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Aug 28, 2014 4:51 PM by The Associated Press

In small Miss. town, a costly Katrina legacy

BAY ST. LOUIS, Miss. (AP) - When Bay St. Louis Mayor Les Fillingame dedicated a $22 million small-craft harbor last month, he told residents their city had won every battle in its war to recover from Hurricane Katrina.

The harbor was the final major project on long list the Mississippi coast town about 45 minutes east of New Orleans undertook after the devastating storm.

Now, with the federal money that largely paid for those projects drying up, Bay St. Louis is running out of cash and faces a new challenge: Having won a war of recovery, how to survive a return to normal in its aftermath.

City government has consistently spent more cash than it's collected from local sources since the eye of Katrina came ashore just to the west on Aug 29, 2005, with powerful winds and a storm surge that topped 28 feet in places.

City leaders have proposed a 28 percent property tax increase after raising water bills 18 percent last year. But some residents want more spending cuts, such as neighboring Waveland made in 2011, instead of higher taxes.

Fillingame calls his city's financial troubles "greatly exaggerated" and claims his efforts have already balanced the budget. Others, though, have been highly critical of his management. And even Fillingame said the city is at a transition point.

"We're trying to get back to normal daily operation," he said.

Normal isn't what normal used to be.

Bay St. Louis' picturesque Old Town, which has long beckoned day-trippers from New Orleans, is still leafy and historic, overlooking the Bay of St. Louis from a 20-foot bluff - but some of the hundreds of buildings lost to Katrina are still being rebuilt.

Not far away, the Hollywood Casino remains a big part of the economy, but city tax collections there are down.

Population has rebounded rapidly in recent years as people return to rebuilt beachfront mansions, modest suburban ranchers and bayside homes on stilts. But including an area annexed after Katrina, the pre-storm city had 11,800 people. Now that same area has about a thousand less.

Many areas remain gap-toothed, with vacant lots where businesses or homes once stood.

Audits show Bay St. Louis spent $13.6 million more on operations than it took in through local revenue from 2007 through 2013. But the city received more than $130 million in state and federal relief money during that period, so it didn't matter much. The city had $13 million in the bank at the end of its 2009 budget year.

By 2013, though, it became clear the city was running out of cash. In November, officials borrowed $500,000, mostly to pay bills. This year, Bay St. Louis refinanced bonds because it didn't have $400,000 for a payment due July 1. Auditors also said the city was slow to pay vendors, who by law must be paid within 45 days.

The auditors even considered warning that Bay St. Louis wasn't a "going concern," suggesting the possibility of bankruptcy.

At the end of some months, Fillingame said, the city has less than $100,000 in the bank.

"We need to re-evaluate our tax structure and our utility rate structure and see if it's adequate to maintain the elevated level of service the city has come to expect," Fillingame said.

With many new and renovated government buildings, Bay St. Louis has higher expenses. It's paying more for electricity, employee pensions and insurance. Yet the city's current tax rate is among Mississippi's lowest. Fillingame said a property tax increase raising about $650,000 a year would generate money for future capital projects.

Douglas Niolet, owner of the 200 North Beach Restaurant, reluctantly supports raising taxes.

"Nobody wants to pay higher taxes, but I do believe in taxes because taxes are what a community does to take care of itself," Niolet said.

Others worry tax increases would arrive too late to prevent a fall cash crunch. Councilman Lonnie Falgout said the city must meet payroll, pay off the rest of the $500,000 loan and even make a $67,000 payment on a fire truck.

Falgout represents the part of the city annexed after the storm. Property values in the low-lying area are depressed because of pricey requirements to elevate homes to protect from future storm surges. Some lots that once held houses have been abandoned. Many streets remain unpaved, and residents rely on often-clogged ditches for drainage.

Many of Falgout's constituents want spending cuts, similar to what nearby Waveland Mayor David Garcia and aldermen imposed in 2011. Waveland raised taxes, but also slashed its workforce from 130 to 69.

"It's slowly coming back, but not as fast and quickly as we would like," said Garcia. Waveland's population and tax base remain more depressed than in Bay St. Louis.

Fillingame said Bay St. Louis has eliminated some employees and shifted others to part-time, but he rejects further austerity, saying it will hamper what he envisions as a full recovery.

"Building it all is one thing," he said. "Sustaining it all and making it a vibrant part of our economic comeback is another thing."

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