ATLANTA – Brushing aside headlines that have blasted Fulton County’s creditworthiness, Fulton County Finance Director Patrick O’Connor says the county’s credit is fine and the interest rate it received for its most recent short-term borrowing shows that.
At its May 1 meeting, the Fulton County Board of Commissioners got some good news when it approved the issuance of $200 million of tax anticipation notes (TANs) at the lowest interest rate ever.
Wells Fargo Bank was the lowest bidder with a net interest cost of 0.149027. The county reports it will save over $300,000 in interest payments compared to the 2013 budgeted amount. The actual amount the county will pay Dec. 31 is $187,000.
“That is nothing on a loan of $200 million,” O’Connor said.
This short-term interest rate is the lowest the county has received to date. Previously, the 2012 borrowing rate had set a record low rate.
The majority of revenue in most local governments comes from property taxes, which, for Fulton County property owners, are due in the fall of each year. Large local governments typically make use of TANs to manage cash flow during the year.
Fulton County is borrowing a large amount, however. But O’Connor says that has more to do with the county’s fiscal year running from Jan. 1 to Dec. 31. Tax bills can’t go out until the state approves the tax digest. That means tax bills don’t go out until August, which means most of the cash does not come in until October.
The county is borrowing more because the commissioners have chosen to spend down large cash reserves on hand rather than raise taxes as all other metro counties did when the recession hit in 2008.
“Other counties raised their millage rate. But we entered the recession in a very strong cash position. The commissioners have used fund balance over and above the county’s minimum fund balance requirements,” he said.
Commission policy and good accounting practices call for a fund balance of 8.33 percent. The cash reserves used to make up the shortfall the last three years are over and above that.
“The TANs are to tide us over until we get our collections back. Then the notes are repaid Dec. 31,” O’Connor said. “Despite the headlines you see, Fulton County still has a very high credit rating. We went from AA+ to AA. That is still a super-high credit rating.”
Standard and Poor’s (S&P) and Fitch issued the current credit rating designations for this particular TAN issuance. Fulton County was rated as SP-1+ and F1+, respectively.