Louisiana's Lopsided Recovery
A year after Hurricane Katrina battered the U.S. Gulf Coast on Aug. 29, 2005, it has proven to be one of the costliest and deadliest storms in U.S. history. Katrina's wrath spread across 100 miles and caused more than $81 billion in damages.
After Katrina, many evacuees from Orleans, St. Bernard, and Plaquemines parishes fled to other areas across the southern U.S., and to neighboring cities and parishes in Louisiana, including Baton Rouge, East Baton Rouge Parish, St. Tammany Parish, St. John The Baptist Parish, and Lafayette. The region's woes were compounded by the arrival of another storm, Hurricane Rita, in September, 2005.
"The economic impact of the hurricanes on local governments has varied widely, with some parishes and cities experiencing strong population and tax growth, and others severe losses," says Standard & Poor's credit analyst Wendy Wipperman.
In the second part of a two-part report, Standard & Poor's (MHP) will examine the recovery of areas of the state outside of New Orleans (see BusinessWeek.com, 8/30/06, for Part One, "Can the Crescent City Come Back?", which examined New Orleans' efforts to rebuild its financial health).
St. Bernard Parish
St. Bernard Parish is immediately east of New Orleans, and several months after Katrina, much of the parish remained without essential services, including electricity, water, and sewage. While most of the population still hasn't returned, many businesses are up and running, most notably the ExxonMobil (XOM; S&P credit rating, AAA) plant in Chalmette, and the Domino Sugar plant in Arabi.
Standard & Poor's lowered its underlying rating on the parish's School District No. 1 general obligation debt to BB from BBB+ on Nov. 10, 2005, and removed it from CreditWatch with negative implications, based on the severe economic dislocation, and the uncertainty over the restoration of a viable, sustainable economic and revenue performance. The outlook is developing.
The BB rating also reflects the unlimited property-tax pledge that secures the bonds and the district's ability to collect taxes from the functioning refineries and industrial facilities.
On Nov. 10, 2005, Standard & Poor's lowered its standard long-term rating and underlying rating on the parish's sales-tax revenue bonds to B from A, and removed it from CreditWatch with negative implications, based on the severe economic dislocation and the uncertainty over restoration of a viable, sustainable economy and revenue performance. The developing outlook indicates the rating might be raised, lowered, or maintained within a 24-month time frame.
Port of New Orleans
The Port of New Orleans, located within Orleans, St. Bernard, and Jefferson parishes, has recovered from Katrina and is now operating at 90% of pre-Katrina levels. Standard & Poor's raised its underlying on the port's Board of Commissioners' $89.7 million revenue bonds to BBB+ from BBB on June 2, 2006, based on the port's solid recovery in operations following Katrina. The port returned to financial profitability on a cash-flow basis in December, 2005, and expects fiscal 2007 financial results to exceed fiscal 2005 figures.
Historically, the port has benefited as the largest break-bulk (steel, rubber, and plywood) port in the U.S., and third-largest in the world, with the flexibility to handle a wide variety of noncontainerized cargo. In addition, the port's location provides unique access to six class one railroads, giving it direct and economical access to a variety of markets beyond the New Orleans metropolitan area for different cargo types.
"The port's operations are back on track as a result of both growth in break-bulk and container cargo operations," says Alex Fraser, Standard & Poor's credit analyst. "Most of the port's major customers have remained, and are not relocating their operations due to the benefits of the port's geographic location and exceptional intermodal access. In fact, several new customers are looking to establish operations there," he adds.
The port's cruise operations will most likely take longer to recover than its other operations due to its reliance on New Orleans as a tourist destination. Most cruise lines serving the port prior to Katrina have indicated they will return by winter 2006.
After Katrina, many evacuees fled to Baton Rouge and East Baton Rouge Parish. The Baton Rouge MSA (metropolitan statistical area) is now Louisiana's largest population center and the state's economic hub.
The state's capital, Baton Rouge, is in the East Baton Rouge Parish and represents 55% of the parish population. Prior to Katrina, parish population was estimated at 396,735; it is now nearly 463,000 residents, almost entirely due to relocations from New Orleans and other Gulf Coast communities.
