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Diminishing property values and a possible credit rating downgrade are forcing DeKalb County officials to reconsider a tax increase.

Less than six weeks after Standard & Poor’s (S&P) Ratings Services downgraded its ratings on some of DeKalb County’s debt, Moody’s Investors Service announced that it is reviewing the county’s debt for a possible downgrade.

Under review are the county’s Aa3 rating on $415 million of outstanding general obligation debt and its A1 rating on $18.9 million of appropriation-backed debt.

In statement released on May 3, Moody’s said it expects the review to be complete in the next several weeks with an anticipated downgraded rating in the A-range.

The agency stated the review was initiated because of “the county’s strained liquidity position, concerns over the ability of the county to achieve structural improvement this fiscal year and in future years, and the impact of a larger-than-expected tax base decline on county operations.”

During a media briefing before the announcement, DeKalb County CEO Burrell Ellis called the possible downgrade “an appropriate action.”

“We do believe that they will take action to downgrade us again, but we think it’s going to be a minor downgrade,” Ellis said. “We think it is consistent with the liquidity problems that we are addressing.”

High foreclosures, the 2008 incorporation of Dunwoody, and increasing costs and declining revenue have contributed to financial difficulties.

“We have a cash flow problem,” Ellis said.

In February, the Board of Commissioners rejected Ellis’ proposed $563 million budget containing a 2.32-mill property tax increase in favor of a zero-tax-increase, $529 million budget.

That vote only provided for a $12 million reserve. Officials say the reserve should be at least $45 million—the amount needed to run the government for a month.

“We’ve drawn down our reserve balance in order to continue to operate the county without any kind of millage increase,” Ellis said.

To fix its cash flow problem, the board authorized county officials to take out a tax anticipation note of up to $150 million.

DeKalb’s budget is taking an additional $25 million hit due to declining property values in the county. While property values have dropped 10 percent, county officials only allowed for a 4 percent drop when the budget was prepared.

Commissioner Jeff Rader has proposed a 3.3-mill tax increase that would bring an additional $51 million in revenue to address the county’s reserves and general budget.

“The one good thing about commissioner Rader’s proposal is that it addresses the problem with the budgetary reserve,” Ellis said. “And that’s one of the things the bond rating agencies are very concerned about.”

In the event that the Board of Commissioners raises the millage, Ellis said he and several county officials intend to travel to New York to talk face-to-face with the rating agencies to discuss how the county has addressed its liquidity issues.

The county will then ask the agencies to change its ratings, Ellis said.

“At the end of the day, if we take appropriate, swift action…both rating agencies will restore our ratings,” Ellis said.

Moody’s said its review will focus on the county’s efforts to restore structural stability, including a possible millage increase in June and potential budget cuts.

Last month, S&P lowered the county’s general obligation debt rating BBB and its long-term rating on the county’s appropriation-backed debt BBB-. The rating on DeKalb’s outstanding water and sewer bonds was dropped to AA-. After the ratings were lowered, they were withdrawn by S&P.