How Atlanta Suddenly Found $177 Million for Its Troubled Water System

As Atlanta faces the daunting and costly task of updating its aging water system, a new influx of money is coming to the rescue — and it’s coming from a surprising source.

In mid-June, days after a series of water main breaks made national headlines, the City Council approved an ordinance amendment that freed up $177 million from what is essentially a savings account for the Department of Watershed Management. The accounting maneuver to tap into the bond reserve fund carries some potential risk, but it will increase the department’s budget by nearly a quarter.

The move comes amid a new urgency to find funds to improve Atlanta’s water system. Water main breaks that affected more than half the city in late May and early June put a spotlight on city leaders who often invested more in Atlanta’s struggling sewers than in its creaking sewers. drinking water system.

The reserves are there to serve as a safety net for bondholders and taxpayers, but the city’s finance director said he is confident watershed management has sufficient revenue and reserve funds to which it could access. Atlanta Mayor Andre Dickens, meanwhile, said he would seek federal funds to help solve what could be a multibillion-dollar plumbing problem.

Credit: John Spink

Credits: John Spink

In the short term, watershed management will soon have millions more to invest in its capital improvement projects.

“We understand that the utility is fighting a lot of different battles in terms of infrastructure needs and capital needs,” Mohamed Balla, the city’s chief financial officer, told the Atlanta Journal-Constitution.

“There’s more work than he can handle… We want to do all we can before we have to go back and raise rates,” said Balla, who previously served as deputy commissioner and chief financial officer of the city’s watershed management department.

‘Best interests’

In the late 1990s, Atlanta entered into two consent decrees with the federal government that mandated improvements to the city’s sewers because they regularly overflowed and polluted the Chattahoochee and South rivers.

The improvements have been costly, but the consent decrees have not been accompanied by funds to finance the updates. The city had no cash available, so it borrowed about $3 billion by selling bonds, Balla said.

Watershed Management repays the loans through water bills and the city’s one-cent sales tax. The city’s original bond rules required that one year’s worth of average debt payments on the department’s senior bonds be set aside in case it couldn’t repay its loans from rates and taxes collected in a given year.

Balla said that when the bonds first came to market in the early 2000s, Atlanta didn’t have as high a credit rating as it does today, so the reserve fund was a necessary signal to encourage investors.

On average, watershed management’s annual debt service is $106 million, according to Balla. That’s the minimum the department was required to keep in the reserve fund, but until this month it had much more in reserve — $230 million.

But after the City Council passed an amendment to the bond ordinance on June 17, allowing only half of the average annual debt payments to be set aside, it now has just $53 million in reserves left. .

All of a sudden there’s an additional $177 million that can cover other watershed management needs.

The legislation was initially brought before the City Council’s Finance Committee on May 29, two days before the first water main break near downtown plunged Atlanta into a days-long crisis.

While the timing of the amendment is “completely coincidental,” Balla said, the additional funds will go toward capital improvement projects that will likely include upgrades to the drinking water system, though he did not detail specific projects.

But Matt Fabian, a partner at the Municipal Market Analytics research group, said it’s rare for an entity to keep less than a year’s worth of payments in reserve.

“It gives the city less flexibility in the future,” Fabian said. This isn’t necessarily a bad decision, because the city doesn’t need to borrow money to finance cash-backed projects, but “the reserve fund isn’t there just to protect investors , but also the city.”

“If the city inadvertently finds itself overdrawn, then they might need that reserve money to ensure they don’t default,” he said.

Credit: Hyosub Shin/AJC

Credits: Hyosub Shin/AJC

Balla said he’s not worried about dwindling reserves because the watershed board has $1.3 billion in cash, which could be used in an emergency, he said. Peer cities also have a similar reserve requirement, he added.

Before submitting the bill to the council, city officials also asked rating agencies whether the move would downgrade Atlanta’s rating. Balla said the city was told it would not do so.

“We thought that putting this mechanism in place and releasing this money was in the best interest of taxpayers,” Balla said. Otherwise, the watershed management may have had to increase prices, something the department has not done since 2012.

Between 2002 and 2012, water and sewer rates increased 252 percent to fund mutually agreed-upon sewer improvements, according to court documents.

But if Atlanta fails to make a payment, it could hurt the city’s credit rating, which in turn could make borrowing more expensive in the future, and rates could be raised to cover higher debt repayments.

Balla said that he doesn’t think a credit downgrade simply because of the reserve fund change is likely, unless there’s also “a significant decline in revenue, an astronomical depletion of liquidity, things that have gone haywire from an infrastructure point of view.

But as Atlanta emerges from a recent water crisis and looks to further modernize its system, it must find the funding to do so.

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