The long-term and permanent effect of Katrina on East Baton Rouge Parish's population and economic activity is uncertain. However, state officials project the Baton Rouge MSA population will permanently increase by 50,000 to 100,000, representing a 7% to 14% growth rate. The parish unemployment rate averaged 6.8% in 2005, below the state average but above that of the nation. Parish unemployment averaged 5.8% in August, 2005 prior to Katrina; subsequently unemployment doubled to 11.6% in September, 2005. The labor force grew by 11,600, or 5.4% in September, 2005 due to the influx of people displaced by the storm. Parish unemployment fell to 5.8% in December 2005.
The local economy, as with many southern Louisiana cities, is based on the petrochemical industry, with ExxonMobil being the largest property taxpayer and a leading parish employer. ExxonMobil represents about 7.1% of the parish's total assessed value (AV), and employs more than 1,000 workers. Other major employers include Louisiana State University, the Parish School Board, and several medical centers.
St. Tammany Parish
St. Tammany Parish is a suburban community located 25 miles north of New Orleans across Lake Pontchartrain. The parish's population experienced a significant increase, estimated at 65,000, because of the relocation of residents from St. Bernard, Orleans, Jefferson, and Plaquemines parishes following the hurricane.
Parish officials estimate the current population at 275,000 to 300,000 and are projecting the new permanent population base to be between 250,000 and 255,000. Parish sales-tax collections have increased dramatically—fiscal 2005 sales-tax revenues grew by 26.8% over fiscal 2004 collections. Fiscal 2005 sales-tax collections for the months of September through December were 62.4% above collections for the same period in 2004. State fiscal year 2006 sales tax collections through June are 10.5% above receipts for the same period in fiscal 2005.
Standard & Poor's assigned its AA- rating, and stable outlook, to St. Tammany Parish's, series 2006 limited-tax revenue bonds on May 22, 2006 based on the parish's property tax-base growth and economic diversification, above-average wealth and income levels, strong general fund performance and position, and low overall debt burden.
St. John the Baptist Parish
St. John the Baptist Parish, located 25 miles west of New Orleans, encompasses a total land area of 219 square miles in southeastern Louisiana, bordering both sides of the Mississippi River. Despite its proximity to New Orleans, there was little damage to the district's infrastructure after Katrina.
Hurricane-related expenditures in fiscal 2006 totaled $5 million and were funded through private insurance and state and federal aid.
Current population estimates total 50,000, or about 8% higher prior to Katrina. The movement of people, businesses, and retailers to the parish has resulted in strong housing demand and economic growth. Sales-tax revenues for fiscal year ending June 2006 were $5.46 million, or 33% above collections for fiscal year 2005. Projected development includes the construction of 3,000 new homes in the next four years, the expansion of a chemical plant and oil refinery, and the construction of a new sugar refinery.
The parish's economy is anchored by activities in manufacturing, retail trade, construction, and health care. Leading local employers include the school district, E.I. DuPont de Nemours & Co. (DD; A) and Marathon Oil (MRO; S&P credit rating, BBB+). Employment opportunities are abundant; the parish's unemployment rate in 2005 (6.2%), while higher than the national average (5.2%), was at its lowest level in more than two decades. Standard & Poor's rates the parish's general obligation debt A-, with a stable outlook.
Lafayette Parish was not in Katrina's direct path and did not sustain any infrastructure damage. The parish, however, served as a shelter for hurricane evacuees; parish officials estimated the population increased as much as 40,000 after hurricanes Katrina and Rita. Lafayette, with a population of 117,653, is in southern Louisiana between New Orleans and Houston, Tex.
Lafayette Parish's economic base anchors southern Louisiana's rural Acadiana region, where it serves as the area's retail, service, health care, and educational center. Lafayette continues to experience economic and population growth. The city's growing population, driven by increased employment opportunities and a low-cost business environment, is surpassing most of the state's other areas.
Historically, the economy has been heavily dependent on the oil and gas sector, but has diversified with the growth of the retail, service, and light manufacturing sectors. The increase in service-sector employment has held the city's unemployment rate consistently below the state's rate, and on par with the national average over the past five years, while improving per capita income levels. Standard & Poor's rates the parish's General Obligation bonds 'A+', with a stable outlook.
Undoubtedly, the far-reaching economic and fiscal effects of hurricanes Katrina and Rita will be felt throughout Louisiana for years to come. An estimated 1.3 million people were displaced by the hurricanes, 900,000 of whom remained dislocated in October, 2005. FEMA estimates there are currently 210,000 former Louisianians living outside the state. One year later, it's still difficult to determine how many former Louisiana Gulf Coast residents will return home.