Rating agencies keeping eye on Georgia drought, wildfires

Nearly all of Georgia is experiencing severe to exceptional drought conditions, and if it continues, it could impact state and local government finances, rating agencies said.

The drought has sparked more than 90 wildfires in the southern half of the state this week, with more than 34,000 acres burned, according to the Fox Weather web site.

Gov. Brian Kemp declared a state of emergency Wednesday, which is set to last for at least 30 days.

"With much of Georgia remaining in extreme drought conditions, wildfires have already surpassed the state's five-year average and continue to spread," said Kemp. "My team and I are working closely with Georgia State Forester Johnny Sabo and his team, along with federal, state and local officials, to ensure we are doing everything possible to combat the fires and provide assistance to affected communities."

Carter Chapman, Kemp's press secretary, told The Bond Buyer, "For the time being, we are focused on the immediate response and getting these fires under control and people safe."

"We are watching the potential near- and medium-term impacts this could have for Georgia governments and what steps the state and local governments will take to manage water resources and mitigate negative economic and financial effects," said S&P Global Ratings Associate Director Kenneth Biddison." Credit risks could materialize if the duration and severity of the drought deepens and if the state were to implement restrictions on water usage, which could affect the operations and finances of water and sewer utilities, counties, and municipalities."

The areas "with large agricultural and water-intensive industry components (such as food and beverage processing, utilities, and chemicals manufacturing) within their tax base," are the most in jeopardy of economic strife, Biddison continued. "Smaller municipalities may be more vulnerable due to limited financial flexibility and less economic diversification.

Other counties or municipalities may have trouble if water costs become "prohibitive for their rate base," and they can't raise rates or face "constrained liquidity without access to general fund support or other external funding sources," Biddison said.

S&P views Georgia counties' reserves as "generally strong," but said it "will also monitor the timing and availability of any state or federal support, which could help mitigate some of the financial impacts alongside local resources."

"It is too early to know the full fiscal and economic costs of the drought to the state," Fitch Ratings Director Tammy Gamerman said. "However, the state has a strong level of reserves and is well positioned to withstand potential near-term costs."

Georgia is rated triple-A by Moody's Ratings, S&P and Fitch.

On Wednesday the U.S. Department of Agriculture issued a disaster declaration for 126 of the state's 159 counties, reflecting the drought's impact on state agriculture.

The portion of the state in at least severe drought conditions is the greatest since 2007.

Georgia Association of County Governments Deputy Director Clint Mueller said he expects more water restrictions to be implemented soon.

The drought is already impacting agriculture, said Metro Atlanta Chamber of Commerce Chief Economist Jerry Parish. "Producers are already facing fertilizer shortages and higher prices tied to the Strait of Hormuz closure, and continued dry conditions are making planting difficult ? delaying crops, affecting yields, and reducing farm income."

Such issues spillover into trucking, "which moves agricultural products," Parish continued.

Larry Hanson, CEO and executive director of the Georgia Municipal Association, said, "There will be financial impacts from the ongoing drought and wildfires, but those will be quantified over time."

Little rain is forecast for the coming week.

A research paper found American communities at greater wildfire risk pay higher interest rates on their municipal bonds.

Separately, the state legislature recently approved Senate Bill 33 on property taxes, which limits the growth of property tax assessments for properties used as homes to the rate of inflation. Kemp hasn't signed the bill yet.