$27 million of the new money will be used to fix streets; the other $13 million will go to playgrounds, libraries and other public buildings
The board that oversees New Orleans' bonded indebtedness agreed Wednesday to let the city issue $40 million in bonds early in 2013, with most of the money to be used for street repairs. Despite the new issue, the Board of Liquidation, City Debt also voted to keep its 2013 millage rate at 25.5 mills, the same as this year.
The vote to approve the $40 million bond issue proposed by the Landrieu administration came after a lengthy discussion in which board member Alan Arnold questioned the plan to sell taxable rather than tax-exempt bonds, even though it means the city will have to pay a higher interest rate.
Although everyone agreed they would like to make the bonds tax-exempt, the board's legal adviser, Jason Akers of the firm Foley & Judell, said he was worried that the Internal Revenue Service might question the city's right to issue such bonds because of the large amount of money the city still has on hand from earlier bond issues.
The city has more than $60 million left from bond issues dating as far back as 1988, mostly from projects that ended up costing less than budgeted. Most of the sums are fairly small, but there is $24 million left from a $75 million issue sold in 2007. That was the first installment in $260 million in bonds authorized by voters in 2004.
Akers said that large unspent sum might appear to the IRS to violate rules against arbitrage involving tax-exempt bonds, and that the safest course was to make the new bonds taxable until the city can demonstrate that it is now capable of spending the proceeds from bond sales more rapidly than in the past. The IRS generally wants the proceeds from tax-exempt bonds to be used in three years.
"What's the urgency?" Arnold asked, suggesting the city should postpone the sale a few months while it uses up the millions in unspent funds and shows it is prepared to spend the additional $40 million as quickly as the IRS wants.
But Akers said his firm would still not be prepared to recommend selling the bonds as tax-exempt, and that it might take the evidence of rapid spending of the money from one or two new bond sales to prove that the city has reformed its fiscal practices.
The board's financial adviser, Lisa Daniel of the firm Public Financial Management, said the difference between taxable and tax-exempt interest rates now is relatively small, about 50 basis points, or half of a percentage point, meaning the city probably would have to pay about $100,000 more a year for 30 years if it makes the bonds taxable.
Chief Administrative Officer Andy Kopplin said it would do no good to wait a few months for a "clean opinion" from Foley & Judell that would allow the sale of tax-exempt bonds, and that interest rates are liable to rise in the meantime, meaning the city would end up having to pay more than if it issues taxable bonds in January, as planned. If the city cannot get a good interest rate for the taxable bonds at that time, he said, it can decide not to sell them.
Despite Arnold's misgivings, he agreed to vote in favor of issuing the taxable bonds, and the measure passed 5-0, with four members absent.
Deputy Mayor Cedric Grant said $27 million of the new money will be used for street repairs, with the other $13 million going to upgrade playgrounds, libraries and other public buildings.
Under the City Charter, the Board of Liquidation can levy whatever property tax millage it needs each year to pay the principal and interest on outstanding bonds and to cover its own administrative expenses. Secretary David Gernhauser said 25.5 mills should produce the $70.5 million needed in 2013, and the board approved that rate.