Credit crunch could slow down New Orleans recovery

NEW ORLEANS —A pro-longed recession and a tight credit market would cripple New Orleans’ still-fragile recovery from Hurricane Katrina, delaying or eliminating road work, new construction and repairs to homes and businesses that have stood empty since 2005.
The city’s infrastructure plans should stay on track, but a real estate expert calls it a “terrifying” scenario: A lack of sufficient credit would smother companies trying to start up or expand, and with them the new jobs needed to grow the area’s economy. It would choke the flow of cash that developers need to build new homes and first-time homeowners need to buy them. And it would make it tough for the city to sell bonds to finance rebuilding projects on its appointed timeline.
Parking lots and buildings slated for reincarnation as gleaming high-rises might never move beyond blueprints. Small businesses, a lifeblood to the economy and neighborhood anchors, may never reopen or expand.
The road to recovery from Katrina would get even longer.
The financial meltdown “comes at a difficult time” for the city, said Janet Speyrer, an economist at the University of New Orleans.
The city’s population, about 454,000 when Katrina struck in August 2005, has rebounded but seems to have leveled off around 325,000. Job growth hasn’t lived up to forecasts, with major corporate investment largely staying on the sidelines and the cost of living — driven in part by skyrocketing insurance costs — remaining high.
“Even before the credit crunch, there were questions about whether we were going to get back to where we were even before Katrina,” Speyrer said.
It isn’t the flow of federal aid that most concerns economists. The Federal Emergency Management Agency so far has set aside $2.3 billion for rebuilding infrastructure; of that, $894 million has filtered down to the local level through state administrators, and economists believe projects with dedicated funds should be OK.
It’s the commercial sector — privately funded hotels, condos and new-business development — that would be waylaid by a contraction of credit.
Compounding the quandary: No one knows how badly the $5 billion-a-year, bread-and-butter tourism industry — the metro area’s largest employer and generator of an average of more than $250 million a year in tax revenue — will be hit by belt-tightening consumers. Nor can anyone tell whether Congress will take kindly to pleas for more recovery aid that state and local officials believe they’ll have to make.
“I think it’s terrifying, I really do,” said Ivan Miestchovich, director of the University of New Orleans’ Center for Economic and Real Estate Development. “If we slip into recession, it could be long and steep, and for New Orleans, that’s not going to be good.”
Already some showpieces of the city’s recovery are in question. Mayor Ray Nagin expressed uncertainty about the redevelopment of the World Trade Center high-rise on the Mississippi River, where the developer recently pulled out.
Also, it could be December, at least two months behind schedule, before the city can sell a full $80 million in bonds for some rebuilding projects. Even that timetable is optimistic given the state of credit markets, said David Gernhauser, secretary of the city’s Board of Liquidation, City Debt.
“It’s not like we’re dead in the water,” he said. There are still projects moving forward, financed by other means.
It’s just that “the municipal credit market, it really doesn’t exist right now,” Gernhauser said.
In the housing sector, there’s no shortage of homes, and thousands more bought by the state after Katrina are expected to start coming onto the market in the coming months with price points in the $150,000 to $200,000 range. The region did not see nearly the number of foreclosures as other parts of the country, and economists believe the trickle of new building nationally could draw contractors to the city.