The New Orleans Sewerage & Water Board recently approved a capital budget that will cover only a fraction of the construction projects it needs next year, underscoring yet again a dire financial picture for the city's main utility.
The agency has budgeted $167 million for infrastructure projects in 2019, but says it actually needs more than $500 million to fund necessary upgrades to the city's water, sewer and drainage systems. And even that amount depends on loans and other money the agency doesn't yet have.
Included in the capital budget is work on a second water tower to help the agency deal with sudden drops in water pressure without having to issue boil-water advisories, and at least $20 million in spending from a massive, $2 billion FEMA settlement for a joint program with the Department of Public Works to repair streets and underground pipes in New Orleans.
The capital improvement plan typically calls for hundreds of millions in spending each year, but for years it has fallen short of money needed to pay for those projects. This year, for example, officials outlined $370 million in needs but were able to budget only about $221.5 million in spending.
That's led to a backlog of deferred maintenance that officials have blamed for the poor state of the utility's infrastructure.
The New Orleans Sewerage & Water Board is tens of millions of dollars short of the funds it needs to complete the projects it has schedule…
Besides its capital budget, the S&WB expects to spend $296 million on operating and maintenance costs next year, or slightly more than it spent this year.
The budget is "tight" but sets "the tone to our community, the customers and to all of our employees that we will spend what we can afford," Executive Director Ghassan Korban said at a recent meeting of the board's Finance Committee.
The operating budget calls for the elimination of more than 130 positions, for a total of 1,581 positions, including 210 that are now vacant. But it includes 21 new jobs dealing with customer service issues.
Korban has said that the positions being cut are ones that were never filled or are not necessary and that the reductions will not impact the utility's frontline operations. The S&WB has consistently struggled to hire the workers it needs to fill all its vacant positions, and staffing shortages have contributed to the problems that led to widespread flooding in August 2017.
The S&WB has struggled to sort out its finances ever since a that flooding exposed weaknesses in its equipment and operations and led to the ouster of several top officials. Spending to resolve those issues soon began to outpace its revenue collections.
Following the flooding, the agency spent more than $80 million to repair pumps and turbines, purchase new generators and other equipment, and pay for temporary workers and managers.
Some of that money went to projects that would have had to be funded anyway, though perhaps not so soon, but a significant amount went to cover emergency costs or new purchases that were not included in the board's plans.
The flurry of work forced the utility to drain its reserves, causing a shortage of cash that has not had a direct effect on its operations but has put it in a vulnerable financial state.
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Agreements the S&WB signed when it issued bonds years ago for sewer and water work require those systems to keep 90 days of cash on hand, a threshold the sewer system first dipped below in June. Reserves for both systems were trending downward throughout the year, though they saw a slight uptick in October.
The drainage system ran through the last of its reserves in September and remains broke. However, because that system is funded through property taxes, not customers' payments, its coffers should be replenished starting early in 2019 as property owners pay their annual taxes.
Chief Financial Officer Yvette Downs has expressed confidence that year-end figures will show both the water and sewer systems are in compliance with the bond agreements. Next year's budget also will provide enough money to ensure they remain that way, she has said.
Local power brokers have sparred over the best long-term fix for the board's problems. Mayor LaToya Cantrell, the board's president, has said the city and S&WB combined need up to $100 million more a year to pay for street, pipe and equipment repairs and new construction projects to meet the city's needs.
She has looked to the tourism industry to help plug at least part of that gap, seeking to divert some of the millions of tax dollars that now go each year to the Ernest N. Morial Convention Center, Mercedes-Benz Superdome and local tourism groups.
But industry leaders and Gov. John Bel Edwards have shot down that plan. A counter-offer the tourism industry made earlier this month was scorned by Cantrell as inadequate, given the size of the problem. Tourism leaders said the hotel tax they suggested would bring in $6.7 million a year, enough to issue bonds for a one-time infusion of $81 million.
Meanwhile, the S&WB has estimated it will need about $3 billion over the next 10 years to meet imminent and future capital needs.
Of that amount, 185 projects totaling $582 million were recommended for 2019, significantly higher than the $384 million the agency budgeted in 2018 and far more than it was actually able to spend.
The board instead expects to fund 34 projects next year at a cost of $167 million, leaving dozens of projects labeled "critical," "urgent" and "necessary" on the table.
"Critical" projects are those the board needs to complete within the next year, while "urgent" projects must be funded within the next three years and "necessary" projects are needed but routine.
Korban said the agency is unable to pour all of the money it has or expects to have into the "critical" fund because of restrictions on the grants that pay for some projects.
Even the $167 million has not been completely secured, officials said. The agency has about $65 million in hand, a mix of funding from the Federal Emergency Management Agency, the U.S. Army Corps of Engineers and previous bonds issued by the utility. It hopes to make up some of the rest by issuing $40 million in new drainage bonds to fund projects over multiple years.
Up to $10 million of the $40 million could be used to reimburse the board for projects it has paid for already.
Another $51 million in water and sewer work would depend on the agency securing loans through a federal program.
The board voted last week to proceed with both issuing the drainage bonds and seeking the loans. But even if all those plans come together, the utility still would be $26.6 million short of what it needs for the 2019 capital program, Downs has said.