NEW ORLEANS – The Bureau of Governmental Research (BGR) issued a new report warning that New Orleans is facing a projected $102.5 million budget shortfall in 2025. BGR urges the mayor and City Council to adopt stronger financial management practices as they craft the 2026 budget, stressing the need to leave a more stable government for their successors—one better equipped to serve residents and withstand future fiscal crises.
The report follows BGR’s April report entitled After the Windfall which found the City has a limited window to safeguard financial gains it made during the pandemic thanks to nearly $400 million in federal funding. Just five months later, that window has narrowed even further. The $102.5 million projected deficit is due to a $30.5 million reduction in estimated revenues and personnel costs that are running $72 million over budget, primarily from soaring overtime.
The City also faces tens of millions of dollars in looming costs – such as deferred maintenance of infrastructure and facilities – that aren’t part of the deficit but will put additional pressure on the City’s budget.
To deal with these challenges, has BGR urged the City administration and council to improve their financial management practices by (1) working to achieve a structurally balanced budget that covers the full costs of responsibly running City government, (2) developing a five-year financial plan to get there, and (3) adopting a policy to manage and safeguard the City’s financial reserves or “rainy day” fund.
A Structurally Balanced Budget
The City’s charter requires it to have a balanced budget with projected revenues that equal or exceed planned expenditures. BGR says this is a relatively low hurdle that does not ensure the budget is financially sustainable. It allows the City to achieve balance with one-time revenue, such as reserves, that it cannot count on for future budgets.
BGR also points out that the budget does not have to provide sufficient funding for certain City responsibilities, such as maintaining infrastructure and facilities at acceptable levels. This pushes those costs onto future budgets and future taxpayers. They say that the City has had problems in both these areas and that it relies on reserves to balance the budget and chronically underfunds preventive maintenance.
To confront these shortcomings and improve the City’s financial stability, the report calls on the mayor and council to strive for a structurally balanced budget. This is when annually recurring revenues equal or exceed the recurring expenditures needed to adequately maintain services and infrastructure, without using reserves. BGR states that a structurally balanced budget is a relatively simple yet powerful concept that can help ensure the budget meets the true costs of City government and is sustainable year after year.
A Five-Year Financial Plan
Attaining a structurally balanced budget might take several years or longer and will require careful planning, according to BGR. The new report urges the City to begin developing a five-year financial plan that accounts for significant anticipated changes in revenue and spending.
Further, BGR states that the plan should identify funding strategies to meet looming costs and high-priority needs. This will help ground the 2026 budget deliberations in a better understanding of the City’s finances and needs, even if a more comprehensive five-year plan cannot be completed until the next administration and council take office.
Managing Reserves
A key to achieving a sustainable budget is to maintain adequate reserves to help avoid cuts to essential services and increases in taxes or fees during financial emergencies. Government finance experts recommend that municipalities maintain at least two months of expenses in reserve, or about 17% of their general fund operating budgets. Experts say disaster-prone cities such as New Orleans should consider a higher level. As shown in the attached chart, the City’s reserves skyrocketed from just $13 million before the pandemic to a high of $344 million in 2022. But three years of spending from the reserves could reduce them below the minimum recommended level of $133 million by the end of this year.
BGR states that part of the problem is the City lacks a policy to manage its reserves and limit spending to ensure an adequate financial cushion. Both BGR and the City’s financial consultants have called for the City to develop and adopt such a policy this year. BGR states that establishing a policy on reserves now is important to support continuity in managing fiscal issues into the next mayoral and council terms.
“The City of New Orleans is at a critical juncture in its fiscal history. While it emerged from the pandemic in a better financial position, those gains are at risk due to looming costs and declining revenues,” said BGR President and CEO Rebecca Mowbray. “The City administration and council have a choice. They can stick with their current financial management practices and risk sliding back to a more tenuous position. Or they can work to improve those practices, including a five-year financial plan and a policy for managing its rainy day fund. Doing so would achieve a more sustainable budget to better address residents’ immediate and long-term needs and deal with any fiscal emergencies.”
The full report is available here on the BGR website.
About BGR
BGR is a private, nonprofit, independent research organization. Since its founding in 1932, it has been dedicated to informed public policymaking and the effective use of public resources in the Greater New Orleans area. For more information, call (504) 525-4152 or visit BGR’s website www.bgr.org.
BGR is a proud member of the Governmental Research Association, the national organization for governmental research professionals. The GRA began in 1914, with the realization that effective policymaking requires good information, not just good intention. The GRA is home to independent organizations providing this information — trusted, objective, non-partisan, and practical research and data to local and state leaders.