To the editor:
The City of Atlanta is using short-term commercial paper to finance long-term capital projects. This method of financing is available for the Airport as well as the Water and Sewer Fund.
In my opinion, this is not a sustainable approach to financing our City – this is exactly the reason why millions of American’s ended up in foreclosure (those that were not tricked?).
Many of the subprime loans involved short-term maturities with artificially lower rates enabling home owner’s to buy homes they could not afford, use home equity lines for new cars, make expansions to their home and other quality of life improvements that they simply could not afford. I see a good number of similarities to our City’s situation and believe this type of financing should only be used for an emergency.
On July 21st, the City Council by a vote of 13-1 authorized the funding of additional projects using Short-Term Commercial Paper. City-Wide (District 2) Council Member Mary Norwood was the lone dissenting vote. In this legislation (08-O-1274), the City Council was requested by the Administration to approve $100.58 million in short-term financing appropriations for projects with a useful life of 30 to 50 years (possibly longer).
It is my understanding that City Council members have requested additional information about the short-term lending practice (months ago) as well as other liabilities (such as liabilities associated with Interest Rate Exchange Agreements (SWAPs) contracts) as part of a Watershed Audit that has yet to commence – information has not been forthcoming.
According to the City of Atlanta Comprehensive Annual Financial Reports (CAFR) for year ending June 2007 (last available), the City had borrowed over $123 million, though it is unclear what the total balance is at this time. The excerpt from the CAFR is as follows “The Notes have varying maturities of not more than 270 days and bear interest at a market rate at the date issued not to exceed 12% per annum. The irrevocable direct pay letter expires on February 1, 2009. The commitment fee to obtain the letter of credit in 2006 was $341,425”.
The 2007 CAFR also shows approximately $900 million in cash and equivalents as of June 30, 2007 and the Governor graciously supported low interest long-term loans not to exceed $50 million a year for 10 years ($500 million). Certainly funding projects has drawn down the cash and equivalents available, but other sources of funding should be available – which leads to several questions.
What is our financial situation and exactly how much do we owe and to who? Will this ultimately fall to the taxpayer? Does the use of short-term financing for capital projects have precedent in other Georgia Cities? Will the City end up in the same situation as those sub-prime borrowers who were irresponsible (not to be confused with those that were tricked?) spending money for items that were not necessary only to find themselves out of house and home?
We need to be smart with our money and the lack of information as to what, where and why on this program gives me great pause. The Water and Sewer Audit needs to move forward and address these and other issues.