By John Schaffner
Just when Atlanta residents and officials were hoping the city’s financial problems had bottomed out and things would begin to look better, city Chief Financial Officer Jim Glass spent more than eight hours during a recent two-day retreat outlining more bad news about Atlanta’s financial condition.
Glass told members of City Council and administration officials that Atlanta’s unrestricted reserves had fallen from a high of more than $150 million to less than $6 million — even as the economy boomed. He said the current reserves are dangerously low for a city that spends about $46 million every month.
By comparison, Sandy Springs, with an annual budget of about $91 million, has a two-month cash reserve of $15 million.
Glass said Atlanta should keep at least $100 million on hand to manage cash flow and brace for emergencies.
The CFO also said four funds — Underground Atlanta, E-911, Solid Waste and Capital Finance — have a cumulative deficit of $147 million that must be corrected. He said the city also needs to begin repaying the water fund for loans made to the general fund.
As the City Council and the mayor are beginning to set a budget for the fiscal year that begins July 1, Glass warned that next year could be even worse because of falling revenues in the recession. He warned the council to expect more painful cuts and struggles with revenues and said cost-saving measures such as city employee furloughs are certain to be continued.
As if that news were not bad enough, Standard & Poor’s and Moody’s, two of the three major bond-rating agencies, downgraded the city’s credit rating. S&P dowgraded he rating by two levels, Moody’s from Aa3 to A1.
Because of the lower credit scores, Atlanta taxpayers could pay more than $27 million in higher interest rates over 30 years as the city issues new bonds and refinances variable-rate bonds the city floated the past few years.
According to Glass, the city has about $150 million in bonds it would like to issue soon, and there are more to come.
Glass apparently was expecting a downgrade but was disappointed it was two levels. The city likely can expect its rate for borrowing to climb from about 5 percent to as high as 5.6 percent on its next bond issue.
What that means in real dollars is that for every $1 million Atlanta borrows from this point forward, the city will pay an extra $6,000 in interest per year. Thus, if Atlanta sells $150 million in bonds, the higher rate would cost Atlanta about $900,000 a year, or $27 million over the typical 30-year life of bonds.
Mayor Shirley Franklin and the council set aside $28 million in the current fiscal year to begin rebuilding the city’s reserves, but they may have to use some of that money to avoid further layoffs this year as revenues continue to fall.
The recession is eating away at Atlanta’s sales tax revenue, property tax collections and other fees. City finance officials do not expect improvement in that picture after June 30, when the council must approve the budget for the new fiscal year.
The mayor asked the council for a tax increase last year to boost revenues, but the council refused. Instead, the council reduced the city’s property tax rate. Recent reports, however, indicate that some council members are more willing to consider raising taxes now.
Meanwhile, the mayor said she has talked to Cobb and Fulton counties about partnering on projects for federal government economic stimulus package funds. The city wants to spend the money on 200 new police officers, water, sewer and airport projects, and road, sidewalk and transit improvements.