BRADENTON, Fla. - Atlanta Mayor Shirley Franklin announced yesterday that the city's water and sewer department faces a $50 million budget shortfall by the end of the fiscal year.

The deficit is due to lower revenues, non-payment of bills, and $15 million in higher interest payments on water and sewer debt.

The department, which also oversees a court-ordered sewer rehabilitation program, laid off 97 employees yesterday and froze 175 vacant positions.

"We are making these changes precisely because we intend to pay our bills," Franklin said during a press conference.

The reduction in water use - partly due to drought and partly as a result of home foreclosures - is approaching 20%, said Robert Hunter, commissioner of the Department of Watershed Management.

"That is a significance impact on our revenue stream," Hunter said at the press conference.

Since the July 1 start of the fiscal year through Nov. 30, actual water and sewer revenues have been $8.1 million less than projected, according to a report released by the watershed agency. Collections included a 27.5% rate increase approved by the City Council for fiscal 2009.

The department now projects that principal and interest debt payments for fiscal 2009 will be $170.8 million, which is $15 million higher than the $155.8 million that was budgeted.

The increase in debt service is due to higher projected interest expense related to the department's Series 2001B, 2001C, and 2008 bonds, which are in variable-rate mode, the finance report said.

As of June 30, 2007, the department had approximately $2.5 billion of outstanding revenue bonds, plus another $72 million in loans through the Georgia Environmental Facilities Authority. Approximately $107 million of new debt was sold in February of this year to refinance auction-rate securities that were sold in 2001.

The department also has about $600 million of outstanding commercial paper, according to spokeswoman Janet Ward.

The water-sewer agency's long-term underlying ratings on the water and sewer bonds range from double-A to triple-B plus.

Last week, Franklin announced cutbacks and reductions in services to close an estimated gap of $50 million to $60 million in Atlanta's general fund budget. Those actions included eliminating 222 jobs and using $12 million from budget reserves.

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