Wall Street, or at least an important slice of it, has now weighed in on one of this year’s most brazen acts of the state Legislature.
Capital One Public Fund, one of the nation’s biggest issuers of municipal bonds, wants a federal judge to stop a Nov. 6 vote that would allow a portion of the city of Stockbridge to split away and form a new city of Eagles Landing.
Capital One holds about $11.75 million in Stockbridge paper — most of it for a city hall built in the ‘00s. Payments on the debt are scheduled through 2031 — if the city can continue to make them.
A set of bills, passed by the Legislature and signed by Gov. Nathan Deal this spring, authorized the referendum to set the secession movement in motion. Approval could cost Stockbridge roughly $379 million of taxable property — about half its digest.
The legislation approved by the General Assembly would not divvy up Stockbridge’s debt. The 9,000 or so residents of this portion of a new city of Eagles Landing would walk away scot-free. Which is quite the incentive to do just that.
Only Stockbridge residents who are prospective citizens of Eagles Landing will be allowed to vote. City residents left behind, holding the bag, will have no say in the matter.
The lawsuit accuses our Republican-controlled Legislature, and an administration that has prided itself on the creation of a business-friendly environment, of subverting the foundation of all commercial enterprise. That is, the sanctity of the signed contract.
Capital One says Georgia’s state government has placed its contractual, multi-million dollar relationship with Stockbridge in jeopardy.
I write this in a hotel lobby in Macon, following the annual summer gathering of the Georgia Chamber. A Republican attorney — a good one, I think — has just passed by. When I told him my topic, he shook his head.
“It goes against the basics of contract law,” he said. “It’s the very first thing you’re taught in law school.”
The Capital One filing includes a brief lesson on the importance of municipal bonds. “Georgia’s municipal bond market provides an efficient means for local governments to borrow money for public purposes, including for equipment acquisitions and infrastructure improvements,” the lawyers wrote.
A municipality, in turn, pledges its “full faith and credit” to make good the debt. It is this full faith and credit that Capital One says has been sabotaged.
The bondholder alleges that it has already suffered damage, even though the referendum is still 11 weeks away. The lawsuit didn’t explain, and a Capital One spokeswoman declined to elaborate, but let me theorize on how that probably works.
Debt is a marketable commodity. When Stockbridge originally issued those bonds in 2005 and 2006, they were backed by Wachovia, which sold them to Wells Fargo. Capital One acquired them in 2015. Now, even if Capital One wanted to sell the debt to a fourth party, it would be difficult. Stockbridge bonds are damaged goods.
This matters when you consider that Georgia has more than 500 municipalities, most of which carry some sort of debt that is secured by the full faith and credit of their geographic territory. Which now appears subject to the annual whims of the Legislature. That additional risk could show up as higher interest rates, which would ultimately be borne by you, the taxpayer.
Given all this, the Capital One lawsuit wasn’t much of a surprise. But it is important. In July, a Henry County Superior Court judge turned away a city of Stockbridge attempt to stop the vote.
The U.S District Court for the Northern District of Georgia is another venue entirely. Capital One’s choice of King & Spalding, one of Atlanta’s storied law firms, is also significant.
One thing that has been missing from the Stockbridge/Eagles Landing debate has been a clear sense of the motivation. Supporters of a city of Eagles Landing, which would derive its name from the country club in its midst, say property values are a concern. But there is no denying the fact that when the legislation to create the new municipality debuted in January, Stockbridge had just sworn in its first African-American elected as mayor.
Henry County is in the midst of rapid demographic change, from white to black, Republican to Democrat. Politics in Stockbridge have been likewise volatile.
Lee Stuart is a former mayor of Stockbridge. He was ousted by his city council in 2012, accused of creating a hostile workplace. Stuart is retired Army, and describes himself as a plain-spoken “muddy boots” grunt. I tracked him down in Terre Haute, Ind. He’s part of a group that tours the U.S. in vintage military helicopters.
I asked Stuart, who is white, what was at the root of the Stockbridge/Eagles Landing fight.
“It’s money. It’s land deals,” the former mayor said. “You look at Stockbridge, and see how it’s grown. It looks like wet spaghetti thrown against the wall. Because they’ve got to be contiguous — the boundaries. They’ll run the boundaries down this road, taking this chunk of land and that chunk.
“The developers, if they could get annexed into the city, then they could put one house per quarter an acre. If you’re in the county, it’s like you’ve got to have an acre or more,” Stuart said.
Zoning isn’t the attraction for becoming part of a municipality. When Eagle’s Landing County Club was established in the 1990s, Henry County was dry. “If you look at the map, the city weaves its way to include part of the country club, so they could turn around and have their liquor license,” Stuart said.
But municipal bonds and contract law are dull topics, lacking in drama. Stuart has developed his own metaphor for describing the situation in Henry County.
“It’s a divorce that you can’t help,” the former mayor said. “One partner is going to walk out and say, ‘Hey, I’ve done found something better. I’m taking half of your paycheck, and I’m leaving you all the bills. I’m taking a few of my fair-haired children, and you keep the rest of the [illegitimate offspring].”
Except, of course, Stuart didn’t really say “illegitimate offspring.”
Stuart, by the way, has entered the fray on his own terms. He’s personally filed a set of complaints with the State Bar of Georgia, against state Rep. Andy Welch and state Sen. Brian Strickland. The two Republicans from McDonough were responsible for pushing through the General Assembly the legislation to make the Nov. 6 vote on Eagles Landing possible.
According to Stuart’s complaint, the law firm to which both lawmakers belong was representing the city of Stockbridge at the time. “While they were earning money from the city of Stockbridge, they were fighting with all their strength to destroy the city,” Stuart said.
State bar complaints can be iffy things. They are long and tedious and often end up unresolved. But keep an eye on this federal court suit, which is far more likely to determine who in Stockbridge will be allowed to leave, and who will be saddled with the leavings.