The Georgia Supreme Court ruled Monday that school property tax money cannot be used to finance Atlanta's Beltline, a stunning decision that casts doubt on the future of dozens of similar projects across the state, including downtown's Allen Plaza and Atlantic Station in Midtown.

Atlanta Mayor Shirley Franklin and Beltline officials vowed the project will continue.

"All big dreams have challenges, but it is not one we are not prepared to meet," Franklin said at a news conference Monday.

The unanimous ruling is a victory for Buckhead lawyer John Woodham, who in a 2006 lawsuit claimed the Beltline funding mechanism was illegal. He argued that the state constitution explicitly forbids school taxes from being used for non-educational purposes such as the Beltline, a planned loop of transit, trails, parks and development around the city's core.

The Supreme Court agreed, citing two earlier rulings, including a 1994 decision which held that DeKalb County school tax revenue couldn't be used to pay for a nearby road project.

"To say I was disappointed is an understatement," said Valerie Wilson, executive director of the Beltline Partnership, the project's fund-raising arm. "I think we have to regroup and refocus and move forward."

The ruling rocked other local development officials.

"It's devastating," said Hal Barry, whose company, Barry Real Estate, is the lead developer at Allen Plaza, an eight-block project near the Georgia Aquarium. "To get this kind of a low blow is really . . . I'm speechless. I can't think it through yet."

"This was the best economic incentive cities and counties had at their disposal," said Steve Labovtiz, an attorney who counsels developers seeking tax allocation district funding. "I imagine a bunch of [projects] will be shrunk, at the least, and some may be killed."

Franklin said the Beltline has widespread community support and noted that about 50 development projects are already under way along the planned 22-mile route.

The Beltline will still be able to tap about $800 million in city and county property taxes during the next 25 years, and another $29 million has been pledged from private donors.

It's not clear how the project's $2.8 billion price tag will be covered without the city school taxes, which were expected to account for about $850 million. To pay for big-ticket items like a light rail transit system, the city may have to rely on federal grants or a new type of funding, such as a regional or statewide transportation tax that's under consideration in the state Legislature.

Statewide, more than two dozen tax allocation districts, or TADs, similar to the Beltline's already are in place, including one that helped create Atlantic Station in Midtown. Others are in place at Fort Gillem in Clayton County, the area around Turner Field and much of downtown.

TADs work by redirecting future increases in property tax collections to help pay for projects within the district. In the Beltine's case, the TAD-generated funds would have helped pay for everything from a transit line to work-force housing. In other cases, such as the Westside TAD that includes Allen Plaza, the money is used to help developers defray costs.

Bonds that have already been issued are not affected by Monday's ruling. But future TAD-related bonds will not be allowed to include school taxes, which in Atlanta make up more than half of property taxes.

Developers are requesting approval of $231 million in TAD funds from Atlanta. With significantly less TAD help available, developers will re-evalute their projects; some might be changed, others might be dropped.

Atlantic Station in Midtown has received millions in TAD funding help, but future funding is questionable.

"What this could mean is many fewer TAD success stories like Atlantic Station," said Brian Leary, vice president with AIG Global Real Estate Investment, the Atlantic Station developer. This year alone, the city of Atlanta had planned to issue as much as $150 million in bonds for the Westside TAD, which could have helped cover the costs of 15 projects, including three at Allen Plaza: a W hotel, an apartment/hotel complex from Post Properties and an office building with a Publix supermarket, said Peggy McCormick, president of the Atlanta Development Authority.

That bond issue will now roughly be cut in half, officials said. The same can be said for a $75 million bond issue to help pay for the redevelopment of the former Perry Homes public housing project, which is slated to be transformed into a mixed-income complex.

Labovitz provides legal advice for the Hard Rock Hotel and Residences project, scheduled to be built downtown across from the Georgia Aquarium. The $150.5 million project is seeking $18.9 million in public help. Without school tax money, much less public aid will be available.

"We're going to have to go back and look at it and see if the numbers are going to make sense," Labovitz said. "It's much too early to tell."

Cheryl Strickland, the development authority's managing director for TADs, said the ruling is a setback for struggling neighborhoods trying to rebound.

"My personal concern is for the more underserved areas," Strickland said. "They will be a lot more challenges to attract more private development without a more robust tool."

The state Legislature allowed local governments to create TADs in 1985, as part of the Redevelopment Powers Law. Similar tax financing mechanisms are used across the country.

Lawyers for the city argued the provision provides clear authority to spend school property tax dollars on the Beltline, but the state Supreme Court disagreed.

Woodham, the 41-year-old real estate lawyer who brought the lawsuit, declined to be interviewed Monday. He e-mailed a statement:

"I am pleased with the Court's unanimous decision, affirming the very clear constitutional restriction on the use of school tax funds in the State of Georgia. Based on the statements of BeltLine officials, the project will move forward, financed through alternative means. I look forward to a successful project."

Staff writer Eric Stirgus contributed to this article.

THE STORY SO FAR

Previously: The Atlanta City Council approved a $200 million bond sale for the Beltline, but Buckhead lawyer John Woodham challenged the measure. A Fulton County judge upheld the bond sale, and Woodham appealed to the state Supreme Court.

Now: The Supreme Court ruled in Woodham's favor, saying the state constitution forbids school tax money from being spent on non-school-related projects, even projects like the Beltline that are in a tax allocation district, or TAD.

Next: The Beltline and projects funded in a similar fashion scramble to figure out how to cover costs.