Moody's Investors Service on Tuesday downgraded DeKalb County's $471 million of outstanding general obligation unlimited-tax backed and parity debt, issued through various public authorities, to Aa1 from Aaa.

Moody's also revised the outlook on the county, Georgia's third largest, to negative from stable and downgraded its appropriation-backed debt to Aa2 from Aa1.

"The downgrade to Aa1 and the assignment of a negative outlook reflect the county's pressured financial operations that ended in deficit undesignated reserves at fiscal year-end 2008 and the near-term challenges of restoring fund balance to levels consistent with the Aaa rating level," said a report by Moody's analyst Catie Tsao.

Tsao said the county recorded significant operating deficits in fiscal 2007 and 2008 "driven by the continued practice of appropriating reserves and the sustained underperformance of revenues."

In fiscal 2008, DeKalb recorded a significant $31.9 million operating deficit, reducing the general fund balance to a negative $9.8 million, Tsao said.

DeKalb County's total ending reserve position was $6.5 million with $1.3 million in the unreserved general fund balance.

The county's property tax base has grown an average 3.5% per year since 2004 to $66 billion in market value in 2009, and contains a portion of Atlanta. However, DeKalb depends on property and sales tax revenues for 80% of its operations.

Collections from both revenue streams have been affected by weakening economic conditions, which has resulted in a dramatic decline in the county's liquidity, Tsao said.

Adding to potential difficulties for the county are two measures that limit the growth in taxable property values, Tsao said.

In November 2006, county voters approved a five-year freeze on the appreciation of homesteaded properties that do not change owners. Officials estimated the freeze would result in $12 million in lost property tax revenue from 2007 through 2009.

In addition, HB 233 establishes a three-year moratorium during which no growth is permitted in the assessed value of any existing, unimproved real property.

DeKalb's GOs are rated AAA by Standard & Poor's.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.