At one of Mayor Mitch Landrieu’s first community budget meetings in 2010, residents showed up with a complaint that was a bit more personal than the typical haggling over departmental budgets: They couldn’t buy underwear or shoes in Orleans Parish.
While the complaint was perhaps slightly exaggerated, the lack of retail in New Orleans was a concern the new administration shared and sought to address with an aggressive recruitment campaign.
The results have been impressive, with the city and its economic development arms bringing in high-profile stores including Costco and a new outlet mall in the old tourist-oriented Riverwalk mall.
And that bloom of retail development didn’t just allow more residents to buy shoes, underwear and other items within the city. Those purchases became a driving force in a surge of revenue for the city through higher sales taxes that have put the city on sounder financial footing than it has been in recent memory.
So good, in fact, that the city announced this month that total revenue last year overshot projections by $14.6 million and gave officials confidence to propose a 10 percent pay boost for police.
Suggest the city is flush, however, and officials will quickly point out the list of expensive items that still need funding, including court judgments owed to city firefighters, the costs of implementing consent decrees for the Police Department and Orleans Parish Prison, and the need to build up a reserve fund.
But it’s a marked change from where the city was when Landrieu took office in May 2010: overspending its revenue and with depleted reserves that led to cuts in almost all departments’ budgets and citywide furloughs.
“If it wasn’t bleeding or on fire, we couldn’t fund it,” Chief Administrative Officer Andy Kopplin said.
But, generally speaking, the outlook for the city’s $536.8 million adopted budget for 2015 is positive.
Kopplin credits retail growth as a major driver of that change over the past five years.
Sales tax revenue rose by almost 30 percent between 2010 and 2014. Last year’s total was $165 million, roughly $38 million more than in 2010.
That growth has been particularly strong over the past two years, jumping by 9.5 percent in 2013 and another 9 percent last year.
The growth of retail in the city has been a deliberate campaign by the Landrieu administration, which set up the New Orleans Business Alliance — a public-private economic development partnership — and charged it with going after more retailers in addition to corporate headquarters and other traditional economic development targets.
State law prevents the release of detailed information on where the sales tax revenue is coming from; even top officials can’t see how much specific retailers are paying. But comparing performance year to year gives a glimpse of where that money is coming from.
In the last quarter of 2013 — which saw the opening of Costco on Carrollton Avenue, H&M in the French Quarter and Tiffany and Co. in Canal Place — sales tax revenue spiked 11 percent compared to the year before. The city continued to see high year-over-year growth of 7 percent early in 2014 before seeing another spike with the opening of the Riverwalk Outlet Collection and Wal-Mart stores in Gentilly and New Orleans East.
Those openings appear to have been major contributors to a 10 percent year-over-year jump in sales tax revenue in spring 2014, followed by a 14 percent jump last summer.
The opening of several stores in the Magnolia Marketplace on South Claiborne Avenue earlier this year could provide another bump, though its effects remain to be seen.
Among taxes, retail sales tax collections exceeded expectations by the largest margin last year, about $3.4 million more than the city had projected. Hotel and motel taxes outperformed estimates by $1.2 million. Property taxes brought in about $2.7 million more than expected, though — despite climbing real estate prices — most of that increase came from moving a tax sale earlier in the year so that $2 million that would have been collected anyway could be counted in last year’s budget.
Another significant growth in revenue came from the collection of money owed to the city’s EMS system. That followed a change in the contractor who oversaw the billing of Medicaid, Medicare and private insurance companies for transporting patients; officials said the move to a more aggressive firm nearly doubled the amount the city was collecting, to $14.2 million last year.
The city also has raised its projection for the total revenue it will bring in this year by $12.1 million, a revision that projects sales taxes to come in $3.6 million higher than previously expected, along with continued growth in hotel and motel taxes and building permits, plus another $1 million from more EMS collections.
In part, the growth in sales tax in recent years is a reflection of how far the city had fallen behind. One study, produced by a market research firm and released in 2011, estimated the city was 30 percent below its retail potential, said Brenda Canada, director of retail attraction for the New Orleans Business Alliance. Another study the following year pegged the amount spent elsewhere because of the lack of retail development in Orleans Parish at $2 billion, she said.
Much of that had to do with broad national trends that saw residents and businesses move to the suburbs in the 1970s through the 1990s. And some of the recent growth can be explained by the reversal of that trend, as city centers become more desirable.
“Our goal is to turn that (movement to the suburbs) on its head,” Kopplin said.
New Orleans’ new prominence since Hurricane Katrina and the relatively small effect of the 2008 recession on the city also helped, Canada said.
“We started coming back strong, one of the cities that suffered less from the recession,” she said. “And people who wanted to be part of the rebirth of New Orleans all just came together at the right time.”
While some of the retail projects, including Costco, have been given city incentives to get started, the city has sought to negotiate deals that limit the tax and other breaks and ensure revenue isn’t tied up for the long term.
The incentives are “very small compared to the net gain,” Kopplin said.
While Canada and the business alliance are still pursuing major retailers — electronics and sporting goods are two major targets — there aren’t many major stores expected to open in the near term.
That means that while sales tax revenue is still expected to grow by 5 percent a year, officials are not planning for dramatic increases like those of the past few years.
“That growth is going to moderate naturally,” Finance Director Norman Foster told the city’s Revenue Estimating Conference this month as he discussed the opening of several of the larger stores. Now that “we see all those facilities open,” he said, “we probably aren’t going to see quite the (same) growth rates.”