Buckhead City opponent criticizes report on Atlanta bond sale by SaportaReport
By David Pendered
A founder of an organization opposed to Buckhead cityhood criticized a story in SaportaReport regarding the Atlanta bond sale this month with terms that contain a poison pill for the cities movement.
Michael Handelman, executive director of Neighbors for a United Atlanta, Inc. says in a column that the December 20 story is wrong in comparing the interest rates charged on bonds sold by Atlanta and Bexar County, Texas, home of San Antonio.
“This comparison, however, is absurd. Comparing two bond sales in different states (with corresponding statutes governing municipal debt) is like comparing the quality of a single apple at Publix with a randomly selected banana at Kroger, ”Handelman wrote. “Not only are the technical details of the bonds between the two governments different, but picking a single data point from another bond issue in a $ 4 trillion US bond market doesn’t make sense.”
Neighbors for a United Atlanta was incorporated on December 3 as a not-for-profit corporation. It provides an address in Roswell and the names of founders Caren Solomon Bharwani, Handelman and William Haney, according to Georgia Secretary of State records.
the SaportaReport The story Handelman cited appeared under the headline, “Buckhead Cityhood’s Efforts Don’t Appear to Raise Atlanta’s Borrowing Costs.” The report included this observation:
“A side-by-side comparison of bond issues is not appropriate. No issuer and no transaction are alike. However, the two governments share similarities, ”the story reads. “Both rank first in credit ratings issued by Moody’s Investors Service. Bexar County is at the top of the scale for its planned sale, while Atlanta is a notch lower in its package credit scores. In addition, the two governments are the center of booming metropolises in the South. The two compete for high tech jobs.
This Atlanta bond sale sheds light on an argument raised for months by opponents of the city.
The claim is that Buckhead’s de-annexation would likely result in higher borrowing costs for taxpayers in Atlanta and all cities in Georgia. Investors would recognize the potential for statewide de-annexation and with it a reduction in cities’ ability to repay loans as their property tax revenues decline. Investors would offset the risk of non-payment by raising interest rates, the argument goes.
History has reported that this scenario does not appear to be the case in this bond issue. The terms of Atlanta’s bonds include a poison pill: If Buckhead deletes himself, he must pay his full share of the debt, in a lump sum, within one year of the de-annexation vote. The measure gives investors the assurance that they will be paid back regardless of the outcome of the Town of Buckhead move.
For a real-time comparison to another urban bond issue, the article reports that the interest rates investors will pay in Atlanta with the rates investors will pay in Bexar County.
Both are Sunbelt governments and both have top credit ratings from Moody’s Investors Service, with Bexar County one notch higher on the Moody’s scale. Atlanta sold about $ 188 million and Bexar County about $ 411 million.
Atlanta bond rates range from 0.509% to 2.388%. Bexar bond rates range from 0.651% to 2.621%, according to information provided by a subsidiary of the Municipal Securities Rulemaking Board. The Atlanta accord was concluded on December 23 and the Bexar County accord on December 30.
Handelman’s letter cites issues such as various aspects of credit ratings, Atlanta debt, and Atlanta spending before ending with comments that include this look to the future:
What happens when the current environment of low interest rates, strong investor demand for municipal debt, and a stable and performing property tax base change? For Atlanta, as the cost of new debt rises due to higher credit risk, that means the finely-tuned balance of property taxes funding debt service and essential services is starting to fall apart. This inevitably leads to difficult decisions to decrease essential services or increase property taxes… The consequences for Atlanta, a hypothetical Buckhead City, and other municipalities in Georgia, may not be immediately apparent in the market data, but when clouds, wind and rain appear on the economic horizon, we are all going to tremble in Georgia.
Note to readers: To read Michael Handelman’s column, click here. To read the article from SaportaReport that sparked Handelman’s column, click here.