How Atlanta suddenly found $177 million for its troubled water system

Watershed management pays back the loans through water bills and the one-cent Municipal Option Sales Tax. The city’s initial bond rules required a year’s worth of average debt payments for the department’s priority bonds be set aside in case it couldn’t pay back its loans from the rates and taxes collected in a given year.

Balla said that when the bonds started to go to market in the early 2000s, Atlanta didn’t have as high of a credit rating as it does now, 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 had to keep in the reserve fund, but up 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 just half of the average annual debt payments to be set aside, now it only needs to keep $53 million in reserves.

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

The legislation was initially submitted to 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.

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

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

“It does give the city less flexibility in the future,” Fabian said. It’s not necessarily a bad decision, because the city doesn’t have to borrow money to fund projects covered by cash, but “the reserve fund is there not just to protect investors, but also the city.”

“If the city finds itself short inadvertently, then it could wind up needing that reserve money to make sure that it doesn’t have a payment default,” he said.

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