City officials plan to hold high-stakes talks with three rating agencies that could determine whether New Orleans can sell up to $40 million in bonds for street work.
The plans come as the City Council grapples with how to fill a projected $68 million budget deficit next year, and less than a year after the agencies gave the city investment-grade ratings that indicated they had faith in New Orleans' efforts to get back on track after Hurricane Katrina.
The funds are seen as important to helping keep on track some rebuilding projects, and the city has to convince the agencies of its financial footing. Since the 2005 storm, the city has relied on federal loans to help balance its budget, but Mayor Ray Nagin said last month he expected the last of that $240 million to be gone this year, leaving New Orleans with self-generating revenues _ taxes and fees _ to keep government operating. The city also expects to fall well short of its goal of having about 8 percent of general fund expenditures set aside in an emergency fund next year.
Officials have blamed the projected deficit in part on lower-than-expected sales taxes pegged to the national recession and the city facing higher-than-expected payments on a pension fund deal.
David Gernhauser, secretary of the Board of Liquidation, City Debt, called the talks a "huge risk" the city must take to get funds for some infrastructure work. He said officials hope Moody's Investors Service, Fitch Ratings and Standard & Poor's will at least maintain their ratings after talks, expected this month.
"If they do downgrade us," he said, "there probably won't be a bond sale. It's a black eye."
But Peter Kessenich, a financial adviser to the board, said he'd be "terribly surprised" if the ratings weren't maintained. New Orleans' revenue challenges aren't unlike others being faced by cities around the country, he said.
The city also has an advantage, he said, in that these kinds of bonds are essentially backed by taxable properties within the city. The board is scheduled to consider next week a millage increase for expected bond sales.
The city sold the first $75 million of a $260 million bond issue for roads, public infrastructure and other work in late 2007. Plans for an $80 million sale last year were delayed due to the market meltdown and below-investment grade rating the city still held from Standard & Poor's.
Even with the ratings boost earlier this year, it remains at what Gernhauser has called the "bottom tier" of the investment-grade scale. Lingering market concerns and New Orleans' murky financial picture prompted the board in September to push for two, $40 million sales, hoping these would be more palatable to the market. The Nagin administration has pushed to have the proceeds from the first of the sales to go toward the city's streets program.
If the ratings are favorable, Gernhauser expects the first sale would be held next month. Kessenich said officials would have to meet with rating agencies again before a second, $40 million sale. Officials are hoping that can occur in early 2010.