ATLANTA - Atlanta Mayor Shirley Franklin Tuesday warned that water and sewer rates inthe city could triple over the next few years to help cover the anticipated debt serviceon $3 billion of revenue bonds planned for sale beginning next year.
The City Council will likely vote on the rate increase by the end of the year. If it isapproved, it will take effect Jan. 1, and about $1 billion of bonds would be sold nextyear, with more tranches of equal or varying amounts to be issued in 2005 and 2006.
City officials say they are considering restructuring outstanding water and sewer debtto smooth out debt service spikes and help keep the rate hikes to a minimum. Bills couldjump 45% in 2004 and in 2005, and then 11% in 2006, 2007, and 2008.
The deal's structure is still being determined, and could resemble the city's last twowater and sewer revenue bond deals, which featured 40-year maturities. In 1999, the citysold $1.1 billion of water and sewer revenue bonds and in 2001 it sold $428 millionworth of the debt.
The 2004 bonds will likely be sold through negotiation, and bond insurance will besought. An underwriting team has not been announced. The anticipated debt service willbe about $258 million through 2008.
Franklin has already taken her case for funding assistance for the city to every levelof government, including Fulton and DeKalb counties, and has appealed to representativesin Washington. So far her efforts have been in vain, prompting a dramatic pressconference on Tuesday during which Franklin proclaimed that no other city in the historyof the U.S. had been treated so harshly in terms of getting help for its infrastructure.
Although Franklin did not give examples of how other cities have been helped, marketplayers say the city's situation is not unique. One source said nationwidemunicipalities are having to take on more of the burden of funding their water and sewerneeds.
Last month, the investment management firm Payden & Rygel reported that almost 900 ofthe country's oldest sewer systems need extensive updates and upgrades to bring them upto Environmental Protection Agency standards. It also found that the funding gap betweencurrent spending and estimated needs for drinking water and wastewater infrastructureover the next 20 years is $535 billion.
A federal court has mandated that Atlanta repair its more than 70-year old sewer systemby 2007 or face multimillion dollar fines. Of the $3 billion to be spent, about $2.8billion will be for the sewer system, while the rest will be for clean water.
The main problem is that when it rains, the combined water and sewer system overflows,dumping untreated sewerage into the main water supply river, as well as contributing toflooding.
Ken Gear, an analyst with Standard & Poor's, said the underlying A rating the agencyassigns the city's water and sewer debt is under review pending its receipt and analysisof a formal capital plan.
He noted that its previous rating was based largely on a privatization contract the cityentered into in 1999 with United Water. Franklin cancelled that contract earlier thisyear, and has folded those management functions back into the city under the Departmentof Watershed Management. When the rating is reviewed, the intricacies of how the newsystem is set up will be a major factor in the rating, Gear said.
Fitch Ratings also assigns an A rating to the outstanding water and sewer debt, whileMoody's Investors Service gives it an A2. Those ratings partly hinged on theprivatization contract, which was estimated to save the city $15 million of year.
