to be downgraded for cities across the country, which would increase borrowing costs to build new infrastructure. LUS has tens of millions of dollars in projects on its books. In short, LUS could be working with less revenue while its operations get more expensive to run. If that happens, the amount of “profit” it can add to the city’s accounts will shrink.
As bad as this all sounds, the parish general fund is worse. If its sales tax revenue drops at the same rate, it would mean a loss of $1.5 million by the end of the year. Keep in mind that the parish general fund is currently budgeted to end this year with a fund balance of only $100,000. So if this much revenue is lost, $1.4 million is going to have to be cut from this year’s $12.9 million parish general fund budget.
More than 10% is a significant cut from any budget mid-year, but it’s going to be especially painful for a parish budget that’s already suffered year after year of budget cuts.
Things have gotten so bad over last few years that the district attorney filed suit against the previous administration in 2016, saying his office was receiving insufficient support from the parish general fund to fulfill its constitutionally mandated operations (the suit was dropped a month later), the sheriff is currently suing parish government on similar grounds, and district judges have threatened to do the same. The parish hasn’t been able to fully reimburse municipal fire departments for the costs associated with putting out fires in unincorporated Lafayette. And the city has had to pay for a significant portion of the parish’s share of costs to operate LCG. Just to name a few areas where the parish general fund’s insufficient funding has been falling short.
In a sign of things to come, LCG’s finance department requested permission to explore taking out $41 million in loans in case cash dries up. Having to use debt to pay for regular operating expenses is a slippery slope for local governments that’s obviously not sustainable.
That’s just the near term. On a more distant horizon is the likelihood that total assessed property values in the city and parish will fall as well. It’s unlikely there will be enough properties that go up in value and enough new development to offset the number of properties that will lose value, especially commercial buildings emptying out alongside the economic downturn.
That doesn’t necessarily mean property tax revenue will decrease, though. That’s because local taxing authorities have the ability to increase millages to offset falls in total assessed property values.
But if total assessed values fall and millage rates are increased to offset those losses, the effect is a tax increase for anyone whose property hasn’t decreased in value, which would include many homes.
So if total assessed property values do decrease, our elected officials will face a choice: increase taxes — by way of a rollforward — for a significant portion of the population or lose even more revenue at a time when both the city’s and parish’s budgets are teetering on the brink of insolvency.
The ultimate impact of all this on both the city and parish budgets is dire. Millions, if not tens of millions, would have to be cut from the city general fund over the next couple of years. And hundreds of thousands, if not millions, will have to be cut from the parish general fund. There’s not near enough fat to cut to make up for these shortfalls. Filling holes of this magnitude will also require cuts to essential services. People could lose their jobs. Capital projects could be zeroed out. And local government is likely going to have even less capacity to respond to the needs of its citizens. Many already found LCG underwhelming in how it takes care of roads and coulees, public buildings and beyond.
Years of budgetary mismanagement were already coming to a head. Coronavirus is now busting through all of the financial weak spots. And we’re going to be left to pick up the pieces, having to do more with less at a level that’s hard to even fathom.