APS, City of Atlanta attorneys trade legal threats over Beltline debt

APS has an obligation to provide a quality world-class public education to Atlanta’s children. This mission is essential to the future of our community and our city. Thus, in making this demand for payment, it is not APS’s intention to hinder or disrupt the development of the Beltline project. Rather, APS desires merely to enforce the terms of the Agreement — terms which the City and Invest Atlanta are demonstrably able to live up to but, out of calculated intransigence, have chosen to disregard. In order to rectify this situation and spare all parties the trouble and expense of what would inevitably be a protracted legal action, please confirm that your clients will be remitting payment to APS.

YOU HAVE BIGGER WORRIES …

Attorneys representing the city of Atlanta, in a letter dated Aug. 19, responded by telling APS it would be better served by working on its reputation than it would be by fighting to collect money it is owed.

Your combative approach encourages expansive and time-consuming litigation, which diverts APS … from pressing educational needs. … Students would benefit from renewed concentration on a more effective use of a budget that exceeds $600 million. … Despite boasting the highest per pupil spending rate in the metropolitan area, APS only produces a 59 percent graduation rate. APS is attempting to resolve the worst school cheating scandal in the history of Georgia and perhaps the United States. …It will take many years of hard work and proven success for APS to gain the public’s trust and erase the stigma of institutionalized deception. Threatening our clients with litigation does nothing to advance those goals. Please note though that the City always stands ready and willing to litigate.

A year-long battle between the City of Atlanta and Atlanta Public Schools, sparked by a multi-million dollar debt owed APS by the Beltline, could soon escalate into litigation and threaten the expansion of the city’s wildly popular green space project.

Documents obtained by The Atlanta Journal-Constitution reveal attorneys for Mayor Kasim Reed's administration and APS have exchanged legal threats — and cutting remarks — over millions in missed payments from the Beltline.

A law firm hired by APS sent a scathing letter to Reed’s administration last week accusing city leaders of breach of contract over the Beltline. APS helps fund the project with property tax revenue, and in turn, the city is required to make fixed annual payments to the district.

In the memo, Troutman Sanders partner Daniel Reinhardt demanded the city and Invest Atlanta, the economic development agency overseeing funds to the Beltline, submit late payments to avoid the “trouble and expense” of a “protracted legal action.”

City Attorney Cathy Hampton countered this week that Atlanta leaders are not in breach of the contract, and repeated the city’s defense that the terms of the agreement are unsustainable because of the impact of the recession.

Describing Reinhardt’s letter as “threatening,” Hampton wrote that while the administration would prefer to “work toward resolution,” it “always stands ready and willing to litigate.”

The city’s top attorney also took shots at APS’s internal struggles. A lawsuit, she wrote in her response, would divert the system’s attention away from fixing its low graduation rates, budget woes, underfunded pension and reputation as more than a dozen former district employees now face trial in connection with test cheating. Hampton also noted the city has attempted to work with APS for years to restructure the deal with no results.

The missives reflect ongoing tension between city and APS officials, and come amid heated and public debate over how to resolve the problem. Reed and former schools superintendent Erroll Davis swapped barbs this year over the issue, all the while pledging to reach a compromise. But a resolution has remained elusive.

At stake is the future of Atlanta’s internationally-recognized green space project, which aims to turn a 22-mile loop of dilapidated rail lines into a necklace of parks, trails and transit.

By end of Wednesday, both parties agreed to schedule a meeting between Reed and APS Board Chairman Courtney English, according to the school district. Reed's administration declined to comment on the letters.

English said though APS hired outside counsel earlier this month to address the Beltline debt, the letter does not indicate plans to sue. Still, the school board was scheduled to meet Wednesday night to discuss potential litigation and other issues. English declined to say whether that involved the Beltline debt.

“We are trying to find ways to bring this issue to a swift and productive resolution that benefits both the kids and the citizens of Atlanta,” English said. “We needed additional expertise to help us do that.”

For more than a year, Atlanta and APS leaders have been in talks over a multi-million contract first signed in 2005 and amended twice in 2009.

Under the deal, the Beltline uses a portion of property tax revenue that would have gone to Fulton County and to APS. In exchange, city officials agreed to make fixed payments from the Beltline’s tax allocation district, or TAD, to the school system and Fulton County that rise over time, peaking at $16 million a year and totaling $162 million.

The long-term goal is that after the Beltline is complete by 2030, those payments will stop and APS will reap the rewards of better communities and higher property tax revenue.

But the Beltline’s revenue projections were decimated by the recession, and city leaders say the Beltine is unable to meet the terms of the deal.

APS — facing its own financial constraints — says the city’s failure to live up to its end of the Beltline bargain harms the school district. School leaders say they’re owed as much as $19 million in late payments and fees, a figure Atlanta officials refute.

The behind-the-scenes talks went public earlier this year when Davis told The AJC that "all options" are on the table to enforce the contract, including a lawsuit. Reed then compared Davis' stance to a hostage situation and later openly criticized Davis and English for their leadership.

The APS board has since met with members of the Atlanta City Council to discuss the issue.

In the Aug. 12 memo, Reinhardt accused the city of “utter disregard” for its contractual obligations and said it is attempting to “strong-arm” the school system into restructuring the deal. He demanded the city immediately make a $6.75 million payment that was due last January, as well as interest for that and a $1.95 million late payment the Beltline made in 2013.

Reinhardt also accused the city of shirking its responsibility to APS in favor of the green space project. What’s more, Reinhardt noted the city is current on payments, which are far smaller amounts, to Fulton County.

“As evidenced by your clients’ own financial statements, the city and Invest Atlanta have unilaterally decided to place the Beltline development expenses ahead of their contractually required annual payments to APS,” Reinhardt wrote, then citing terms of the agreement that states the payments to APS must supersede any development costs.

In her Aug. 19 letter, Hampton accused APS of “thwarting” the city’s attempts to meet certain elements of its contract, such as by turning down a land donation in December 2009.

Hampton also said the city has attempted to work with APS for years. That history, she wrote, “is essential to a financial matter between governmental partners where the outcome directly affects the public.”

“Your combative approach encourages expensive and time-consuming litigation, which diverts APS money, employee time and energy from pressing educational needs,” Hampton wrote.

In response to the city’s charge that the school district’s approach to the Beltline issue harms students, English said: “We remain focused on our No. 1 job, and that’s making sure our kids have access to an excellent education … We have never lost focus on that.”