Inside the battle over the Beltline debt to APS

June 2006: Attorney John Woodham files a legal challenge to the use of school taxes in tax allocation districts.

July 2006: Atlanta Beltline Inc., the nonprofit overseeing the buildout, is formed.

Feb. 2008: Georgia Supreme Court sides with Woodham.

Nov. 2008: State legislature takes issue to a referendum, and voters approve the use of school property taxes for TADs.

2009: State legislature changes Georgia constitution in accordance with the referendum.

Aug. 2009: City and APS strike an amended deal, upping the amount of money the Beltline TAD would send to APS.

Nov. 2009: City and APS sign a second amendment to the contract.

2012: City officials make moves to renegotiate terms of the deal.

Oct. 2012: The Beltline's Eastside Trail opens near Piedmont Park.

Dec. 2013: The Beltline TAD makes its first payment of $1.95 million, originally due Jan. 1.

Jan. 2014: APS Chief Financial Officer Chuck Burbridge sends letter to city suggesting other ways the Beltline debt can be paid, including by giving APS the Civic Center.

June 2014: Outoing Superintendent Erroll Davis, in an interview with The Atlanta Journal-Constitution, says all options are on the table for settling debt, including a lawsuit.

July 2014: Atlanta Mayor Kasim Reed is set to meet with APS officials to continue negotiations.

Digging Deep. The Atlanta Journal-Constitution was the first to report that Atlanta Public Schools and the City of Atlanta had reached an impasse over potentially more than $160 million in tax revenue stemming from Beltline development and the fight could possibly land the city and its schools in court. The AJC will continue covering developments on the disagreement, which will have to clear several hurdles before there's a solution.

Atlanta Beltline creator Ryan Gravel is invited across the world to talk about the transformative power of the greenspace project he envisioned as a Ga. Tech graduate student.

He’s seen the Beltline, which is revamping a 22-mile loop of deteriorating rail lines into parks, trails and transit, rise from a sketch to a bustling local attraction. He’s watched countless Atlantans gobble up property along its path. He has rejoiced over its accolades, including an international award in May naming it the best environmental rehabilitation project on the globe.

And that’s why he’s among those perplexed that the project is in trouble because of a hometown squabble over money.

For more than a year, City of Atlanta leaders have been in negotiations with Atlanta Public Schools over a multi-million dollar contract to partially fund the Beltline that all agree is now — in a post recession world — unsustainable.

They disagree on what to do about it. Atlanta leaders say the Beltline can’t afford to make $162 million in payments agreed upon before the recession hit, and want to overhaul 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.

Documents obtained by The Atlanta Journal-Constitution reveal just how dire the conflict has become. According to an internal memo from Atlanta Beltline Inc., the nonprofit overseeing the build-out, forking over contractually obligated payments from the Beltline’s special taxing district would effectively halt— if not kill — the greenspace project.

APS leaders don’t dispute that the Beltline alone can’t make the payments. But they say Atlanta leaders are shirking their obligation to backstop the project.

The issue has reached near explosive proportions in recent weeks as now former APS Superintendent Erroll Davis has threatened a lawsuit to enforce the contract, followed by Atlanta Mayor Kasim Reed’s comparison of Davis’s stance to a hostage situation.

The school district has yet to file a legal challenge, but both sides are now seeking to win in the court of public opinion. The issue pits the power of the economic development project against the needs of a public school system eager to regain its prominence following the test cheating scandal.

“We’re supportive of the Beltline, which is why we pledged our taxes to it,” Davis said in an interview this week with The AJC. “But those taxes going to the Beltline are monies that could go to the children of this city.”

Reed countered that the Beltline spurs economic development, benefitting the schools. He bristled at the notion the city was harming its students and pointed to his longtime support of APS.

“If APS wants to litigate it, by all means do so. Tee it up,” Reed said. “Because that is the worst thing that can happen in my mind for the system because it will create a deep divide between the entity whose support it needs more than any other entity.”

To Gravel, the local conflict misses the big picture.

“The world literally is watching us and this project (is) changing the way this city and this region lives and operates,” he said. “The idea that we’re going to bicker about this stuff is a little disheartening.”

Conflict

At issue is a deal former Mayor Shirley Franklin and then-APS Superintendent Dr. Beverly Hall forged in 2005 to create the Beltline tax allocation district, or TAD. Under the deal, the city agreed to make $162 million in fixed payments from the Beltline TAD in exchange for using a portion of property tax revenue that would have gone to the schools for its development.

The idea is that after the Beltline’s 22-mile loop is complete by 2030, the payments will stop and all parties will reap the rewards of better communities and higher property tax revenue.

City officials say the Beltline TAD can’t cover those payments because its revenue was harmed by two major events: a legal challenge to the use of school taxes for development, which for a time tied up its funding, and the recession, which stalled growth and devastated its bottom line.

