COLUMN: How bad is the city’s fiscal emergency?

LCG says that LUS has paid the maximum ILOT into the city general fund for the last two years. This column's claim otherwise has been removed.

All summer Mayor-President Josh Guillory has been sounding the alarm over Lafayette’s fiscal emergency: the $18 million deficit he inherited from the past administration; the $10 million estimated loss of revenue this year due to coronavirus; the additional deficits projected in the years ahead. All of this, we’re warned, will lead to the ultimate depletion of the city’s general fund balance, creating a nightmare scenario where LCG doesn’t have the cash it needs to operate.

Guillory has used this spectre to justify a series of deep budget cuts over the last few months: shutting down the Heymann Center, the Lafayette Science Museum, the Acadiana Park Nature Station, and three senior centers in May; and announcing the closure of four rec centers on the Northside and laying off 37 parks employees two weeks ago. That all culminated in a proposed budget that chops $30 million off LCG’s appropriations, with most of the cuts coming to services paid for by the city’s general fund. 

It’s not surprising that the decision to shutter widely used cultural and community facilities has sparked significant public outcry. Hundreds of social media posts, thousands of signatures on petitions, and a joint city-parish council meeting that lasted 10 hours just since a week ago Friday when Guillory announced the rec center closures on Facebook.

Lost amid the fury of that outcry, though, has been a serious examination of the claim that we’re in the middle of a fiscal emergency so dire that it demands extreme budget cuts with no other option. 

So is that actually true? Is the city’s fiscal emergency so bad that these cuts are unavoidable? Have we reached a point where the city literally doesn’t have enough money to support maintaining its parks system and cultural facilities?

The short answer is “no.” 

One stat you’ll hear a lot right now is that the city faces a $28 million deficit. That figure combines the $18 million operating deficit inherited from the last administration and a $10 million shortfall from lost sales tax revenue due to  coronavirus. 

The deficit is real, but it’s not as bad as described.

That $18 million operating deficit in the current budget was already reduced by $5 million when the City Council voted to remove the money allocated to dredge the Vermilion. This deficit was lessened by millions of dollars further when the councils decided to forego the automatic 2% pay raises passed last year. That alone accounted for $7 million in that operating deficit. 

The projected coronavirus losses are a little misleading, too. Of the $10 million projected coronavirus shortfall in city sales tax revenue, only 35% of that goes into the city general fund. So the city’s general fund will take a hit of $3.5 million, not $10 million. 

Readjusting those figures, we’re looking at a smaller hit to the city’s fund balance. Instead of $28 million, the figure could look more like $16.5 million, and that’s without factoring in the savings from pausing the pay raises. 

Another wrinkle here is the fund balance itself. Historically, city general fund balances have ended higher than budgeted. That’s because Lafayette budgets very conservatively, and revenues tend to be higher and expenses lower than the assumptions upon which the budget is computed. On average, LCG has ended its fiscal year with $14 million more than it budgeted. 

So the real deficit for this year on paper is closer to $17 million than $28 million, and it may be significantly less than that given the actual ending fund balance has been $10 million to $16 million higher than what was budgeted the last five years in a row. 

On top of that, the city is receiving $6 million in reimbursements from the federal government for the coronavirus response. It’s not clear how LCG will use that money. The U.S. Treasury limits narrowly what reimbursements are allowed. One possibility is salaries for police and fire, which the Treasury considers an acceptable coronavirus expense as part of any city’s pandemic response. Salaries for police and fire take up the largest costs in the city’s general fund. Conceivably, this could further shrink this year’s deficit.

But budgets don’t just look at history; they also make assumptions about the future. And these assumptions are extremely conservative. 

This year the city was budgeted to collect $85 million in sales tax revenue. Now, because of the pandemic, it’s projected to collect $72 million. For next year, Guillory’s budget projects the city only collecting $64 million.  

It’s understandable why Guillory is basing his budget on conservative projections. Lafayette’s facing an unprecedented economic calamity. But he’s projecting that the next few months and next year will actually be worse than the last few months. 

