Big developers sacrifice ownership to get city help on financing

Developers of high-profile projects in Atlanta give away their sites to obtain financing and tax breaks.

The Mansion on Peachtree, 3344 Peachtree, the St. Regis Atlanta, the InterContinental Hotel Buckhead, 55 Allen Plaza, Turner Broadcasting System and the future Mandarin Oriental Hotel are some of the developments where title has been conveyed to the Development Authority of Fulton County.

The development authority in turn approved issuing bonds for each project. Developers lease back the sites and either sell the bonds or use them as collateral to obtain financing. They also benefit from reduced taxes during and after construction.

Because leaseholder developers face restrictions on property that owners do not, they are subject to less tax. Local assessors determine what each leaseholder’s tax liability is.

After construction, a 10-year tax relief plan kicks in. In the first year, developers pay half the normal tax, then 5 percent more each year until Year 11, when the full amount is due.

Development authority bond financing and tax breaks are commonly used to encourage projects that create jobs. Because authorities are only conduits for issuing bonds, taxpayers are not on the hook if a project fails and bonds cannot be repaid.

With credit tight, development authority incentives have taken on added significance, said Lewis Horne, attorney for Fulton’s development authority.

“Tax-exempt or taxable bond financing would provide an additional and important financial advantage for such clients in tough economic times,” Horne said.

Development authorities say their assistance produces numerous benefits that far outweigh the cost of the tax breaks: permanent and construction jobs, higher property values generating higher taxes, increased spending by workers and visitors, and the possibility that a big project will ignite more development.

In order for governments to collect the utmost in taxes from leaseholders, regular assessments of project sites need to be done to stay current on increasing values.

Paul Freeman of SR Hotel Development Co., said the St. Regis Hotel project, which is scheduled to open in March, would have been difficult to pull off without development authority help.

“We caught the wave of rising costs, and you needed some assistance to be able to do it,” Freeman said. The development authority approved $80 million in bonds for that project with the understanding that it would create 300 jobs.

Raymond Hill, an assistant professor at Emory University’s Goizueta Business School and an expert on project financing, is critical of tax breaks for private projects because it’s impossible to know if that help is really necessary.

“I’m very much opposed to this because of the lack of transparency and the unknown return to the taxpayers,” Hill said.

Court rulings have made the process of obtaining bond financing and tax breaks more convoluted in Georgia than in other states.

“In Georgia we have to jump through a few more hoops,” said John Gornall, a partner at Arnall Golden Gregory who specializes in economic development.