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Water Wars Threaten Credit of Metro Governments

By Chris Joyner
Atlanta Journal Constitution
Credit rating agency Fitch Ratings issued a report this week warning that it may downgrade the credit scores of metro Atlanta governments if a federal court does not side with Georgia on access to drinking water from Lake Lanier.

Credit rating agency Fitch Ratings issued a report this week warning that it may downgrade the credit scores of metro Atlanta governments if a federal court does not side with Georgia on access to drinking water from Lake Lanier.

Christopher Hessenthaler, a Fitch analyst, said the report is an update to investors in government bonds that the agency is monitoring the situation as a 2012 court-imposed deadline on water use from Lanier approaches.

In 2009, U.S. District Judge Paul Magnuson ruled as part of a lawsuit involving Georgia, Alabama and Florida that the metro area did not have legal authority to continue to withdraw water at current levels from Lanier. The judge set a 2012 deadline for Georgia to settle the issue or lose substantial access to the lake. An appellate panel is reviewing that decision.

If Fitch and the other agencies gave local governments a lower rating, it would cost more for those governments to borrow money for infrastructure projects and other needs. Those costs would mean in cuts in services or higher taxes and water bills.

Maria Woods, financial services director for Gwinnett County, said the issue has been on her radar for some time.

“Anytime we talk with the ratings agencies they typically ask for an update on what is going on with the water wars," she said.

Woods was reluctant to say much more while the matter is in litigation, but she said a lower credit rating would mean the county would face higher borrowing costs. The Gwinnett County Water and Sewerage Authority has a sparkling AAA rating with Fitch currently.

Fitch expects the question over Lanier’s future use as a source of drinking water for metro Atlanta will be resolved “given the essentiality of water supply to the [metro area] and the devastating effect any material reduction would have on the region.” However, the report says the agency also will be watching to see how local governments address their water needs.

The report commends state politicians for passing tougher conservation efforts last year and praises Gov. Nathan Deal’s plan, announced this year, to pump state money into reservoir development. But it ends with a warning that water will “continue to be a primary rating driver in Fitch’s rating analysis for issuers operating in the region.”

Last fall, Ceres, a non-profit group of investors and environmental organizations, issued a report warning that water scarcity posed a "hidden financial risk" for investors in utility bonds. In May, the group wrote a letter to Deal asking him to allocate 20 percent of his reservoir money for conservation efforts.

Brooke Barton, director of water programs at Ceres, said the Fitch report backs up what the organization has been saying.

“This is a clear indication that the rating agency has a grasp on the situation and they are monitoring it," she said.

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