All Georgia cities at credit risk from proposed City of Eagle’s Landing, Moody’s reports

By David Pendered

The credit quality of all cities in Georgia is threatened by the proposal to carve land out of Stockbridge to create a City of Eagle’s Landing, according to a new report by Moody’s Investor’s Service.

Moody’s analysts have determined that Stockbridge will have a lower tax base if Eagle’s Landing is created. The problem is that Stockbridge will remain obligated to pay its existing debt even though its tax base is substantially smaller than when the bonds were sold.

And because this situation was created for Eagle’s Landing, the precedence is set for other cities to lose portions of their tax base to create new cities, analysts observed.

Gov. Nathan Deal signed the two relevant bills into law on May 8. Senate Bill 262 provides for the revision of Stockbridge’s city boundaries. Senate Bill 263 provides for the incorporation, boundaries and powers of the proposed City of Eagle’s Landing. Both bills were sponsored by Sen. Rick Jeffares (R-McDonough).

Here’s what analysts wrote about two bills in the opening paragraph

• “The legislative package is credit negative for Stockbridge because de-annexation would reduce the city’s tax base and the bills include no provisions to reapportion outstanding debt.
• “The bills are also credit negative for local governments in Georgia generally because they establish a precedent that the state can act to divide local tax bases, potentially lowering the credit quality of one city for the benefit of another.

Further in the report, the analysts observed:

• “This legislation marks the first time that portions of a city are de-annexed in Georgia to create a new city. Stockbridge will likely file litigation challenging the de-annexation plan.”

Stockbridge would lose some of its wealthier neighborhoods if a City of Eagle’s Landing is created, according to the report. Eagle’s Landing would be comprised of 69 Census blocks with a median family income of $74,000 or more. Stockbridge would retain a high proportion of Census blocks with a median family income of below $56,000.

Moody’s analysts observed that Stockbridge has $14.5 million in debt. The sum includes $13 million in urban and redevelopment revenue bonds that are held via private loans by Capitol One. Stockbridge also owes $1.3 million in outstanding water and sewer revenue bonds issued through the Georgia Environmental Facilities Authority. All the debt is due to be retired by 2031.

The report notes: “Because the bills did not allocate a portion of the outstanding debt to the new city or to Henry County, Stockbridge would likely be liable for all outstanding debt service payments.”

Henry County also faces exposure in regards to a special purpose local option sales tax, according to the report.

The county issued bonds in 2015 to pay for capital projects across all cities and the county. The outstanding debt is $23.4 million, following voter approval of a special purpose local option sales tax. Stockbridge received the largest amount of all the cities, which was 10.7 percent of the total of 25 percent of sales tax revenues earmarked for the cities.

Moody’s analysts observed: “Although the $23.4 million in bonds were issued through Henry County and are not general or limited obligations of the cities, Stockbridge would be required to pay its share of debt service if SPLOST revenue is insufficient to pay annual debt service requirements.”

The report concludes:

• “It is not clear how Stockbridge and, in turn, Henry County, would be affected if de-annexation proceeds and there is a shortfall. De-annexation would leave Stockbridge with a smaller and less wealthy tax base and may force it to renegotiate its contractual obligations.”