To the editor:
On July 25, the Buckhead Reporter published a letter from Justin Wiedeman suggesting that the city of Atlanta has several financial issues, including the use of short-term commercial paper to finance long-term capital projects. The article compared this type of financing to the subprime loans and residential foreclosures in the news so much these days. In my opinion, the article was misleading and incorrect, often comparing apples and oranges.
To quote from our Finance Department: “The City is not using Commercial Paper to fund long-term projects. As an example, if a project at the airport costs $100 million, our choices are to issue $100 million in bonds to pay debt service on the entire $100 million even though it might take 3 or 4 years to complete and the majority of the funds would sit there during the design and during most of the construction. We would have to pay interest on the entire $100 million from day one. With Commercial Paper we don’t draw down the funds until they are needed to actually pay invoices. Consequently, we only pay interest on the funds when we need them. Once the project is completed or near completion, long term bonds are issued to take out the short term Commercial Paper. This is a practice widely used by governments throughout the country.”
To quote from an economist at an Atlanta university: “The suggestion that using commercial paper is like subprime mortgages is not correct. Nor is it like taking out a balloon mortgage with the intent to refinance using the appreciation in the house value. It, in fact, might make sense for a government to finance using short-term debt beyond the construction completion date until long-term rates fall.”
Wiedeman also references the July 21 vote of the City Council, which he suggests authorized new short-term commercial paper issuances, when in fact the approved paper simply transferred money among projects in the Clean Water Atlanta program.
The writer also mentions the city of Atlanta’s Comprehensive Annual Financial Report (CAFR) and seems to draw some conclusions about large “surpluses” in the city’s assets. To quote a former Atlanta CFO: “The CAFR presents all funds rolled up together; the pension funds are aggregated with general government, airport, water/wastewater funds. So one will find some pretty large numbers in aggregate, which if you don’t look at the detail can lead to distorted, superficial views. That produces some large ‘cash and investment’ numbers, but those are not surplus or unobligated funds.”
There will always be cash and investments on the city’s balance sheet at the end of every period for dedicated balances and to ensure that the next week’s payroll and bills can be paid.
Citizen concern for the workings of government is a valuable piece of the governmental process when legitimate issues are brought to the table. The author’s swipe at the Clean Water Atlanta program, which must be completed by 2014, appears to be another attempt to derail that project, which could delay and add costs to this $4 billion federally mandated infrastructure program.
It’s time to move on. I hope this clears up some misconceptions.
Atlanta City Council