Though they are at odds over how to do it, DeKalb administrators do not have much time to improve the county’s damaged credit rating before initiating a water and sewer project that could cost taxpayers millions in additional interest over the next 30 years.
Around the Atlanta metro area, DeKalb’s conundrum is being watched closely by other counties, which could find themselves facing similar problems in these times of deflated property values and diminished tax revenues.
Since January, Standard & Poor’s has downgraded DeKalb’s general obligation bond rating from a AAA to a BBB rating, which has drawn the attention of many national municipal bonds analysts. Last month the county’s appropriation-backed debt was dropped from A+ to BBB-, while the county’s outstanding water and sewer debt went from AA+ to AA-. These ratings, the equivalent of a personal credit score, affect the county’s ability to borrow money.
New water and sewer debt, which is planned, will cost the county considerably more than before, said Richard Stogner, DeKalb’s chief operating officer. The downgrade could cost the county between $500,000 and $1 million more a year, over 30 years, if the county’s ratings do not improve quickly, Stogner estimated.
DeKalb’s struggle may be compounded by the appearance of ineffective county management, though some county officials dispute those assertions.
“I think they have concerns about liquidity and uncertainty,” DeKalb CEO Burrell Ellis said. He added he did not think the relationship between the board of commissioners and his office was at cause in either agency’s decision to downgrade the county’s ratings.
But County Commissioner Lee May, chairman of the budget committee, said management issues were revealed in the downgrade notifications letter and those problems must be addressed before the county’s rating can improve.
“We have to provide consistent and sufficient information to the rating agencies,” he said. “Also, we need to show them we have a sound financial plan to move this county forward.”
Nationally S&P issued 451 downgrades during 2010 in the public finance sector among the 17,000 ratings it monitors, said Robin Prunty, a managing director in Standard & Poor’s Ratings Services business.
Across metro Atlanta, counties are monitoring their ratings and bottom lines carefully. Cobb County currently has an AAA general obligation bond rating, but is also facing a $31 million mid-year deficit, according to county officials. One of their options is to use reserve funds to close part of the gap, but commissioners are leery about a potential negative impact on the county’s bond rating.
In Gwinnett, S&P affirmed the county’s AAA general obligations rating late last year, thanks to “good financial management policies and practices, and moderate overall debt levels, with no plans for additional new debt,” according to the credit report summary.
Fulton boasts a AA rating from S&P and an Aa2 from Moody’s, which puts the county in good standing with both agencies. When asked about trying to boost the ratings, county officials said it’s not an easy proposition. Fulton assistant finance director Sharon Whitmore said the county’s built-in spending obligations, including MARTA and Grady Memorial Hospital, complicate the adjustments it would require to improve the bond rating.
But in DeKalb, S&P and Moody’s downgrades were prompted by deteriorating finances and a lack of faith that the county could correct its position in a timely manner.
S&P specifically cited “the absence of structural solutions and timely budget adjustments to fully offset the structural budget imbalance” for the downgrade.
Earlier this year, the County Commission voted to cut an additional $33.6 million from the 2011 budget, on top of $113 million recommended by Ellis. The additional cuts were made in lieu of raising property taxes.
Ellis disagreed with that move, saying the solution to the county’s fiscal problems is multifaceted.
“They’re looking for liquidity and for a government that is more than just cutting expenses,” he said. “Just like for you at home, it is a combination of cutting expenses and sometimes somebody has to get a second job to bring more money in.”
May, however, isn’t convinced raising taxes is part of the solution.
“This has nothing to do with the county’s ability to make money,” May said. “That’s like telling Equifax, ‘If my employer paid me more, I could pay my bills.’ Equifax is concerned about how you manage the money you have, not the money you don’t have.”
Ellis said S&P has agreed to reconsider its rating, but the county first has to come up with a plan that addresses the agency’s concerns.
“We have to be able to give them some level of assurance that we can operate with the plan that we put together, that the plan is sustainable,” he said.
Staff writers Joel Anderson, Janel Davis and Johnny Edwards contributed to this article.
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