BRADENTON, Fla. - Facing an infrastructure backlog of more than $1 billion, Atlanta wants to ensure that residents are a part of the solution.
City officials have begun a series of public meetings to explain the need to issue $250 million of general obligation bonds to tackle some of the backlog. They say bonds are the best way to provide the necessary cash flow to advance improvements more quickly than on a pay-as-you-go basis.
Atlantans will not be asked to tax themselves to repay the GO bonds, according to the plan devised by Mayor Kasim Reed.
Issuing GOs without a property tax increase can be tricky, but officials say it is possible by making budget cuts, changing ways of doing business, and selling surplus land.
Those are among the measures Reed suggests in the final report of his Blue Ribbon Commission on Waste & Efficiency in Government. The commission, composed of city officials and business leaders, recommended cost-saving strategies that will allow Atlanta to create a "more competitive, fiscally sustainable operating model" and invest in infrastructure without raising property taxes.
"Taken as a package, implementation of the recommendations could yield a tremendous efficiency dividend for the taxpayers of Atlanta enabling new investment in roads, bridges and other vital infrastructure, and positioning Atlanta as a model of efficient government," said a letter by Delta Airlines chief executive officer Richard Anderson and City Council member Howard Shook, who co-chaired the commission.
"We believe the commission generated a set of recommendations that are balanced, meaningful and - most importantly - achievable," they said.
Using a panel of stakeholders to help solve financial issues at City Hall is not new, according to Atlanta's chief financial officer, Jim Beard.
"The concept was first used by the Reed Administration to review and address pension reform in 2010," he said. "Having found the collaborative efforts of the pension working group invaluable, the mayor again sought the insight of various parties" on infrastructure funding.
Across the country, a $3.6 trillion investment in infrastructure will be required by 2020, according to the American Society of Engineers.
The ASE gave a "D+" grade to the overall condition of essential services such as solid waste and wastewater disposal, waterways and levees, drinking water systems, roads and bridges in its 2013 Report Card for America's Infrastructure.
"We know that investing in infrastructure is essential to support healthy, vibrant communities," said an executive summary of the report. "Infrastructure is also critical for long-term economic growth, increasing GDP, employment, household income, and exports."
Without prioritizing the nation's infrastructure needs, deteriorating conditions can become a drag on the economy, the report said.
In many communities, funding infrastructure backlogs isn't easy for a number of reasons, yet it is an important issue, Janney Capital Markets director Tom Kozlik told The Bond Buyer Wednesday.
"I was told by an issuer that a key problem is that, 'There are no votes in funding infrastructure,'" he said. "I really think that is what sums up this current mood or view of infrastructure funding and the fact that resources have become more scarce and priorities are elsewhere."
Though the municipal bond market is an effective tool for state and local governments to access private capital and finance infrastructure projects, the use of bond financing remains low because of a lack of broad federal, state, local government and voter support for infrastructure spending, Kozlik concluded in a May report on the topic.
While an anti-tax sentiment is part of the problem, voters have supported bond issues for essential services since the recession officially ended.
In the November 2013 general election, Texas voters approved a $2 billion water bond program, the largest single bond-related issue on the nation's ballots that day.
Last year, 65% of Miami-Dade County voters approved hiking their property taxes to support $830 million in GO bonds to modernize the public Jackson Health System.
In 2012, nearly 69% of Miami-Dade voters agreed to a $1.2 billion bond issue for county school improvements.
In some areas of the country, politics determines if infrastructure will take a front burner, according to Kozlik.
"Political actors at every level of government create a hierarchy of priorities," he said. "Priorities are often social or financial in nature but most require support in the form of spending or funding."
The issue of infrastructure funding requires leadership that places the topic closer to the top of the priority list, he said.
"And this is not a new issue," he added. "Infrastructure needs evolve and change and constantly require new investment."
In Atlanta, Reed has made infrastructure a priority in his second term as mayor.
A referendum on the $250 million GO bond question is expected to be held March 17. Public information meetings started in June to explain the city's needs, and will be held periodically through January.
Like many communities responding to the recession since 2007, Atlanta tightened its belt and cut more than $125 million from the general fund budget, leaving little room for capital projects. While the backlog piled up, the city's fiscal strategies had a positive effect on its ratings.
Standard & Poor's on June 27 raised Atlanta's GO debt rating three notches to AA from A. It assigned a stable outlook.
"We acknowledge that since 2010, the city's administration and City Council have done a favorable job making the necessary budgetary adjustments to bring structural balance to operations and substantially improve budgetary flexibility," said S&P analyst Victor Medeiros.
The city has adopted new financial management policies, and bolstered internal controls and reporting, S&P said. While Atlanta tackled pension reform in 2010, S&P said the city still has high exposure to pension and other post-employment liabilities. The combined unfunded liability of all pension funds is $1.4 billion, and the OPEB unfunded actuarial accrued liability is $1.4 billion.
Beard said the city is excited about the rating upgrade.
"We feel that it is great acknowledgment of the hard work the city has engaged in over the years," he said. "This upgrade paves the way for increased investor interest in the bonds to be sold, favorable pricing for the bonds to be issued and lower annual debt service."
He said the higher rating would save about 25 basis points if the GO bonds were sold today, saving $10 million over the life of the proposed 30-year bond issue.
S&P's AA rating brings it in line with the Aa2 assigned to the city's GOs by Moody's Investors Service, putting an end to split ratings that translated into higher borrowing costs, Beard said.
"A split rating for the GO results in additional debt service costs as the markets tend to gravitate to the lower of the ratings," he said. "The S&P rating upgrade will now eliminate this issue and will enable the city achieve better pricing on future GO bond issuances."
As part of 2010 changes to pensions, new Atlanta employees are part of a defined-contribution pension plan. The defined-benefit pension plans were closed several years ago with the unfunded actuarial accrued liability anticipated to be eliminated by 2042.
S&P also said that the city has strong liquidity with available cash of 21% of total governmental funds expenditures and debt service of 148%.
"In our opinion, the city has well-tested access to capital markets through different capital financing programs, as well as a history of tapping these markets through different economic cycles," Medeiros said.
Atlanta has about $7.2 billion of total direct debt outstanding, of which $6.2 billion is paid from the self-supporting Departments of Watershed Management and Aviation. Debt service is 14.4% of total governmental expenditures, and net direct debt is 133% of total revenue, according to S&P's calculations.
In addition to upgrading the city's GO rating to AA from A, S&P also upgraded to AA from A the ratings on the Atlanta & Fulton County Recreation Authority's 2007A and B bonds and 2010 bonds, the Atlanta Downtown Development Authority's tax-secured and appropriation debt, the Public Safety & Judicial Facilities Authority, the Solid Waste Management Authority, and the Urban Residential Finance Authority's appropriation debt.