From April to June, city sales tax collections were down $3.5 million relative to what was collected last year. Guillory’s budget is projecting sales tax collections will fall another $9.5 million over the next four months, a fall that’s more than twice what we’ve been experiencing so far. Then, over the next year, he’s projecting city sales tax revenue will fall $21 million compared to last year, a fall 50% greater than reality thus far.

If city sales tax revenues simply stay at the reduced level collected from April to June of this year, that adds $5 million in sales tax revenue to the rest of this year’s budget and $9 million to next year’s budget. That $14 million in additional sales tax revenue would increase revenue to the city general fund by about $5 million. 

At this point it’s impossible to know if Guillory’s projection is overly optimistic, pessimistic or if it’s right on. 

If the economy holds steady or improves, it’s likely pessimistic, which means we’re making cuts to the budget that may not be necessary. Sales tax revenue could easily outperform these projections. The economy may also take a turn for the worse because it could get shut down again. At least some of the commerce we’re seeing is floated by thousands of people on unemployment insurance, which will end this week and may come back severely reduced. 

In the end, budgets are based on educated guesswork. The question is how optimistic or pessimistic do we want the city’s assumptions to be that we base this budget on? Because the answer to that question will determine how serious the fiscal emergency is from the perspective of what budget cuts may be needed.

The city has options.

Let’s cut to the chase. Guillory is making a choice. The city has enough money to keep these facilities open if it wants to, and the risks may not be nearly as great as he’s been saying. 

Based on the proposed budget, even if we accept all of Guillory’s assumptions as being accurate, the city general fund is projected to end this fiscal year with a fund balance north of $37 million. That’s nearly double the minimum fund balance set by LCG’s fiscal policy of 20% of city general fund expenditures — which total $98.6 million in Guillory’s projected budget. 

The total cost of subsidizing the parks and cultural facilities is around $6 million per year. That’s just over 6% of the city general fund’s $94 million in revenue that’s projected for next year. So if nothing else changes, the city can afford to subsidize them at current levels for three years before the city general fund balance starts dipping below its recommended minimum. 

But that’s not all, because the city has a variety of other mechanisms at its disposal to raise its revenue without raising taxes. 

For example, just last week the City Council approved a resolution to call for a public vote on increasing the percentage of city sales tax money that gets put into the city general fund from 35% to 45%. If that passes, it will increase city general fund revenues by $7 million to $8 million per year, which is more than the total subsidies for parks and cultural facilities.

The City Council has also authorized the selling of $35 million worth of bonds that could be used to offset any short-term deficits. Using debt to pay operating costs is obviously not sustainable, but if we’re confident the city’s economy is going to recover, it’s at least an option available to us if we wanted to fill any holes in next year’s budget to prevent cuts to what many consider essential services.

Or the city could demand the parish live within its means. The cost of consolidation has grown a lot for the city taxpayer. From 2016 to this year, the city’s share of costs to operate LCG rose $17 million while the parish’s share dropped $9 million. This was due to past Mayor-President Joel Robideaux dramatically shifting the cost-allocation formulas in the parish’s favor. If we simply reverted these cost allocations back to where they were in former Mayor-President Joey Durel’s last budget, it would free up at least $9 million per year in the city’s general fund. That would be tough love. But Guillory’s all about tough love these days.

If the city can’t get the parish to pay its fair share of the bills, the city still has a variety of options to continue subsidizing parks and cultural facilities without having to make the kinds of dramatic cuts Guillory calls unavoidable. 

This is about priorities. 

There’s no doubt the city is facing significant financial challenges. And, in fact, we may end up in a situation even more dire than Guillory’s pessimistic projections. But the narrative that these cuts have to be made at this time is simply not true.

The mayor-president has been clear from the start that this budget is about fixing priorities. So the question the City Council now faces is what should the city’s priorities be? Is it more important to protect the city’s general fund balance at all costs even if it means shutting a variety of quality-of-life facilities? Or should we do everything to leverage every resource available to us to protect these community assets?