The political battle over Fulton County’s governance could have an unintended consequence: higher borrowing costs in the future due to a downgrade of the county’s credit rating.
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Staff writers Greg Bluestein and Russell Grantham contributed to this article.
How bonds work
Governments float bonds to raise large amounts of money for projects they otherwise couldn’t afford – much as people take out car loans or mortgages. Fulton County has gone into debt to make improvements to its jail and build new libraries, and each year it takes out a bridge loan to pay for countywide services until property taxes come due.
While individuals go through credit checks, governments turn to credit rating agencies – Standard & Poor’s, Moody’s, Fitch Ratings and Kroll Bond Ratings – to assign ratings based on their fiscal health. Investors demand higher interest rates if they expect a higher risk of default. The higher the rating, the lower the interest rate and the lower the cost to taxpayers to repay the bonds.
Ratings downgrades can increase a municipal government’s cost of refinancing or issuing debt by millions of dollars a year. Prices for previously-issued bonds can also drop, hurting bondholders and anyone whose retirement plan has money invested in the bonds.
The immediate impact of Fitch’s one-notch downgrade of Fulton County is likely to be limited. Fulton remains near the high end of Fitch’s ratings range of AAA to BBB.