ATLANTA - Gov. Sonny Perdue wants to sell part of an environmental loan fund on Wall Street to plug a hole in the state budget, but critics say it will threaten local governments' ability to finance water and sewer improvements at a time when the funding is badly needed.
Water projects are in demand as the state looks for ways to deal with a federal judge's ruling that could cut metro-Atlanta off from a good portion of its water supply in 2012.
And critics contend Perdue's proposal is a bad deal for the state. To generate $290 million in revenue, Georgia would have to cash out loans worth more than that amount, officials said. It's not yet clear exactly how much.
"It's robbing from Peter to pay Paul and that is not sound economic policy," said state Insurance Commissioner John Oxendine, a Republican candidate for governor.
U.S. Rep. Nathan Deal - also a GOP candidate for governor - called it "a dangerous step to take."
But Perdue's office said it would prevent even deeper cuts to education, which has seen $479 million in state funds evaporate in the current fiscal year alone. Perdue has said the popular fund would remain in existence and continue making loans.
Georgia has been hit with 13 consecutive months of declining revenues and is grappling with a steep budget shortfall.
Perdue spokesman Bert Brantley said the plan creates a new revenue stream without raising taxes and is preferable to more cuts to classrooms, health care and public safety.
"Anyone criticizing this idea needs to also offer alternative ways to raise $300 million in revenue or find $300 million in additional cuts to the state budget," Brantley said.
Perdue's proposal is plowing ahead without legislative approval. On Tuesday, the board of the Georgia Environmental Facilities Authority voted to begin investigating the sale of up to $575 million worth of loans, the total amount in the state's Georgia Fund.
"We're moving forward to determine the best way for GEFA to sell this portfolio," spokesman Shane Hix said.
GEFA would continue to service the loans that are sold.
The Georgia Fund was set up in 1985 to help cash-strapped local governments - some with poor credit - to pay for infrastructure improvements. A revolving loan fund, it has grown rapidly over the years.
"This is a very popular program with our members," Beth Brown, spokeswoman for the Association County Commissioners of Georgia, said.
In the last five years, the fund has paid for 226 projects worth $595 million, according to state records.
But as it has grown, some say the fund has expanded well beyond its core mission of helping localities that otherwise could not pay for their own infrastructure work.
Kelly McCutchen, president of the conservative Georgia Public Policy Foundation, said large local governments - like the city of Atlanta - are now tapping the fund when they could be turning to private financial institutions for funding.
"This has become an area where the state is competing with the private sector," McCutchen said.
The idea of "securitizing" the state fund is not a new one. It was floated in 2003 when Georgia faced another budget crunch. Paul Burks, then GEFA's executive director, wrote a memo opposing the maneuver.
Burks said the move would significantly reduce funding available for future water projects.
Brown said raiding the fund would hurt local governments' ability to comply with recommendations coming out of the governor's task force on water, such as repairing leaky pipes and creating new water sources.
Perdue convened a task force to look at water issues after a federal judge's ruling that could cut metro-Atlanta off from much of the water it receives from Lake Lanier by 2012. The task force suggested a number of conservation measures that Brown said could need to be implemented - and paid for - at the local level.
"New costly solutions are on the table at the same time the funding source to pay for them is being reduced," she said.
Some are pledging to fight the sale.
House Minority Leader DuBose Porter - also a gubernatorial candidate - said Perdue's plan would effectively end the fund.
"It's a terrible idea," the Dublin Democrat said. "And one we have to stop."