After eight years at the pinnacle of public credit rating, DeKalb County lost some of its credit luster last week.

Citing a host of economic factors and two years of deficits, Moody’s Investors Service downgraded the county’s triple A rating to double A1 on Dec. 15.

“The downgrade to Aa1 and the assignment of a negative outlook reflect the county’s pressured financial operations that ended in deficit undesignated reserves at fiscal year-end 2008 and the near-term challenges of restoring fund balance to levels consistent with the Aaa rating level,” it said.

Moody’s said its negative outlook on DeKalb reflects its belief that the county will remain challenged to restore structural balance and to enhance its overall financial position and reserve levels over the medium term.

DeKalb ended 2007 with a $9.8 million deficit that rose to $31.9 million in 2008. For 2010, it is facing $50 million less in revenues from declining property and sales tax receipts caused by foreclosures, the stalled real estate market, and the economic recession.

Moody’s based its rating downgrade on the county’s $471 million of outstanding general obligation debt.

Mike Bell, the county’s director of finance, said the revised credit rating is not good news.

“We hear what they are saying, and what they are saying is we need to cut expenses and raise our revenue,” he said.

Bell said that the immediate impact of the lower credit rating will be negligible if the county acquires no more debt. He said the downgrade would result in about five basis points – or 0.05 percent more in interest – if they borrow new money.

“We have no plans to borrow any money in the near future,” he said. “The debts we have are fixed rate and are locked in.”

DeKalb still in top three

CEO Burrell Ellis said the rating downgrade was not unexpected and that it was a factor in the 2010 budget he pitched to county commissioners on Dec. 15.

“It signals that we need to do some of the stuff that we recommended in the budget – cutting expenses, raising revenue and setting money in reserve,” he said.

Bell said the county has plans to increase its reserves to $45 million – the monthly cost of operating the county – by the end of 2011.

DeKalb County has enjoyed triple A ratings from the nation’s two credit rating companies since 2001. Bell said it is still among metro Atlanta’s three top-rated counties.

“Before the downgrade, the counties with the highest ratings were Cobb, Gwinnett and DeKalb,” he said. “After the downgrade, the counties with the highest grade are Cobb, Gwinnett and DeKalb.”

But for DeKalb, the bond-rating downgrade means it now comes in behind Cobb and Gwinnett counties, which both maintained their triple A ratings.

Still, Bell said the double A rating places DeKalb in the top 70 of 3,140 counties nationwide, down from the top 50 counties.

Bell says DeKalb continues to maintain a triple A rating from Standard & Poor’s. He said they have heard nothing from Standard & Poor’s to indicate that it plans to downgrade county.

“They use different criteria,” he said.

Many factors involved

Moody’s lower rating reflects numerous factors, including economic factors like the county’s digest growth, its revenues and expenses, and demographics like per capita family income.

The dramatic drop in revenues from property and sales taxes, which pay 80 percent of the county’s expenses, was the biggest factor in the downgrade. Moody’s also noted the decline in revenue from building permits.

The report by Moody’s public finance group analysts Catie Y. Tsao, Alicia Stephens and Geordie Thompson noted favorably the belt-tightening measures in Ellis’ proposed $583 million budget, which is $23 million less than the current budget.

Ellis wants to balance it with a 1.86 mill increase in property taxes and the reduction of 400 personnel through early retirement incentives and the appropriation of $11.2 million in fund balance as revenue.

“We now have to wait to see what the commissioners do,” he said.

By law, DeKalb must have an approved budget by March 1.

DeKalb’s revenues have been impacted negatively by the incorporation of the city of Dunwoody, rising foreclosure, the freezing of its digest values by state legislators, and the loss of state subsidy for the Homestead Tax Relief Grant.

Bell said Dunwoody’s incorporation cost the county $18 million in 2009, up from the $16 million they had estimated. He said it will be $18 million again in 2010.

Bell also pointed out that neither Cobb nor Gwinnett supports Grady Hospital or MARTA with tax dollars and DeKalb County does.

The prospect is not all bad.

Moody’s gave the county its highest ­double-A rating because it says it expects DeKalb to continue to derive stability from its strategic proximity to the city of Atlanta and the local presence of several large and stable institutional employers like the U.S. Centers for Disease Control and Prevention, the Internal Revenue Service and Emory University, but that it expects economic growth to moderate in the near term due to the economic recession.

It also believes that the county’s tax-supported debt position will remain manageable given limited future general government borrowing plans.

In an e-mail to county commissioners this week, Bell said he and his staff have been in discussions with Moody’s along with the county’s financial adviser regarding revenue, expenses, fund balances and digest values.

“Overall, I think Moody’s regards the recommended 2010 budget as a plus,” he said.