A representative from the Georgia Municipal Association told lawmakers the powerful group opposes carving a new city out of an existing one because doing so would jeopardize the financial standing of every municipality in the state.
But, he acknowledged, “Fundamentally, the creation of cities is a political process.”
So far, all new cities created since the law was changed in 1993 to ease the process have been established on formerly unincorporated county land. Credit agencies have warned, however, that allowing some neighborhoods to secede from a municipality in order to form a new one would have implications for the credit ratings of all cities, said Tom Gehl, the municipal association’s director of governmental relations.
Although he did not refer to a specific proposed city by name, Gehl’s comments were made amid a heated debate over whether Buckhead should leave Atlanta to become its own city.
Gehl was talking to the Georgia Legislature’s Joint Governmental Affairs and Annexation & Cityhood Study Committee this week as it studies the laws regarding the process and the possible consequences of making new cities.
Todd Edwards, the deputy legislative director at the Association County Commissioners of Georgia, mentioned that the current process for creating new cities needs improvement, such as requiring a public petition before scheduling a vote to ensure support for a cityhood proposal.
Edwards also said cityhood proposals should take into consideration the fiscal implications to the jurisdictions that are losing population, and suggested no new city be created within three miles of another city. He submitted a detailed proposal for legislation to make many changes to the law.
But, he said, “ACCG does not take a position on any currently passed or future proposed cities in the state of Georgia.”
The potential impact to other cities’ credit ratings only comes into play with a proposal to create a city from neighborhoods within an existing city, which has only been tried once since 1993.
Each year credit rating agencies like S&P Global, Moody’s, and Fitch group rate each governmental entity in the state into classes, and the higher the rating the lower the interest rates on the bonds they can sell. The state’s current rating, for instance, is AAA, which is the highest category. If credit ratings are reduced, cities would have a more difficult time funding capital projects like roads, bridges, and government buildings.
In 2018, Henry County residents rejected an effort to carve a city of Eagles Landing out of the city of Stockbridge. At that time, the rating agencies warned that such a proposal would wreck the credit rating of every city in the state because, Gehl said, they feared it might lead to “similar actions becoming more frequent without considerations for overall operations and liabilities.” He said that fear still exists.
“If you don’t account for the debt, you potentially jeopardize the institutional frameworks” of municipalities all over the state, Gehl told the study committee.
Gehl also pointed out some consequences when a city is formed in unincorporated areas. He said the county retains responsibility for the employee pension fund, for instance, even though the county may no longer need as many employees or receive the same tax revenue.
New cities, such as Tucker and Brookhaven in DeKalb County, have been formed in recent years because residents were not satisfied with the services provided by their county. Credit ratings were not impacted because these cities were located in unincorporated areas.