BRADENTON, Fla. - Officials in Atlanta must raise rates to maintain the financial viability of the city's water and sewer system, according to the city's chief financial officer, Rick Anderson.
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The City Council, which already postponed a vote on the issue, today will again consider adoption of an ordinance increasing water and sewer rates by 45% in 2004; 45% in 2005; and 11% a year in 2006, 2007, 2008.
Fitch Ratings lowered the rating on Atlanta's $1.7 billion in outstanding water and sewer revenue bonds to A-minus from A and placed the bonds on Rating Watch negative last Wednesday because of a substantial erosion in financial margins and the city's inability to identify actions to avoid rate increases, analyst Amy Laskey said.
The 45% increase in water and sewer bills in 2004 is to cover a sharp increase in the city's debt service, which rises from $64 million this year to $93.2 million next year. The increase is because the city capitalized interest for two years when it issued bonds in 2001.
Rate increases in following years are needed to pay annual principal and interest payments on $2.5 billion of proposed water and sewer bonds to fund capital projects designed to meet the city's obligations under several federal consent decrees for past violations of the federal Clean Water Act.
"We're obviously at a kind-of fundamental crossroads where the city's got to step up and do something that is very unpleasant and undesirable," Anderson said.
Others are closely watching the outcome of today's meeting as well.
Moody's Investors Service analyst John Incorvaia said that his agency was waiting for the City Council's decision today and the receipt of some financial documents before evaluating the city's A2 water and sewer bond rating. Standard & Poor's could not be reached for a comment on its A rating.
In a hearing last Tuesday after learning that the city council postponed action on the rate increase Nov 18, U.S. District Judge Thomas Thrash Jr. said that he would take action if the city did not comply with consent decrees to repair the sewer system that frequently overflows and pollutes area rivers that are the source of the city's drinking water supply.
The judge is overseeing lawsuits filed against the city for violations of the Clean Water Act. Those suits led the city to sign two wastewater consent decrees and two drinking water consent orders, and to promise the $2.5 billion overhaul of the water and sewer system being discussed today by the city council.
"The city has got to do what it agreed to do to bring its sewer system into compliance with the Clean Water Act," Thrash said. "That is not negotiable."
Thrash said that if the city refuses to comply with outstanding consent orders he would consider imposing a moratorium on water and sewer hookups, finding the city in contempt of court, and appointing a receiver for the city.
Anderson said when the court hearing was scheduled, it was anticipated that the judge could be told that the city council had adopted the rate increase. But that wasn't the case.
"The message from him was pretty clear," Anderson said, referring to the judge. "The court is real serious about what the city is required to do, and expects the city to do it."
If the City Council doesn't take action on the rate increase today, or find another source of revenue to comply with bond covenants, Laskey said she would review the city's rating again.
"We left them on watch because obviously we're concerned about bondholder protections," Laskey said.
