Moody's contemplates Clayton's bond rating

By Joel Hall


Moody's Investors Service, a leading provider of independent credit ratings and financial information, recently announced it is putting Clayton County on a 90-day watch list for a possible downgrade of its Aa2 bond rating.

According to Moody's, a downgrade would impact $51.9 million of rated debt, including revenue bonds issued through the Development Authority of Clayton County (DACC), the Housing Authority of Clayton County (HACC), and the Clayton County Urban Redevelopment Agency.

In a Dec. 22 report, Moody's stated: "The watch list action reflects Moody's belief that the county's financial position has significantly weakened as a result of the unplanned use of General Fund balance in fiscal 2008 and deficiencies related to state financial reporting requirements."

Moody's opinion reflected several concerns of the Clayton County Board of Commissioners (BOC), particularly the Georgia Department of Audits and Accounts' (GDOAA) recent decision to block state grant funding to the county, based on non-compliance issues in reporting its fiscal 2007 audit.

Alex Cohilas, however, the county's new chief of staff, as well as its fire chief, said the matter has been addressed and the county should have access to state grant funding by "the end of this year."

"Another issue was the withholding of some state funding because of some reporting requirements," he said on Friday. "Those issues have been resolved."

Cohilas said that the Clayton County Finance Department spoke with Ed Blaha, director of GDOAA's nonprofit and local government audits division, on Tuesday and Wednesday, and received word that the county had satisfied its 2007 requirements.

Eldrin Bell, BOC chairman, however, is not convinced the county is in compliance. "It's my understanding, according to my discussions, that we are still not in compliance," said Bell on Friday. "In my conversations with the DCA [Department of Community Affairs] and the auditors, they just simply said we weren't."

Recently, Southern Regional Medical Center (SRMC), asked the county to help the hospital refinance $40.2 million of pending debt, using the county's current bond rating. On Dec. 22, Southern Regional Health System, which runs the hospital, was also placed on a watch list for a possible downgrade of its Baa2 bond rating, primarily due the hospital's shrinking cash-to-debt ratio.

According to Moody's, by fiscal year end 2007, SRMC had 102 days of cash on hand and a 104 percent cash-to-debt ratio. By Nov. 30, 2008, the hospital had 62 days of cash on hand and a 85 percent cash-to-debt ratio.

Bell said it is possible Moody's could downgrade the county's bond rating to Aa3, or lower. He said the board can decide to back the hospital's bond if it wants to, but added that, if the hospital were to default, the impact on the county could be greater if the county loses its favorable bond rating.

"One of the reasons I have been calling for an audit is so that we could have avoided it," said Bell. "We could have had a plan in place." He said the county's bond rating allows it to sell bonds "more readily on the market" and get "the lowest possible interest rate."

Moody's decision to put the county on a watch list reflected several factors outside BOC's sphere of influence, according to the report. Factors for the decision included: "Sizable expenditure variances" coming from Clayton County Sheriff's Department; an estimated $3.7 million shortfall in Local Option Sales Tax (LOST) revenues; the county's 9.9 percent foreclosure rate, which is among the highest in the state; a 7.8 percent unemployment rate; a 7 percent drop in per capita income between 2000 and 2006; and the possibility of the county losing $4.5 million, if the governor chooses to withhold the 2008 homeowners tax relief grant.

The report also indicated that Moody's is cautiously watching the progress of Delta Air Lines, which is the county's largest taxpayer, and accounts for 8.3 percent of the county's tax base.

Moody's said its watch list review "will focus on the results of the county's audited fiscal 2008 financial statements," which the county expects to have by Jan. 31, 2009.

Cohilas said he believes the audit, which will be done by the KPMG auditing firm, will clear up any doubts Moody's may have. "Clayton County is suffering like other communities, from the effects of the economy," he said. "There were things that impacted Moody's decision outside of the decisions of local elected officials.

"There have been loose comments from various people,claiming what the county's fund balance will show," Cohilas added. "We believe the audited numbers will show a far different number than has been asserted by some. We are only a few weeks away from having the audited numbers."