A bill that cleared the Georgia Senate this week could have a major impact on what type of projects are eligible for lucrative tax breaks from local development authorities.
Senate Bill 85 appears to broaden the kind of projects that can receive tax breaks from local development authorities by eliminating existing restrictions.
Proponents of the bill, sponsored by state Sen. Brandon Beach, R-Alpharetta, say they’re trying to streamline conflicting parts of Georgia law in order to halt repeated legal challenges to high-profile development deals.
But critics say the legislation wipes out existing legal protections, and effectively gives development authorities carte blanche to dole out tax exemptions in such deals. They contend the lawsuits have sprung up because authorities are granting tax breaks to projects that aren’t eligible.
A lawsuit awaiting a ruling this month by the Georgia Supreme Court could help define exactly which projects can receive tax breaks. A lawyer for the plaintiff contends S.B. 85 could kill his case, something bill proponents say isn’t true.
Beach, head of the North Fulton Chamber of Commerce, said the bill poses little more than a “linguistic modification,” clarifying the word “project.” In his view, current code has “led to confusion and debate” and, thus, courtroom challenges.
“We just want to get it clarified so that we can really reduce these lawsuits that have been brought before the authority,” Beach told a Senate committee last week.
State Sen. Vincent Fort, D-Atlanta, believes S.B. 85 wipes out key protections that govern the types of projects to which a development authority can award tax exemptions. He’s one of 11 state senators, both Republican and Democrat, who voted against the bill this week.
“With that bill, the development authority can do anything, anywhere, at any time,” said Fort. “That’s my concern, that it gives them powers that are too broad.”
At issue are bond and lease-purchase agreements that are used to woo certain economic development prospects. Development authorities can issue bonds, take ownership of the properties and lease them back to a company as a way of providing tax incentives for jobs deals. Under those deals, businesses are often given breaks on their tax bills for up to a decade.
Some groups, such as Common Cause Georgia and Cobb school leaders, say these bond and tax break deals cut into school and local government budgets. Proponents, however, believe the deals have the long-term effect of lifting property tax revenue and boosting local economies.
The Development Authority of Fulton County has caught heat for its broad interpretation of what kinds of projects qualify, and is among the most prolific issuers of such deals. One of its most recent deals was for the U.S. headquarters of Mercedes-Benz, which includes a $4 million tax break.
The Fulton authority’s budget is funded almost exclusively on revenue it collects from fees on these bond and tax break deals.
Georgia Code Sec. 36-62-2 currently has 25 subsections defining the types of projects for which a development authority can — and cannot — issue tax exemptions. Manufacturing plant? Yes. Office buildings, or hotels that don’t involve a conference center? Up for debate.
The confusion arises, some say, from a subsection in the code that allows development authorities broad discretion over projects it pursues. Beach’s bill deletes 24 paragraphs of specific parameters for eligible projects, maintaining the broadly written subsection.
“What has happened is, in order to stop these deals, people have gone through and looked through all of the inconsistencies in the law. And what we’ve tried to do is clean them up,” said Lew Horne, attorney for the Development Authority of Fulton County. “This is a question about what a development authority can do.”
Horne points out that the state maintains differing laws for development authorities and downtown development authorities. The goal of the proposed change, he said, is to largely mirror the state laws governing downtown development authorities.
A similar bill died in committee last year because Cobb County legislators were concerned that further empowering development authorities could harm school budgets. Cobb schools have also argued certain office deals aren’t eligible under Georgia law.
Bond attorney John Woodham, who has brought myriad challenges to tax abatement deals, questioned whether bill sponsors are attempting to quash cases currently pending before the Georgia Supreme Court.
Woodham is representing a group of residents in English Avenue and Vine City in a case challenging the legality of Atlanta’s decision to help fund the future $1.4 billion Atlanta Falcons stadium. He’s also representing a real estate firm, SJN Properties, in a challenge to the validity of certain tax breaks approved by the Fulton County Board of Assessors and the Fulton authority.
It’s unclear what implications S.B. 85 could have, if any, in either case. But Woodham believes its passage is designed to kill the SJN Properties case before the Supreme Court can rule whether the lawsuit was properly dismissed by a lower court.
“They’re trying to change the law in the midst of ongoing litigation,” Woodham said.
Horne, whose group was drawn into the lawsuit, said the legislation would have no impact on either case.
S.B. 85 cleared the Senate by a 41 to 11 vote. It’s now before the House for consideration.
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