BRADENTON, Fla. - Atlanta's recent announcement about completing critical sewer projects on time and under budget is a credit positive for the city's sewer system, said Moody's Investors Service.
The projects were completed $50 million under budget, which is a "material" 8% of the system's fiscal 2013 gross revenues, analyst Lauren Von Bargen said in a special comment July 17.
"The timely and under-budget completion of these projects will provide the system with the financial flexibility to apply the savings to preventative maintenance projects," she said. "It also demonstrates a commitment to improving system's infrastructure and customer service, while remaining fiscally conservative, all of which are strengths of the system."
The city's Department of Watershed Management estimates that about $1.1 billion has been spent to date addressing an outstanding federal consent decree, with an anticipated $225 million in projects remaining, said Von Bargen.
In 1998, Atlanta agreed to the first of two consent decrees from the Environmental Protection Agency to address combined sewer overflows. In 1999, a second consent decree mandated that the city address its aging sewer system.
The consent decrees combined rank as among the largest in the country, according to Moody's. With the consent decree elevating capital costs, as of fiscal 2013, the system had an above-average debt ratio of 60%, the rater said.
"While these large consent decrees have been expensive for Atlanta, in recent years the city has managed this challenge well," Von Bargen said. "In 2012, the city won an EPA extension of the final completion date for the 1999 consent decree to 2027 from 2014, allowing for more balanced capital spending and eliminating the need for customer rate increases through 2016."
The city plans to fund the remaining projects through pay-as-you-go spending, reserves, revenues from a voter-approved sales tax, and loans from the Georgia Environmental Facilities Authority.
Atlanta voters renewed the sales tax in 2012. Officials conservatively estimate $113 million in collections through 2020, said Moody's. The sewer system has about $3.6 billion in outstanding bonds.
On July 18, Atlanta Mayor Kasim Reed appointed Watershed Management chief financial officer Michael Geisler as the city's chief operating officer. Geisler had been acting as interim COO since February.
At Watershed Management, Geisler assisted in refinancing more than $500 million in the department's debt, resulting in annual savings of about $12 million. The deal last August also won rating upgrades.
Moody's upgraded the rating to Aa3 from A1, while Fitch Ratings and Standard & Poor's both upgraded their ratings to A-plus from A.
In addition to overseeing most city departments, Geisler also will implement recommendations of Reed's Waste and Efficiency Commission, which are designed to trim the city's finances in order to issue up to $250 million of general obligation bonds for infrastructure needs. The deal is subject to voter approval.