Earlier this week, two government watchdog groups suggested that New Orleans and the Orleans Parish School Board should consider bankruptcy in their recovery from the economic impact of Hurricane Katrina.

In a joint report, the Public Affairs Research Council of Louisiana and the Bureau of Governmental Research say that the city is a month away from running out of funds and has no plan in place to deal with cash flow problem. Further, they suggest that the School Board would be running a deficit if not for federal grants and loans.

The report says that continuing to bear the pre-Katrina debt loads and obligations may hinder recovery and therefore bankruptcy should be considered.

The groups say they are not taking a position for or against bankruptcy but note that the option has been removed from the table for local governments by state officials concerned with the stigma of bankruptcy and its possible effects on other state government agencies.

In the Hurricane Katrina aftermath, New Orleans has fired 3000 city workers and faces debt levels approaching $1 billion. In addition, the greatly reduced population and decreased tax revenue may not be able to support that debt.

A copy of the report can be viewed here: http://www.la-par.org/Publications/PDF/Municipal%20Bankruptcy.pdf

Ray