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Fulton credit downgraded; borrowing costlier


Chairman cites N.F. legislation as cause


April 30, 2013
FULTON COUNTY, Ga. – Fitch Ratings announced a cut to Fulton County's credit rating last week, which means it will cost more to borrow money in the future. And with the county poised to borrow $200 million in tax anticipation notes (TANs), taxpayers will feel the bite sooner rather than later.

According to Fulton County, it will affect the second phase of the $275 million library bond issue. It has already borrowed $167 million and those bonds are unaffected. The remaining $108 million will have a higher interest rate that will cost millions over the term of those bonds.

Fulton Chairman John Eaves launched the first salvo in the blame game, pointing to House Bill 604, which bars the county from raising taxes for two years and requires a supermajority to raise taxes thereafter.

Eaves pointed out Fitch specifically mentions H.B. 604 in its explanation of the downgrade from AA+ to AA.

The bill was the product of the Republican members of the Fulton County legislative delegation who authored the bill and nursed it through the General Assembly. It still awaits Gov. Nathan Deal's signature, but the damage is done.

"Actions taken by the Georgia General Assembly, led by a group of lawmakers in Fulton's own delegation, have resulted in a downgrade of Fulton County's credit rating," Eaves said in press release. "By violating home rule, these lawmakers took drastic action with no dialogue or consideration of the impact at the local level."

The Fitch downgrade affects not only Fulton County government but the Fulton County Building Authority, the Fulton-DeKalb Hospital Authority and the Fulton County Facilities Corp., he said.

Fitch also cites House Bill 541, which was tabled but created concern. H.B. 541 had sought to double Fulton County's homestead exemption to $60,000. Both of these bills constrain the county's ability to meet its obligations.

The Fulton delegation has maintained the legislative proposals put forward are attempts to rein in Fulton County spending. If the County Commission is unwilling to do so, then the Republican majority would take measures.

House Majority Whip Ed Lindsey said the blame lay with the county, which has refused to downsize appropriately as more of the county has incorporated as cities.

The county needs to get its spending under control and then its creditworthiness will improve, he said.

Fulton Democrats have accused Fulton Republicans of trying to undermine county government.

Fitch Ratings Senior Director Mike Rinaldi said while the pending legislation does have a negative impact on Fulton's credit rating, it is not the main cause, nor would it change anything if it were undone.

"It is difficult to assign a certain weight to one factor or another. It is really a general weakening of the county's financial profile over the last few years," Rinaldi said. "I would say fairly dramatic weakening in fund balance that began a couple of years ago and we expect to continue through the end of fiscal 2013."

The Fulton Republicans' attempts to legislate the county into greater fiscal conservation do not help but rather hurt the county. Restrictions on an issuer's ability to raise revenue or control spending are generally viewed as limiting factors for rating analysis, Rinaldi said.

"House Bill 604, and potentially House Bill 541, eliminate or restrain one of the tools available to management – the ability to increase its property tax rate and therefore revenue from the same tax digest," he said. "Taking that option off the table is something we would view as something less favorable."

Fulton County has done some good things. It has trimmed $100 million from the budget since 2008 and cut its workforce by 12 percent.

Nevertheless, Fulton continues to rely on cash reserves (fund balance) to cover shortfalls in the budget. In 2012, it used $30 million of fund balance to cover expenses. The current budget anticipates using $54 million of reserves to balance.

Fitch is watching the county spend down reserves that were $128 million two years ago, and will be at $48 million by the end of the year. That is not sustainable.

It is also a cause for concern that the county's recurring inability to get a timely tax digest out forces it borrow short-term TANs while it collects all of its annual taxes. Fulton borrowed $120 million in 2012, and this year has sold $200 million of the short-term notes. That represents 40 percent of the 2013 budget.

This article was published in the Revue & News May 3, 2013 edition

Executive Editor, Appen Media.
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