ATLANTA - Fulton County, Ga., yesterday sold $120 million of tax anticipation notes - twice as much as in 2006 - to cover expenses at a time when cash levels are lower, due in part to the advance payment of an annual subsidy to the financially ailing Grady Health System in Atlanta.
The notes will mature on Dec. 31. Citi was the winning bidder with a net interest cost of 1.6112%. Buyers were expected to be institutions, such as mutual funds and regional banks.
Fulton County receives its property taxes - which make up 79% of projected receipts - by Oct. 15, leaving it with lower cash levels during summer months. And though there are substantial reserves in the capital projects and internal services funds, the county typically needs an extra boost from a Tan issue to manage a somewhat limited cash position.
The notes represent about 25% of the county's 2008 expected property tax revenue of more than $480 million, according to Walter K. Johnson, senior managing consultant with Atlanta-based Public Financial Management, which is the financial adviser on the sale.
Bond counsel is McKenna Long & Aldridge LLP
Analysts assigned top short-term ratings to the notes and said the county is in a favorable economic position with a great deal of coverage provided by borrowable resources. Fitch Ratings gave the notes an F1-plus and also revised Fulton's rating outlook to stable from negative. It rates the county AA. Standard & Poor's assigned an SP-1-plus and Moody's Investors Service assigned a MIG-1 rating to the Tans.
Moody's high ranking for the notes is based on the "expectation of sufficient projected cash flows for note repayment, a favorable forecasting trend, and healthy tax base growth," according to the agency's report.
Moody's affirmed its Aa3 rating on Fulton County's $65.9 million of outstanding general obligation debt.
"A lot of counties in Georgia rely on Tans because property taxes are due later in the fiscal year," said Christopher Hessenthaler, an associate director at Fitch.
In revising the county's rating outlook from negative to stable, Fitch cited improvements to operational and organizational deficiencies in the county Board of Assessor's office, which had been spotlighted in a 2006 review by the Georgia Department of Revenue. Fitch also upgraded to AA-minus from A-plus the rating on $116.6 million of outstanding certificates of participation issued by the Fulton County Facilities Corp. The upgrade reflects the elimination of any pending legal challenges to the Series 1999 COPs.
Fitch said it also was heartened by the county's ability to integrate revenue losses stemming from the recent incorporation of three local municipalities into its budget.
"No further incorporations are expected within the county, reducing uncertainty with regard to budgeting and revenue forecasting," the Fitch report said.
The report noted that Fulton County has a diverse economic base revolving around Atlanta's role as the state capital and center of a broad regional economy. Population growth has outpaced the state's, increasing nearly 22%% since the 2000 census. The county's unemployment rate - 5.2% as of March 2008 - had declined in 2006 and 2007, but has since increased. There has been a sharp downturn in single-family housing starts throughout the Atlanta area and home foreclosures are up significantly. Fitch said it will continue to monitor the impact of the residential housing market on the county.
While the county's annual subsidy payment to Grady Health System is not particularly detrimental, the money seems to have been falling into a black hole. The nonprofit hospital, run as part of the Fulton-Dekalb Hospital Authority partnership, lost more than $20 million in 2006, up from $13 million in 2005 and $10 million the year before, according to Georgia Watch.
The consumer advocacy group faulted Fulton County and funding partner Dekalb County in 2007 for failing to adequately fund the hospital, which as of May of that year had reportedly used all available cash resources. Grady was expected to close down in May 2008 if other funds weren't identified.
In January, the Fulton County Board of Commissioners chose to advance - as a one-time deal - $30 million of the budgeted fiscal 2008 operating subsidy to the health system "in response to the hospital's narrowed cash margins," Moody's reported.
This month, control of the hospital was taken from the Grady board of trustees and given to a new nonprofit called Grady Memorial Hospital Corp.
The Woodruff Foundation promised a $200 million donation that was expected to help Grady get back on its feet.
Moody's believes Fulton County's 2008 cash-flow projections are supported by a conservative forecasting trend and the substantial infusion of property taxes starting in October.
Moody's noted the county is home to a "diverse array of corporate concerns," including headquarters operations for the Coca-Cola Co., Delta Air Lines, and SunTrust Banks. Analysts pointed to the large institutional presence of state government and several universities. Moody's said the region did not experience the very rapid run-up in real estate values seen in some states, though metro Atlanta foreclosure rates remain among the highest nationwide.
Moody's expects the county's debt position to remain well below average, given ongoing tax base growth and limited future borrowing plans. The county's debt burden is low, as the large property tax base results in an overall debt burden of 1% of full valuation and a direct debt burden of only 0.4% of full valuation.
Officials do not anticipate issuing any new general obligation debt during the near term, and Fulton County is prohibited by state law from issuing new COPs until the outstanding balance drops below $25 million. Officials are contemplating approaching voters with a proposed GO authorization for libraries.
