Buckhead City could be hung over big bond debt payment after controversial council legislation
The City of Atlanta has launched a counterattack on the City of Buckhead effort in the form of legislation that could require the new city to pay a multi-million dollar lump sum payment of bond debt.
The last-minute addition of this “poison pill” to an estimated $ 192 million bond sale item took even the city council that approved it on Dec. 15 by surprise. The decision to force a big payout would only take effect if voters approve Buckhead City and only if a future city council decides to pull the trigger in a separate vote. Administration officials and supporters say this provision is necessary to avoid the chaos the city could cause in bond markets and ratings, while supporters of the city call it a “tactical error” and act of undemocratic intimidation.
Doug Selby, a bond attorney working for the city, told the council the provision was added “in response to growing questions from the investor market about the consequences of de-annexation.”
Buckhead District 7 City Council member Howard Shook was the only vote against the legislation. He called it a “brutal and brutal act of political intimidation” that betrayed the tactics of opponents of the city to seek unity.
Some council members were absent for the 11-1 votes – including mayor-elect Andre Dickens and JP Matzigkeit, who represents Buckhead District 8.
Shook claimed that both sides of the debate would oppose the use of such tactics “in the dead of night”, but he appears to be incorrect.
The Buckhead City Municipal Committee is certainly not a fan.
“Buckhead City has already agreed to continue to pay its share of these obligations,” said Bill White, chief executive officer of the BCC, in a written statement. “Atlanta City Council has launched a most ill-advised legal action that is punitive to its own citizens who wish to exercise their constitutional right to vote in order to intimidate them. The legislator is now witness to this punitive and tactical error. The council has now created something that will have unintended consequences that will harm all residents of Atlanta. “
The anti-cityhood for a United Atlanta neighbors, however, take a different view.
“The city of Atlanta has a duty to act in the best interests of its taxpayers,” Neighbors executive director Michael Handelman said in a written statement. “The capital markets have heard loud and clear the confused and about-face statements from the Buckhead City Committee regarding the City of Atlanta’s outstanding municipal debt compliance. The uncertainty of Atlanta’s future tax base creates greater risk to the markets – and with greater risk comes higher costs for Atlanta to fund critical infrastructure projects. The “poison pill” is now an unfortunate necessity to convince markets that Atlanta – and cities in Georgia in general – will meet their debt service obligations. But the real solution, however, is for the General Assembly to vote against the BCC’s misguided legislation on the city.
Edward Lindsay, co-chair of the Committee for a United Atlanta, another opposition group, could not immediately be reached for comment.
The question of obligations
The impacts of municipal bonds have been a major issue in the debate on the city. Bond payments and ratings are important to cities. Lower bond ratings mean projects like streets and fire stations are more expensive to finance, and lower tax revenues could make it harder to pay off existing bond debt.
Losing Atlanta’s wealthiest neighborhood could have a big impact on income and debt payments. And the situation of such a district leaving its city is almost unprecedented, opening up a palette of unknown effects; the most recent similar proposal was for the town of Eagle’s Landing in Stockbridge in 2018, which spooked bond markets. Some academic experts have said the town of Buckhead is likely to have long-term negative effects on municipal bond ratings statewide. The BCC said it believes any negative effects can be mitigated and more details will come later.
The new bond legislation, made up of two interrelated documents, circulated through city council committees for months in presentations focused on funding improvements to the police and fire stations and in part refinancing the debt at more favorable interest rates. The “poison pill” provision is brand new, added by a substitution this week shortly before a special council meeting called.
The city’s controversial new response
The provision creates an “extraordinary optional repayment” where the City can essentially call on the bond debt of a de-annexed area within 12 months of the de-annexation or the creation of a “special district” encompassing it for the purpose of collecting. such income, whichever is later. . The option would force payment from the de-annexed area of 103% of the principal of the bonds, any unamortized premium on them and any accrued and unpaid interest. The calculation would be based on property valuations. The city council has the ability to exercise the option if the de-annexation legislation is approved, but the effects are nullified if the voters reject the de-annexation in a referendum.
The legislation does not name Buckhead, whose city effort would require both de-annexation and incorporation, but he is clearly the target. And given Buckhead’s outsized role in the city’s tax base, such a payment would likely work at least in the eight-figure range. The idea is to calm the nerves of investors who would question Atlanta’s ability to pay its debts.
“We believe that, given the landscape we find ourselves in, any idea regarding the de-annexation of any part of the city presents an inherent risk to the city in the future,” said Mohamed Balla, CFO of the city, to the council at the special meeting called. He noted that the extraordinary optional buy-back provision “is just that, an option… it is not automatically triggered…”. He said having such an option for the new board, which will take office in January, is in the city’s “best interests”.
However, the current council has had very few real options to approve the legislation. While the substance of the provision was intended to defeat the Town of Buckhead, its method of bringing it into law was clearly intended to defeat public input and council consideration.
Council member Jennifer Ide, who chairs the finance / executive committee that reviewed the legislation and of which District 6 includes part of Buckhead, was among those who said they had never heard of the provision until what a report from SaportaReport reveals the day before the special meeting called and introduced the term “poison pill”.
Meanwhile, Balla said, the city actually started selling bonds on December 14, ahead of the council meeting and the legislation vote. Legal documents for the sales included the de-annexation provision, he said, although the board had not yet approved it. This essentially meant that if the board did not approve the language as is, buyers could opt out of bond sales that were already underway.
Ide admitted the board was stuck, saying that with bond sales going on, “it’s too late to untie this” if they so choose.
Shook still wanted him. He made motions to remove poison pill provisions from both documents, both of which failed due to a lack of support from another board member. Shook, who spoke skeptically about the Town of Buckhead, blasted the provision in lengthy remarks attacking it as secretive, threatening and politically counterproductive.
“How many of you knew about this poison pill provision until today or yesterday?” Shook asked. “I didn’t do it until I read it in the media – which you would think I would be used to by now after four years. [of Mayor Keisha Lance Bottoms’ administration], but I am not.
“The poison pill is aptly named,” Shook continued. “The problem is, the poison is only available to Northside households. And I don’t know what I’m going to do if I hear the term “option” again. I know the difference between an option and a threat. This is a brutal and brutal act of political intimidation targeting part of the city, which is interesting given all the rhetoric about everyone needing to work together.
Shook went on to say that bond legislation is needed, “but without these toxic provisions that were put in place in the dead of night and discovered at the last second. I think – I know – that if you’re a fan of either side, those provisions should be deleted. Both sides would support this.
Shook said that “rather than the sound of a gun,” the city should allow the incoming mayor and council “to try to work together to resolve the issues that have plagued all Atlanteans, regardless of the place you live – for having troubled us for four years and actually is the root of the problem we are discussing now, which will only get worse. And talk about cutting a new mayor to his knees and not holding has the votes of seven additional or new board members. I don’t know why we would do this, so I am extremely disheartened by this.
Ide said she understands the administration’s concerns about bond debt. But she also suggested that Shook could gain support for a non-binding resolution suggesting the next council not exercise the poison pill option. “I certainly hope that the whole city will remain intact and this is something that is never necessary,” she said.