By David Pendered
Fulton County and the Atlanta school district face fiscal woes even though a judge has approved a temporary collection of property taxes. Their cost of borrowing could increase now that a bond rating house has cut the credit rating on one county debt and has placed a total of more than $500 million of county and Atlanta school debt under review for a possible credit downgrade in the future.
The governments simply may not have the resources to repay current debt on time, according to a rating action issued Nov. 3 by Moody’s Investors Service.
The same set of factors could affect the long-term credit ratings of the county and the Atlanta Independent School System, according to the rating action. If the credit ratings are downgraded, lenders likely would require higher interest rates to compensate for the higher risk of loaning money to the county and school district.
For its part, Fulton County issued a statement saying it is “pleased” with the ruling by Alan Harvey, senior judge in DeKalb County’s magistrate court. The county’s goal was to “protect the interests of homeowners,” many of whom received “outsized increases” in property tax assessments earlier this year, according to the statement.
Moody’s analysts announced in the Nov. 3 rating action that they think Fulton County and Atlanta schools probably won’t have the money to make a Dec. 29 deadline for payment on short-term borrowing. Fulton owes on $200 million in debt and Atlanta schools owe on $100 million. The debts are not connected.
Moody’s reduced the credit rating on Fulton’s TANs from “strong” to “superior,” or MIG 1 to MIG 2. The lower rating means that, “margins of protection are ample, though not as large as in the preceding group.” The Atlanta school system’s debt is currently unrated, Moody’s reported.
The two governments acted independently to accrue these debts.
The county and school district borrowed the money through an instrument called a tax anticipation note. TANs are used commonly to help governments smooth out the gaps between revenues and expenses.
Here’s how analysts portray the credit situation:
- “The downgrade of Fulton County’s MIG 1 TAN rating reflects the increased probability that that the county will not receive sufficient tax revenues in time to repay the outstanding TANs, which are due on December 29, 2017, and will need to identify an alternate source of funding for note repayment.
- “The same factors also affect the long-term ratings of the county and AISS, as both rely heavily on property taxes for their operations. Atlanta Independent School System also has an outstanding $100 million unrated TAN, which matures on December 29, 2017.”
Incidently, in the Nov. 3 rating action, Moody’s withdrew its MIG 1 credit rating on a TAN the Fulton County school system intended to issue this month. The $50 million TAN was to have been sold Nov. 16. Moody’s rating action did not indicate the potential impact of the removal of the credit rating.
Moody’s rating action did not indicate how long the review will entail before any further action may be taken. The report observed:
“During the review, we will assess each issuer’s sources of available liquidity as well as monitor the collection of tax year 2017 property tax revenues to evaluate their ability to address the upcoming TAN payments. The review will also consider the extent to which the factors that led to the delay in tax bills this fall signals a longer term deterioration in revenue predictability, and therefore in credit quality.”
The review applies to the following debts:
- $242.3 million in outstanding general obligation bonds;
- $37.7 million in outstanding certificates of participation;
- $200 million in outstanding TANs.
Atlanta Independent School System
- $72.5 million in outstanding certificates of participation.