DeKalb County had its bond rating drop for the third time in as many months, leading one of its commissioners to suggest the county's financial position was so bad it was "near junk bond status."
On Tuesday, Standard & Poor’s announced it had downgraded DeKalb’s long-term general obligation debt from AA- to BBB. Appropriation-backed debt was dropped from A+ to BBB, while the county’s water and sewer debt went to a AA- rating. BBB is considered the lowest investment grade, said Robin Prunty, managing director of Standard &Poor’s public finance department. D is considered default.
“Once again the taxpayers will suffer because of poor and ineffective management of DeKalb County,” Commissioner Elaine Boyer said. “Having our bonds downgraded to near junk bond status is embarrassing and unnecessary. We are in a fiscal crisis in this county, and the CEO must embrace some fiscal discipline.”
While Boyer called the downgrading a wake-up call for better management, CEO Burrell Ellis said it was reason to raise property taxes.
“The county is not in junk bond status. Elaine is using inflammatory language to alarm people unnecessarily, but we do have some level of financial instability, which needs to be rectified with a millage increase,” Ellis said Tuesday from his home, where he is recovering from surgery.
DeKalb ended 2010 with no money in its reserves and decreased revenue. In response, Ellis proposed raising taxes by 2.32 mills. Last month, the county commission rejected the tax hike and voted to cut $33.6 million from the 2011 budget.
Standard & Poor’s questioned that decision and cited concerns about “county officials' inability to provide sufficient and consistent information regarding the county's current liquidity position.”
The credit agency also was concerned there were multiple years of deficit operations, a lack of policies on cash management and no structural solutions.
“The county’s reserves have been depleted; they are concerned that we’re not building back,” said Joel Gottlieb, DeKalb's chief financial officer.
Standard & Poor’s issued a warning to DeKalb in January, and then lowered DeKalb’s general obligation debt and placed the county on a credit watch, threatening to make further declines if improvements weren’t made in 30-90 days, Prunty said.
Moody’s Investor Services also dropped DeKalb’s rating for the second consecutive year in December.
Gottlieb said he could not put a dollar figure on the impact, but the downgrade could substantially raise interest rates on DeKalb’s upcoming water and sewer projects. In response to a federal consent decree, the county recently approved rate increases to cover $1.35 billion in water and sewer upgrades. The county planned to sell about $500 million of that debt in June or July, Gottlieb said.
“We feel the water and sewer rating is incorrect,” Gottlieb said. “Our coverage in water and sewer are strong because of the rate increase. This is surprising and we’re working to see if that could be reversed.”
The other downgrades will have no immediate impact because DeKalb does not plan to borrow any other funding in the next few months and existing debt is on a fixed rate. However, it could affect borrowing in the future, officials said.
In addition to a property tax decline, DeKalb has struggled with a loss last year from a police ticket strike, fewer sales tax dollars and pending property value appeals, Gottlieb said.
Despite cutting the budget, commissioners have said they may consider raising taxes in June.
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