New Orleans seeks $125M payday loan to pay employees
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The Cantrell administration says it will have "problems" paying city employees after this month, citing a "perfect storm" of difficulties.
Why it matters: In a dramatic escalation of the city's financial situation from just last week, officials say a combination of stalled cash flow and egregious overspending on overtime led them to call an emergency budget meeting Wednesday.
- The administration is now seeking a so-called payday loan to cover immediate expenses.
Stunning stat: The city budgeted $45,000 for NOPD overtime payments this year. So far, it's spent more than $45 million, Council President JP Morrell says.
- The city's looming $160 million deficit mostly comes from those overtime costs and overly optimistic revenue projections, a state analysis found.
State of play: Joe Threat, the city's chief administrative officer and Mayor LaToya Cantrell's second-in-command, told the City Council on Wednesday that the federal government shutdown has put the city in a bind.
- Threat says the city is waiting on FEMA to reopen so it can approve paperwork that would solve the cash flow problem.
- The city has been using advance payments related to FEMA-funded projects to make payroll, he told the council.
The intrigue: But the problems started well before the feds shut down.
- City leaders warned of spending trends in February and April. But, when Councilmember Oliver Thomas asked if there were concerns about furloughs or reduced city services, they told him no.
- Meanwhile, overtime payments continued to add up, and revenue projections were missed.
Zoom in: The city has an estimated 3,000 employees, Councilmember Joe Giarrusso says. Payroll is about $20 million monthly, Threat says.
- Meanwhile, the city's last payment to vendors was Friday, financial officials say.
- Threat asked the council to approve a $125 million funding proposition, which Councilmember Lesli Harris says is "essentially a payday loan."
- The interest could be as high as 6%. The first payment could be due in six months — a timeline city leaders say they could meet. They say they did a similar one in 2020 when the pandemic started.
Threat level: Attorney General Liz Murrill tells Axios' Chelsea Brasted she's considering taking over the city's finances under a newly amended law.
- "We have some authority to kind of impose a fiscal administration on municipalities that can't manage their financial affairs," she said Wednesday during an exclusive interview.
- She said she's asked the state's legislative auditor to look into options. Murrill didn't say what her timeline is.
- Mayor-elect Helena Moreno tells Axios she's working with the auditor on a financial plan for her administration and she'll have a "very different budget" than the current one.
Worst-case scenario: The city could dip into its rainy day fund to cover payroll, but come December, it's an "apocalypse," Morrell says.
- Leaders say they are going after agencies that owe them money, such as the Sewerage & Water Board and Uber.
What they're saying: "City Workers are as blindsided as everyone and we deserve full transparency now," according to a statement from the union for city employees.
- "The budget should not be balanced on the backs of rank and file employees because of mistakes made by the outgoing administration," it continued.
- The union hosts a press conference at 9am Thursday outside City Hall.
The friction point: The money-saving efforts didn't seem to start until September, when Threat took over as CAO, according to Mike Waguespack, the state's legislative auditor.
- Before then, Gilbert Montaño had been Cantrell's CAO for most of her two terms. He left in August to work for Audubon Nature Institute.
- Waguespack said he didn't find any efforts during his analysis to curb overtime under Montaño.
- When Threat started, he said he enacted freezes on hiring, travel and spending through December.
What we're watching: The city is in the middle of its annual budget planning process. Cantrell and each department head present their proposed 2026 budgets to the City Council, which is in charge of the city's purse.
- Cantrell and Threat previously proposed a 30% cut to all operating budgets with the idea that it would prevent layoffs and furloughs.
- Morrell told leaders Wednesday to tighten their belts even more for the rest of the year — copy paper, snacks, everything.
Inside the room: Cantrell's communications team declined a request for comment about the financial situation.
- Spokesman Terry Davis, who was in council chambers during the meeting, said Threat's comments represent "the city's position."
- He also told Axios he would not comment on Murrill's proposal.
What's next: City Council is expected to vote Thursday on the $125 million funding proposition. Watch it live.