WASHINGTON – Kasim Reed easily remembers his first day as Atlanta mayor in 2010.
The city faced a $48 million shortfall, had only $7.4 million in reserves and its bonds were just two notches above junk.
“The first thing I did in my office was sit down with a group of lawyers and financial folks that brought six stack of documents, and I signed a series of tax anticipation notes,” Reed, 48, said at Monday night’s keynote speech to the Brookings Municipal Finance Conference.
“The security then disappeared,” he said laughing. “All the security that I thought was for me was for my signature so I could sign those tax anticipation notes.”
Eight years later, as Reed ends his run at City Hall – term limits prevent his run for a third term – Atlanta boasts of $174 million of reserves and an Aa1 rating from Moody’s Investors Service, the rating agency’s second highest.
In its February 2016 upgrade from Aa2, Moody’s cited Atlanta’s “marked improvement” and continued stability, due largely to pension overhaul and various revenue enhancements. It called the city attractive for businesses and tourists.
Major companies in Atlanta include Coca-Cola, Home Depot, United Parcel Service and Delta Air Lines. Automakers Mercedes-Benz and Porsche have also established a large presence in the region.
Reed campaigned on pension overhaul and tackled the politically thorny problem early in his tenure. Working with the City Council, he initiated a series of changes to deal with a $1.5 billion unfunded pension liability.
“We were spending 18% of all cash coming in the door on what basically was a subprime loan,” said Reed. “We were writing a check for a $110 million and none of it was actually going to pay off the pension debt or move the needle.”
Reed pushed pension change in the face of opposition from local labor leaders and outside critics including then-Chicago Mayor Richard Daley, who Reed said warned him that the move would send him back in private law practice before abruptly hanging up the phone.
“I decided I had to do what I wanted to do because if Atlanta remained just as broke as it was when I walked into the building, I wouldn’t win [re-election] anyway because I only won by 714 votes,” said Reed, who was born in Plainfield, N.J., grew up in Atlanta and holds undergraduate and law degrees from Howard University in Washington.
In 2011, the 15-member City Council unanimously passed a series of measures that includes a longer vesting period, a hybrid plan that merges a traditional defined-benefit plan with a 401(k)-style defined-contribution plan for new employees, and a later retirement age for new workers.
The Georgia Supreme Court in 2015 upheld the legislation after public-safety workers challenged it.
According to Reed, the city’s funded ratio has increased to 82% from 50%.
The turning point for winning over the public on pensions, he said, came in an exchange with a 64-year-old woman who berated his stance during one of 40 public meetings on the topic.
“I told her you’re walking around with a bad chip and I know you’re mad at me, But if I’m not successful some fiscal conservative will come in and declare bankruptcy and you won’t get any tax dollars. I want you to get 100%.”
Sound governing, he said, starts with the basics.
“If you don’t get the fundamentals right in government, people won’t believe you about the aspirational aspects of government,” said Reed, a former state senator.
“I look at a credit rating as a guard rail. Georgia is one of seven states rated triple-A. Whether you’re a Democrat or Republican, anything you did that could jeopardize the bond rating would make you a pariah or an outcast. I set out to bring that culture to local government.”
Reed said he speaks to voters about bond ratings in simple terms. “If you’ve got great credit you get more stuff,” he said. “A real person is affected by this rating that sits in a book on a shelf somewhere.
“It’s not a constraint. It attracts the private sector. They see a rating up to double-A plus and say ‘my capital’s good here.’ ”
The conference, which began in Boston and moved to Washington last year, aims to bring together academics, practitioners, issuers and regulators to discuss research on the municipal markets and muni finance.
Brookings' Hutchins Center on Fiscal and Monetary Policy is partnering with the Rosenberg Institute of Global Finance at Brandeis International Business School; the Olin Business School at Washington University in St. Louis; and the Harris School of Public Policy at the University of Chicago.
“One of the goals of this conference is to being more research and better research to this vital area of the economy,” said Hutchins Center director David Wessel.
The two-day event concludes Tuesday.