By David Pendered
Atlanta’s largest urban renewal program has received a notation in the city’s most recent fiscal evaluation by a New York bond rating house.
Moody’s Investors Service cited the city’s tax allocation districts as one of four potential causes for the city’s credit rating to be downgraded in the future. The report did not cite an immediate concern in any of the four areas.
The Atlanta City Council is launching its own evaluation of the tax allocation district program, based on a report from the city’s auditor. On July 9, the council’s Finance and Community Development committees are slated to convene a work session for the entire city council, Atlanta Board of Education and Fulton County Board of Commissioners.
All three governments have voted over the years to redirect taxes collected on their behalf to support some or all of the city’s 10 tax allocation districts, or TADs.
TADs are designed to spur urban renewal by using property taxes collected on new developments, which are located within specific geographic boundaries, to pay for new roads, sewers and parks within the district that are to entice additional development.
Moody’s report didn’t make a big deal out of Atlanta’s TAD program.
The report did note that the TADs account for half of the city’s overall debt burden. Evidently, that proportion of debt makes TADs worth noting as an area that could affect the city’s ability to repay its debts if the new developments are unable to pay their taxes.
Atlanta is not legally required to repay money lent through TAD-backed bonds if the properties go into default. However, the city audit noted that the investors, in practice, expect governments that issues TAD-backed bonds to repay them.
Here’s the statement from the Moody’s report issued June 29:
- “The city’s direct debt burden is equal to 1.8 percent of full valuation, including debt issued through various authorities, certificates of participation, and debt secured by the city’s tax allocations districts (TADs).
- “Excluding the TAD debt, and the related incremental full value, the city’s direct debt burden decreases to 0.9 percent of full valuation.”
Moody’s concluded its report with a forecast titled, “What could make the rating go down.” Here’s the statement:
- “Decline in reserves due to structurally imbalanced operations or inter-fund receivables that prove to be illiquid;
- “Increased debt burden due to failure of TADs to be self-supporting or increased capital needs.”
The city audit also raised the issue of the size of the city’s TADs in relation to Atlanta’s tax base.
TADs now represent 15 percent of Atlanta’s property tax base, according to the audit. The districts, when they were created, accounted for just under 10 percent of the tax base, but have experienced significant development because of the program’s success. State law now caps TADs at 10 percent of a government’s property tax base.
The city audit raised questions about the TAD program’s management by the city’s development arm, Invest Atlanta. Invest Atlanta agreed with some observations and disagreed with others.
The audit identified $226 million sitting in city coffers for which it could find no specific allocation – whether the money is available to be spent, is earmarked for some use, or should be returned to governments.
The audit was conducted by city Auditor Leslie Ward and approved by the city’s Audit Committee. The council officially received the audit June 4.