Shreveport campaigns should include sales, privatization
Whoever the next mayor of Shreveport will be, that person will have to face and will need to solve a capital projects crunch that shows no signs of abating, because of sins of the past.
This spring a report by the city pointed out the dire straits in which the city finds itself in this election year. It highlighted what it claimed were $1.5 billion in needed improvements, but naturally not all of these items are of genuine high priority and necessary. For example, an intelligent traffic system certainly would ease congestion, but it’s not a life or death matter, especially when it could cost as much as $60 million.
But clean water with a federal mandate is another matter. The most pressing concern on the list was the estimated $342 million needed to be spent over the next dozen years to rehabilitate a city water system that has been crumbling for years as it spent precious dollars on things like a convention center, hotel, and sludge pits, the effects of this disrepair drawing the ire of the Environmental Protection Agency. A consent decree between it and the city that was hammered out late last year means the city must start spending about $34 million a year on this beginning in 2015.
That’s especially bad news, for while about half of city capital expenses get funded through government grants, the remainder the city picks up and not all of that can be debt. Municipalities in Louisiana may issue debt to the maximum of 10 percent of the assessed valuation for any purpose. The maximum may be exceeded if the aggregate issued for all purposes does not exceed 35 percent of the total assessed valuation. At present, after teetering near the maximum capacity some years ago, as of 2012 the city was $347 million below in total, but only $146 million could be used to fund this project because of the 10 percent limitation.
Traditionally, the city has used revenue bonds to fund water and sewerage projects, but because of the vast size of this one, this could lead to catastrophic rate increases as these kinds of bonds are backed not by general funds tax revenues as general obligation bonds are, but by specific revenue streams tied to the funded project. A severe rate hike is hitting Shreveporters already in anticipation of the project, and any additional increase could make for some short political careers among currently-elected officeholders, even as it seems this present hike, putting Shreveport among the highest of Louisiana and other peer cities in rates, will not be enough to close the gap. And any use of general obligation bonds would disallow use of that capacity for other city projects.
One way to deal with this that any aspiring mayor should consider, as previously noted, is privatization of operations and perhaps assets. With so much work needed to be done on it buyers of the entire setup might be scarce, but at least its operation could be contracted out and the savings plowed back into infrastructure (currently the city finances about a tenth of its capital needs through cash, chiefly from its Riverfront Fund that collects largesse from gaming). The same could be done with the related area of waste disposal.
And if cash for capital needs is scarce, then extend this idea to underperforming assets that the city doesn’t need. Unneeded legacies of the former Mayor Keith Hightower years, the convention center lost roughly $4.5 million in 2012 and while its associated hotel made about $1.6 million then, that did not even cover its interest expenses of $1.8 million. It still had $38 million in debt attached to it, while the convention center was paid off. Even if the hotel was sold at less than its mortgage, sale of the convention center could make up that and then some.
These moves would roll tens of millions of dollars of debt off the books, provide some working cash, and allow shunting of additional tax revenues to handle these capital needs, in a funding environment dire enough that current Mayor Cedric Glover felt he had to play high stakes poker with the Red River Waterway Commission and dog park supporters in order to get capital projects of his choosing funded before he met with humiliating defeat in accepting a dog park on city land. Mayoral and City Council candidates alike would be wise to make these strategies a part of their campaigns.
Posted by Jeff Sadow at 11:15