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Published in Print: November 16, 2005, as Hurricanes Blow Holes in School Revenues

Hurricanes Blow Holes in School Revenues

Local tax projections are still hard to figure as La., Miss. recover.

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Now that almost all of the school districts that suffered damage from Hurricanes Katrina and Rita have reopened, their leaders are scrambling to find the money to keep the districts solvent.

Districts along the coastline of Mississippi and Louisiana have used up most of the local revenue they had collected before those disastrous storms hit the Gulf Coast, and they don’t know how much they’ll collect in local taxes early next year. And state officials are telling them that their states won’t have enough money to come to the rescue.

The storms are expected to gouge a hole of at least $1 billion in Louisiana’s state revenue, but Mississippi economists are now estimating their state will recover quickly enough to meet its fiscal 2006 revenue goals. In any case, the hurricanes caused billions of dollars in damage to taxable real estate, in turn crippling local government revenue, at least temporarily, in both states.

“A lot of questions are in the unknown category for us,” Wayne V. Rodolfich, the superintendent of the Pascagoula, Miss., schools, which Hurricane Katrina struck on Aug. 29, said this month. “We’re awaiting answers now.”

The story is much the same in Louisiana.

“There is the sense that we are going to have a cash-flow problem very shortly,” said Linda E. Roan, the spokeswoman for the St. Tammany Parish school district, which suffered Katrina-related wind damage and flooding from Lake Pontchartrain. “We’re making as many proactive arrangements as we can to stave off cash-flow problems.”

Those most immediate fiscal-recovery strategies in the district on the other side of Lake Pontchartrain from New Orleans include short-term borrowing to cover lost revenue and expediting insurance claims, Ms. Roan said.

Wait and See

When thinking about the long term, school districts still haven’t estimated the full impact of the storms’ damage to their budgets.

Real estate assessors are just now evaluating the property damage caused by both Katrina and Rita. The latter storm hit western Louisiana and the Texas Panhandle on Sept. 22.

Yet many residents who were forced to evacuate are still returning to their communities and spending money, generating sales taxes for the states. In Louisiana, districts collect local sales taxes to supplement property taxes and state funding. Because an expected building boom is just starting, officials are getting only a hint of how much revenue that construction will generate in sales tax money on materials and income taxes on workers moving to the Gulf Coast.

While the reconstruction may produce a boom in sales-tax collections, school officials are waiting to see how much and whether those revenues might offset lost property-tax proceeds. Right now, though, they’re preparing for the worst.

“We’ll have to tighten our belts significantly for 2006-07,” the next school year, said Douglas Chance, the chief of the Cameron Parish, La., district, which lost three schools to Hurricane Rita. The district now enrolls 1,850 students, which is about 75 percent of its prestorm enrollment.

In facing the financial impact on their schools, officials in the storm-ravaged districts are performing triage while they await word on the ultimate depth of their money problems.

In New Orleans, the private consulting firm managing the district has secured a $100 million loan from the Federal Emergency Management Agency, or FEMA, to provide enough revenue to cover the district’s costs through the end of the school year. Even though the district will open only on a limited basis during the 2005-06 school year, it will need financing to cover bond debt, pay the relatively few employees still on its rolls, and begin rebuilding.

But the district doesn’t know how much of the $200 million in annual property and sales taxes it collected before Katrina will return to its balance sheet in this school year or even next, said Sajan P. George, the district’s interim chief operating officer and a managing director of Alvarez & Marsal, the New York City firm that has been responsible for the district’s management since June.

Mississippi’s Pascagoula school district, Mr. Rodolfich said, is able to operate because the Chevron Corp. made an advance payment of $6 million on its property taxes for its oil refinery in the city.

“Without that, we’d have to be very careful,” said Mr. Rodolfich, whose district currently enrolls 6,700 students, down by about 900 from before Katrina.

But Mr. Rodolfich still doesn’t know how much the district will collect from property-tax payments, which are scheduled to arrive in January.

Fluid Numbers

Throughout the Gulf Coast of Mississippi, districts could lose more than $100 million in property taxes and other revenue because of Hurricane Katrina, according to estimates by the Mississippi Department of Education. The typical school district in the state relies on local taxes for 40 percent of its budget, said Hank M. Bounds, the state superintendent of schools.

While economists in Mississippi are starting to see state revenues rebound after Katrina, they don’t expect the state to have the money to replace lost property taxes, which account for 40 percent of most district’s budgets, Mr. Bounds said.

For St. Tammany and other Louisiana districts, state funding is complicated by their state’s financing system. Louisiana makes monthly payments to districts based on enrollment. In normal years, the grants are based on the previous year’s enrollment.

This year, the state board of education is recommending that the grants be based on the previous month’s enrollment. The Louisiana legislature, which is meeting in a special session scheduled to last until Nov. 23, will address the proposal.

If the proposal is adopted, districts will have trouble planning for the rest of 2005-06 school year because enrollments continue to fluctuate, Ms. Roan of the St. Tammany district said.

At the beginning of November, St. Tammany enrolled 32,100 students, about 3,400 fewer than before Hurricane Katrina. Every week since the district reopened Oct. 3, though, 130 to 800 students have been added to its rolls. Meanwhile, more than 3,000 students currently enrolled in the district are displaced from other districts or private schools, and St. Tammany officials don’t know how long they will stay.

“Because the numbers are very fluid, it’s very hard to get a handle on what the state funding is going to be,” Ms. Roan said.

The other complicating factor: Louisiana expects its revenue to fall at least $1 billion shy of what’s needed for its $18.7 billion fiscal 2006 budget. School funding is almost certain to be cut to balance the state budget.

With state and local funds sure to fall short of fiscal 2006 projections, school leaders in Louisiana and Mississippi are awaiting federal help. But since FEMA’s authority is limited to rebuilding schools, installing temporary buildings, and cleaning up from the storms, the agency doesn’t make grants for operating costs.

Federal Priorities

FEMA began making loans, however, to cover local governments’ operating needs, but so far the New Orleans and St. Bernard Parish districts are the only ones to receive help under the program. They are the only two districts still closed in the wake of Rita and Katrina.

To qualify for the FEMA loans, government agencies—including school districts—must demonstrate they’ve lost at least 5 percent of their tax revenues because of the storm. The loans may not exceed 25 percent of an agency’s total annual operating budget.

The loans are to be repaid over five years, with the option of a five-year extension.

The loans could help more districts survive in the short term, but they’d need more federal support in the months to come, education leaders say. So far, Congress has focused mostly on how to reimburse districts for enrolling displaced students. ("Hurricane-Aid Bill Backed by Boehner Dies in House," this issue.)

“If school districts are to be operational, we’re going to have to have federal assistance,” said Mr. Bounds, the Mississippi state superintendent. “The debate in Congress has been about displaced students. If we can’t operate schools on the coast, we’re going to have thousands and thousands of kids on the coast out of school.”

PHOTO: Workers in New Orleans remove Hurricane Katrina's debris from the median of a street on Nov. 6. Rebuilding work is expected to generate revenue along the Gulf Coast.
PHOTO: Mena's Place in New Orleans' French Quarter advertises for help more than two months after Hurricane Katrina ravaged the city.
—James A. Finley/AP

Vol. 25, Issue 10, Pages 3,17

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