Fiscal responsibility is something every politician promises but too often fails to deliver. It’s a lot more fun to spend money on shiny new things than on maintenance. And it’s a lot easier to balance budgets with deficit spending and debt than make hard choices.
Last year, Lafayette Consolidated Government adopted a dramatically austere budget, justified by economic uncertainty. This year, still faced with uncertainty, LCG is on the verge of going in the entirely opposite direction and approving the largest capital spending program in the city’s history.
But the city of Lafayette can’t afford to eschew fiscal responsibility in exchange for spending that may be politically popular, especially when that spending is fueled by radically bullish revenue projections and huge amounts of new debt.
Budget wrap-up is this week, a time when council members have historically made their changes to the proposed budget on the road to final adoption. The roles have reversed from the 2020 budget cycle. The mayor-president is trying to make it rain, while the City Council is now forced into a position where it ought to play budget hawk. To get a fiscally responsible budget — one that follows some basic principles of good government — City Council members will have to assert themselves in unprecedented ways.
As they say, these are unprecedented times.
It’s generally a good idea not to spend money you don’t have. But this budget is setting up the City Council to do just that, with wildly optimistic projected growth in sales tax revenue.
I’ve already written a whole column about this subject, but it’s worth reiterating just how aggressive the proposed growth projections are. In short, there’s little reason to think the city’s sales tax revenue will grow next year at the 9.82% rate projected in the budget. That’s five times the growth-rate calculation LCG has historically used to make budgets.
This projection is based on the growth of retail sales over the last year. But the next 12 months are unlikely to mirror the performance of the last 12 for a number of reasons.
For one thing, we won’t have billions in federal stimulus money flowing into the economy. The pandemic is surging again, forcing festivals to cancel (again) and pushing back the timeline for returning to normal. UL economist Gary Wagner projects the number of jobs in our market won’t recover to pre-pandemic levels until the end of next year as Louisiana has one of the slowest recoveries from the pandemic in the U.S.
A more realistic growth projection for next year’s sales tax revenue would be 2%, what LCG normally uses to calculate budgets. But it’s also quite possible we will see 0% growth over the next few years — given that this year was an all-time high, artificially inflated by those subsidies. And it’s also possible sales tax revenue will revert to 2020’s totals once the dust settles on the federal bonanza.
Those are vastly different scenarios than what’s being projected, as highlighted in this graph:
All three of these alternative scenarios would blow massive holes in the city’s budget:
| FY22 Shortfall ($M) | FY22-26 Shortfall ($M) | |
| 2% Growth | -$7.1 | -$37.4 |
| 0% Growth | -$8.8 | -$63.8 |
| Revert to FY20 | -$16.6 | -$101.1 |
Even in the more realistic 2% growth scenario, the city’s general fund balance would quickly fall below the 20% minimum threshold set to protect the city’s financial health and would likely require almost $25 million to be cut from the city’s proposed five-year capital improvement program. The more pessimistic scenarios would require even larger cuts to both the city’s operational and capital spending.
It’s a bad idea to build any budget on the basis of revenue projections that are unlikely to be realized. Councils don’t typically do this, but they can amend these revenue projections to bring them in line with reality. By law, LCG has to return a balanced budget. Using a 2% growth projection would bring the budget back in line with reality on the ground. Otherwise, the City Council is effectively approving a budget that spends money the city likely won’t have.
Where is this money we don’t have going? There’s almost $60 million in this budget for new road projects, between money already appropriated, money proposed for next year, and all the money budgeted through 2026. By new road projects, I mean widening and extending roads.
Every dollar spent on new road projects is a dollar that can’t be spent on maintaining not only existing roads but any other city-owned infrastructure. And these new road projects tend to increase the city’s overall infrastructure deficit; they increase maintenance liabilities more than they increase the city’s revenues to pay for these liabilities.
It’s time to draw a line in the sand and stop funding new road projects until we get a handle on maintaining our existing infrastructure.
We also need to establish a process to better understand the long-term financial ramifications of any new road project. We’ve been down this road before. Prior administrations have worked up return on investment tools that haven’t been finished or used. Meanwhile, the maintenance list — and our costs — keeps growing.
Continuing to spend more money on new road projects with so much economic uncertainty is a recipe for financial trouble. This is a better time to get our house in order, not build a new one.
Reining in discretionary spending is another way for the council to restore some fiscal responsibility here. There’s more than $75 million in the city’s proposed capital improvement that budget hawks would usually call “slush funds.”
This is money not earmarked to any specific project, allowing the administration to spend it without going back to the council for approval, so long as it meets the stated purposes. These are generically named budget line items like “Urban Asphalt Overlay/Reconstruction” and “City Stormwater Detention.”
Discretionary spending is not uncommon, but $75 million is huge. For reference, in the Durel administration’s 2016 budget, its last, discretionary capital spending totaled $30 million.
Discretionary funds can be useful. They equip department directors with the resources and flexibility to respond quickly to emergent issues without needing to take the time to secure approval from the council.
The tradeoff is handing legislative authority over to the administration, while making spending significantly less transparent. This administration has a history of interpreting checks and balances in its favor: It cut the City Council out of appointing a new LUS Fiber director, used an expansive budget interpretation to pursue a surveillance camera contract, and wielded the charter to prevent the City Council from having the autonomy to restore city funding to city parks.
By prioritizing funding for named projects over slush funds, both the council and the public gain access to a lot more details about how taxpayer dollars are being spent. And it gives the council members significantly more leverage to make sure the needs of their respective districts are being taken care of.
Cutting slush funds would free up tens of millions that could either be spent on named infrastructure projects or used to reduce the amount of debt the city needs to take on to fund its five-year capital improvement program.
But the biggest risk in this budget is the sheer volume of debt. As proposed, the city would take on $180 million in new debt over the next five years. But both the public and the City Council have been given almost no information about what the plans are for how this money will be spent.
For example, the budget proposes $25 million in debt spending for Brown Park and Moore Park, yet the administration has not presented any details regarding what those projects will actually entail. Without that info, we can’t say if these projects are good ideas or not — or even if the budgeted cost is accurate.
There’s a lot of excitement among Downtown advocates for the massive spending on Downtown infrastructure. While I totally support increased investment Downtown, we shouldn’t be budgeting almost $30 million in debt for two parking garages when we have seen no plan to properly maintain them. Arguably, that’s how the two existing Downtown parking garages were allowed to deteriorate.
Historically, past councils have adopted a strategy of appropriating money and then figuring out a plan. But a smarter way of handling ambitious spending on new projects is to take up separate ordinances once the budget has been passed so the council can consider appropriating funding for projects one at a time. And those initial requests for funding should only be for enough money to get the design work done first before committing millions of dollars to build the project, especially when the funding source is taxpayer-backed debt.
To be clear, I’m not suggesting the city shouldn’t increase its spending. My point is the city can’t afford to ignore the economic uncertainty ahead and should spend cautiously.
Pushing back on the budget in these way would be unprecedented. Previous councils have not amended revenue projections, zeroed out new road projects, reduced discretionary spending or pumped the brakes wholesale on goals set by their executive branch counterparts.
Even if they move the council outside its comfort zone, these steps aren’t radical. They’re based on the principles of good government and fiscal responsibility.
One Comment
Is our city is following the path to insolvency and bankruptcy that Detroit took nearly a decade ago (https://en.wikipedia.org/wiki/Detroit_bankruptcy).