BRADENTON, Fla. - The Atlanta City Council will let voters determine the fate of the city's backlogged infrastructure needs.
The council Monday set a March 17 referendum to ask Atlantans to tax themselves to finance $252 million in critical improvements - most of which were identified several years before the end of the recession in 2009.
The city has identified more than $1 billion in capital needs, but is only asking to finance projects that are considered critical.
The referendum will be posed in two questions. Voters will be asked to approve $187.9 million of general obligation bonds for critical needs such as maintenance of public streets, curbing, storm water drainage, bridges, and related improvements.
A second question will seek approval of $64.05 million of GO bonds for high-priority improvements to municipal buildings, recreation centers, and related public facilities.
If the referendum passes, the $252 million in bonds will require the city to pledge property taxes for repayment, though the city's plan is to reduce its separate operating millage rate so that the overall burden on the taxpayers is neutral, according to chief financial officer Jim Beard.
Mayor Kasim Reed has also promised to reduce the burden on taxpayers by implementing cost efficiencies in government, including ridding the city of surplus property, such as the pending $25.8 million sale of Underground Atlanta, a declining city owned dining, retail, and entertainment venue built beneath downtown streets under old railroad viaducts.
If that deal is consummated, it would save the city at least $8 million annually after fiscal 2017 when the final two years of non-GO debt service is paid on bonds that were sold to build the project in the late 1980s. The sale of other assets is still being contemplated.
"This is a very important effort for the city," Beard said. "This is the largest above-ground series of infrastructure projects that we can think of in the last 40-to-50 years. We don't recall any administration starting to address the backlog of these needs before Mayor Reed.
"We're taking concrete steps to start to address these issues," he said. "This is only the first step in addressing what we think is between a $1 billion and $1.25 billion problem."
When asked what the city would do if the referendum failed, Beard said, "We don't see a scenario where citizens say they don't want these improvements given our commitment to not raise taxes."
Polling conducted by the city so far shows that the referendum would pass by more than 80% of the vote, he said.
Voters have approved capital financing in recent elections across the country, but many government leaders are still loathe to use debt for infrastructure, said Tom Kozlik, director and municipal credit analyst at Janney Capital Markets.
"Few politicians want to broach the subject of infrastructure funding," Kozlik said Tuesday, when asked generally about support for financing capital needs. "There are no votes in funding infrastructure, and I do not see political support for infrastructure."
While some areas of the country are seeing revenues recover better than others since the end of the recession in 2009, Kozlik said revenues do not exist to support higher levels of debt.
"Practically every single revenue stream that drives municipal market sectors is still below their 2007-2008 peak," he said.
Since the mid-1980s, public spending on infrastructure has ranged from 2.3% to 2.5% as a share of gross domestic product, according to Building America's Future Educational Fund, a national infrastructure coalition spearheaded by elected officials across the U.S.
"Our decaying water infrastructure is wasting billions of gallons of a nonrenewable resource as well as putting our environment and public health at risk," said BAF's 2015 fact sheet. There are an estimated 240,000 water main breaks per year in the U.S., while rolling blackouts and inefficiencies in the U.S. electrical grid costs an estimated $80 billion a year.
The U.S. Conference of Mayors has estimated that as much as $4.8 trillion needs to be invested in water infrastructure over the next 20 years to maintain a state of good repair.
It has taken Atlanta several years to broach the subject of financing its backlog of infrastructure needs. The mayor first suggested the possibility of issuing bonds in January 2013. City officials spent last year generating public support through a series of meetings.
Reed also appointed a panel of business leaders and council members to recommend avenues to reduce wasteful spending and generate new revenue to offset the debt service on the bonds.
In October, city officials and financial advisor First Southwest Co. released a new debt affordability report to determine Atlanta's financing priorities based on existing and future revenues, as well as the effect of new bond issuance on the city's credit standing, debt ratios, and policy goals. The study concluded that the city could issue $166.3 million in new GO bonds in fiscal 2015 without increasing taxes.
To generate $86 million in additional capacity to fund $250 million in total project funds, the city could cut $7.4 million in expenses, or raise taxes, the study said. Raising taxes for the full amount would cost the average Atlanta homeowner about $11.66 per year in property taxes.
In October, Moody's Investors Service revised Atlanta's Aa2 GO bond rating outlook to positive from stable citing the city's improved reserves and cash position.
"With a recent trend of significantly improved finances, and a tax base that serves as an economic hub for the Southeast, Atlanta's credit quality continues to improve," Moody's analyst Lauren Von Bargen said in a November special report.
The positive outlook is based on the city's improved financial position, including growth in reserves and expense reductions; proactive measures to strengthen the balance sheet with the pay-down of inter-fund liabilities; rebounding of the city tax base following the recession; and manageable pension and debt burdens.
Moody's also recognized Atlanta's plans to issue $250 million of GO bonds if authorized by voters in March, and said the city's debt is expected to remain manageable.
In June, Standard & Poor's raised Atlanta's GO rating three notches to AA from A due to strong budget flexibility, management, and "highly diversified local economy that serves as the core of a broad 28-county metropolitan area."
If voters authorize the bonds, the city expects to sell $250 million in 30-year GO bonds, plus an estimated $2 million for issuance costs, in the second quarter of this year, Beard said. The fixed-rate GO bonds will be sold by negotiation, though underwriters have not yet been selected.
On Monday, the City Council also authorized the sale of up to $1.5 billion in water and sewer to refund all or portions of 2001A, 2004, and 2009A bonds. Beard said pricing is expected in early February.
First Southwest Co. is the financial advisor for the water and sewer deal.
Loop Capital Markets and Goldman, Sachs & Co. are joint book-runners.
Hunton & Williams LLP and Nowell Sparks LLC are co-bond counsel. Greenberg Traurig LLP and Riddle and Schwartz LLC are co-disclosure counsel.
