Tax Hikes, Furloughs Haunt New Orleans During Mardi Gras Season

(Bloomberg) — In the runup to its big Mardi Gras celebration on Fat Tuesday, New Orleans is preparing for parades and crowds — and painful budget cuts.

Behind the brass bands and bead throws, the city is confronting one of the worst financial crises in its modern history after years of spending propped up by temporary federal pandemic aid. With revenue lagging and costs locked in, officials say the resulting budget hole will take years to close.

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Mayor Helena Moreno, who took office in January, inherited a deficit estimated at $222 million in a roughly $1.6 billion operating budget, according to city officials. Late last year, the city had to borrow $125 million from Wall Street simply to make payroll, covering routine expenses and retention bonuses for police promised by the prior administration — a move that triggered downgrades from all three major credit-rating companies.

And starting with the Feb. 15 payroll, many city workers will have to take the equivalent of 22 unpaid furlough days through the end of the year.

With stopgap options running out, city leaders say they are now shifting from short-term cuts to structural fixes, including proposed charter changes and potentially new tourism taxes — steps that could permanently alter how New Orleans governs itself.

“We are going to fix this problem, fix the way spending happens in the city of New Orleans so that we never have an administration in the future ever spend us into a hole like this,” said JP Morrell, president of the city council.

The crisis is unfolding against a sharp political divide. New Orleans is a Democratic stronghold in a Republican state, heightening fears at city hall that a state takeover of city finances could threaten priorities important to its voters. That concern has added urgency to efforts to stabilize the city’s books before the state steps in.

Officials trace the crisis to how New Orleans used federal pandemic aid under the American Rescue Plan Act. The city received nearly $388 million, about $187 million of which went to replacing lost revenue and supporting the operating budget. Decisions made under the prior administration played a major role, said Michael Waguespack, Louisiana’s legislative auditor, citing an expansion of city government supported by federal relief and a breakdown in trust between the mayor’s office and the city council as the aid wound down.

Those choices left the city with a larger workforce and fewer buffers once the aid ran out. Jobs initially funded through temporary federal programs became embedded in the workforce, and city officials say revenue projections were overstated by roughly 5% to 10%, widening the gap between recurring costs and income.

“Looking at the numbers I’ve seen, I think we’re too bloated,” Waguespack said. “We need to right-size and down-size city hall.”

One of the biggest drivers of the gap was policing. New Orleans has long faced a shortage of officers. To address retention, the prior administration promised bonuses of about $10,000 to officers, using pandemic relief funds to pay for them.

But about two weeks before Moreno took office, officials realized there wasn’t enough money left to cover the final year of those bonuses. The city ultimately used proceeds from a $125 million revenue-anticipation note privately placed with JPMorgan Chase & Co. to pay bonuses that had already been promised — borrowing that Waguespack has said will likely have to be repeated once the loan is repaid in May.

Relying on a loan to make payroll is usually one of the “last-resort” measures when a city faces a severe budget problem, said Chris Brigati, chief investment officer at SWBC Investment Services, a firm that works with municipal bond issuers and investors.Overspending on overtime further deepened the crisis, the auditor found. The city budgeted $57,500 last year for overtime but ultimately spent an estimated $50 million — more than half on police — without informing the city council. Security costs had surged with a Taylor Swift concert in 2024, followed by last year’s terrorist attack on Bourbon Street and the Super Bowl.

Under the city’s budget rules, the mayor can reallocate funds without formal council approval — which officials say allowed the overspending to go unnoticed until November.

“Nothing can prevent a mayor from taking funds that were allocated for X and reallocating them to Y, without any public notice or input from the legislative branch,” Morrell said.

The city council plans to place a charter amendment on the November ballot that would tighten fiscal controls. If approved, departments would be barred from exceeding their budgets unless the council formally adopts a budget amendment.

To close the deficit, city leaders are weighing both spending cuts and new revenue. Councilmember Lesli Harris, who chairs the budget committee, said officials want to avoid burdening residents and are instead examining tourism-related taxes, including levies on short-term rentals, hotel stays, alcohol sales and concessions at Caesars Superdome, home of the NFL’s New Orleans Saints.

“Everything’s on the table at this point,” Harris said. “We just need to be very careful that we’re not driving our population away.”

New Orleans’ tourism industry has rebounded from the pandemic, but the recovery has been uneven. International visits remains a challenge, and travel from Canada — one of the city’s biggest foreign markets — fell an estimated 5% to 10% last year, according to New Orleans & Company, a tourism industry marketing group, with demand soft amid a more fraught political backdrop under Donald Trump.

Walt Leger, the group’s president, said the international softness isn’t likely to thin Mardi Gras crowds — but warned that higher taxes could make the city less competitive in the race to land major events.

The fiscal strain has continued to ripple through the city’s balance sheet. Moody’s Ratings, S&P Global Ratings and Fitch Ratings all downgraded New Orleans last year. Moody’s cut the city’s rating by another two notches earlier this month, citing “unexpected declines in property-tax collections and unforeseen one-time costs” tied to the prior administration, analysts wrote.“While disappointing, it is not surprising based on the situation we have inherited. My administration is working hand in hand with the city council to make the tough decisions to get us out of this mess. We hope that over the next few months, Moody’s will see there’s a new direction for New Orleans. We believe the positive steps we’re taking now and in the near future will bring our rating back up,” Mayor Moreno said in an emailed statement.

Getting out of the crisis will require more than balancing the current budget, said Stephen Stuart, senior vice president of the Bureau of Governmental Research, a New Orleans-based public policy think tank. That includes rebuilding reserves, creating a five-year financial plan and aligning recurring spending with recurring revenue.

“The city’s road to get out of this fiscal crisis is more than just fixing the current budget and getting that to balance,” he said.

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