Wall Street affirms MARTA, warns of system’s continuing fiscal dangers
By David Pendered
A Wall Street credit rating agency has raised MARTA’s rating in advance of the system’s plan to sell $96 million in bonds on June 26.
The rating action states MARTA’s reliance on sales tax revenues as both an asset and a liability. Moody’s Investors Service cited as an asset MARTA’s gross pledge of its 1 percent sales tax, and as a liability the historic volatility of sales tax revenues – revenues that recent Georgia laws have reduced.
While any upgrade in credit is positive, Moody’s warned investors of the danger that MARTA could again raid its savings account to keep the system afloat – as was the case during the depth of the great recession.
MARTA still faces:
- “The ongoing need for careful management to avoid a return to past operating pressure that resulted in significantly narrow cash margins and plans to deplete its reserves.”
As recently as June 2012, MARTA had adopted a management plan that envisioned burning through more than $100 million in reserve funds and running out of operating reserves in 2018.
Another danger Moody’s cited is that MARTA may seek to increase its borrowing in the future. Such a move would reduce the amount of money available to cover its current debt, particularly if sales tax revenues decline:
- “Weakening of the pledge revenues or increased leverage that results in materially lower debt service coverage.”
Gov. Nathan Deal’s latest state revenue report noted that Georgia’s sales tax collections are entering untrodden territory because of changes in state tax law.
In a report issued June 9, Deal observed that Georgia has eliminated the auto sales tax, reduced the sales tax on energy used in manufacturing, implemented an agricultural tax exemption and reinstated the sales tax holiday.
These fiscal decisions are evident in state figures on sales tax revenues: Gross collections were up 4.5 percent in May, compared to May 2013; however, net collections were up 2.5 percent for the period.
MARTA executives have portrayed the credit rating increase as a validation.
“The upgrade in our bond rating conveys to the public that MARTA is getting its financial house in order,” Keith Parker, MARTA’s GM/CEO said in a statement. “We’re here because we were able to balance the budget, spend less, and reduce overhead and positions.”
MARTA board Chairman Robert Ashe said in the statement: “This is great news for MARTA. Moody’s positive response to the changes we’ve made to become fiscally sustainable confirms the Authority is moving in the right direction.”
Moody’s action actually covers an array of MARTA’s debt, including an upgrade of the rating on $1.7 billion in sales tax revenue bonds. Moody’s determined the outlook is stable.
The upgrade was issued as the system looks to attract new sources of revenue.
One such source is land leases and air rights for developments on and above MARTA-owned property. MARTA now collects $10.1 million a year in land leases, according to the recently adopted budget. The sum represents 2.4 percent of MARTA’s $415.8 million in anticipated operating revenues.
MARTA has been pushing transit oriented developments since 1998. That’s the year the Lindbergh Station was chosen by the former BellSouth as one of three areas where BellSouth intended to concentrate its employees, who were working on space provided through 75 leases in multiple locations.
In addition, MARTA intends to increase its sale of display ads for alcohol. The initial deadline for bids was delayed from June 10 to Tuesday.