By David Pendered
Following voter approval of Tuesday’s $250 million bond referendum, Atlanta Mayor Kasim Reed can add the improvement of Atlanta’s roads, bridges, sidewalks, and public facilities to his lengthening legacy list.
As Reed begins his sixth year as mayor, legacies of his tenure include:
- Reform of the city’s pension system;
- Extension of a 1 percent sales tax to continue repairs of the city’s water and sewer system;
- Economic expansion fueled by Invest Atlanta, the city’s development arm, which he chairs;
- Filmmaker Tyler Perry’s planned redevelopment of Fort McPherson into a film studio;
- The city’s financial support of the new Falcons stadium – a $200 million bond package backed by a funding source approved by a ruling issued Monday by the Georgia Supreme Court.
Reed’s administration has won support from another important partner – Wall Street investors, and the rating agencies that influence their investment decisions.
The investment community’s positive outlook on Atlanta’s fiscal and financial future enables Atlanta to borrow, at favorable rates, the money that’s paying for public projects.
Atlanta CFO Anthony “Jim” Beard expects the interest rate on the bonds to be in the range of a favorable 5.4 percent. Annual debt payments are forecast at about $16.5 million a year and are to begin Jan. 1, 2016. The bonds are to be retired in 30 years.
The cost of issuance is forecast at $3 million to $5 million. Atlanta has not selected the team of underwriters and attorneys to handle the bond transactions, according to a city statement.
Reed’s administration has been working more than a year to position the city to make debt payments on the infrastructure bond without raising property taxes. Central to this plan are the recommendations of the mayor’s Blue Ribbon Committee on Waste and Efficiency in Government. The committee was co-chaired by Atlanta Councilmember Howard Shook and Delta CEO Richard Anderson.
Reed has enacted a number of the committee’s recommendations. For example, Reed’s administration found a buyer for Underground Atlanta. By selling the attraction, Atlanta will cut about $3 million in Atlanta annual expenses to maintain the facility. This sum is in addition to the elimination of about $15.5 million in outstanding debt the city still owes on Underground.
Underground is just one of properties the committee recommended Atlanta dispose of as surplus property. The sale of all such surplus property was expected to reap from $25 million to $60 million in one-time revenues. In addition, the sale of surplus property was projected to trim from $1 million to $8 million in recurring expenses, according to the committee’s report.
Reed has maintained that these savings, combined with other measures, will enable Atlanta to pay off the $250 million infrastructure bond without a property tax hike.
Moody’s Investors Service issued a rating action Oct. 10 in which it revised upward Atlanta’s credit rating for general obligation bonds.
GO bonds are backed by property taxes and are the financing instrument voters approved Tuesday.
Moody’s raised its outlook on Atlanta to positive from stable for a $60 million package. Atlanta sold bonds to refinance existing debt at a lower cost.
Moody’s report recognized the city’s challenges related to the loss of property taxes during the great recession. Those challenges were not enough to dampen Moody’s overall outlook of Atlanta.
Moody’s explained its rationale in awarding a rating of Aa2, which is the third-highest ranking by the credit-rating agency:
- “The Aa2 general obligation rating reflects the city’s improved reserve and cash position, the diversity and scope of the city’s mature economic base that remains at the center of a nationally-important trade and transportation hub, and further incorporates the city’s manageable debt and pension burdens.
- “The positive outlook reflects our expectation that the city’s reserves will stabilize at currently sound levels following a period of tax base declines and rapid financial improvement. The outlook also incorporates our expectation of healthy levels of future growth in the city’s tax base, which saw significant declines and high foreclosure rates throughout the recession, but is showing signs of rebounding.”