The Beltline paid APS its first installment of $1.95 million nearly a year late in 2013. It’s now behind on a $6.75 million payment.

APS leaders say the city also has yet to make good on providing land and $10 million to develop a recreational facility. In their view, the Beltline TAD is behind $19 million when considering additional debts.

Reed says that figure isn’t as clear-cut as APS asserts.

APS Chief Financial Officer Chuck Burbridge, who was at the table when city and school leaders amended the deal twice in 2009, likens the issue to a homeowner locking in a mortgage rate, but then losing his job.

He’s sympathetic to the city’s position, he said, but notes the city signed several agreements to these terms.

“You try to put yourself in their shoes and understand their intention, but they agreed to it,” Burbridge said. “We can’t help that they signed a bad contract.”

Reed — who said he is only speaking out on the issue because Davis discussed negotiations in an interview with The AJC — said he made it clear to APS that he wouldn’t negotiate a settlement until after the budget season ended in June.

The mayor also defended the power of the Beltline as beneficial to both the city and schools. The recession was more than a downturn, he continued, but the worst economic crisis in more than 80 years.

“So I don’t think it’s unreasonable given the way the 2005 contract was drafted that as a community we renegotiate the terms around what is clearly a community asset.”

Council President Ceasar Mitchell, who in recent weeks has made moves to be involved in the negotiations, has called for both sides to bend.

“Contracts are contracts, but contracts can be reformed,” Mitchell said.

Alternatives

No one disputes that the Beltline — known for its now-famous Eastside Trail — would be financially crippled if forced to pay. After all, this year's $6.75 million payment alone accounts for almost a third of its annual budget. Those fixed payments will peak at $16 million.

That’s why Davis says that the city — with its $568 million balanced budget and more than $135 million in reserves — is on the hook to bail out the project.

“APS is not asking the Beltline to make these payments … It’s asking its contract with the city and Invest Atlanta (the city’s economic development agency) be honored,” he said. “This business about APS is forcing the Beltline into insolvency or to use up its budget is wrong.”

Reed called the suggestion of dipping into the city’s general fund “preposterous.”

Finding that money comes at a time the mayor is already searching for ways to fund an infrastructure bond worth up to $250 million next year, pending voter approval. Further, the mayor said he’s worked hard to improve the city’s financial health and points to a recent bond rating upgrade as proof it’s working.

“This is the direction we are going and the things we are doing are clearly working,” he said. Reed said he won’t risk harming that progress “because Erroll Davis says we can just write a check.”

Davis has proposed the city satisfy the Beltline debt in other ways, such as by giving a break on police or water costs, or giving APS the Civic Center.

Those talks haven’t been successful. For Reed, selling the property was a non-starter. The mayor said he envisions nothing short of “iconic” on that site and later announced plans to market the land to a developer.

Competing needs

APS’s quest to collect the Beltline debt comes as school board members seek to rein in spending.

The district balanced its current $658 million budget with $25 million from its reserve funds. That budget included about $15 million for employee raises and other compensation changes. The district also faces a $550 million unfunded pension liability. And while APS has closed schools in recent years in an effort to use resources more efficiently, some schools still operate below capacity.

In April, the board, concerned about historically high levels of spending, administration costs and reliance on savings, approved a plan to revisit the budget after incoming Superintendent Meria Carstarphen formally begins work.

City leaders such as District 12 Councilwoman Joyce Sheperd thinks the Beltline can be the tide that lifts all boats.

Speaking at a recent briefing, Sheperd said the Beltline is already bringing families back to her struggling southwest community, but that they need good schools.

“The Beltline is not just a greenspace … it’s a catalyst to bring people back into our cities and into our communities,” she said.

“The two of us are tied at the hips in terms of everything,” she continued, speaking to APS board members in the audience. “When y’all lose, we lose. Everybody loses.”

APS boardmember Cynthia Briscoe Brown, also an ABI boardmember, wouldn’t say whether APS is willing to lower the Beltline’s total monetary obligation. But she pledged in that same meeting that the board wants to find a resolution to the contract dispute.

“This is not about taking down the Beltline; this is about resolving an issue which does affect the Beltline’s ability to raise funds,” she said. “It affects APS’s ability to fulfill its mission and it also affects the ability of a city to continue along a path of forward progress.”

Moving forward

By many accounts, negotiations between the city and school district are at a standstill. And given increasing rhetoric between the parties, an imminent resolution doesn’t seem likely.

Reed — who, like Davis, inherited this problem from his predecessor — is now taking the lead on the talks that until now have been handled by his staff. The mayor said he and his team are meeting with school officials after July 10.

He’ll see a familiar face at the negotiating table: Davis.

Though Carstarphen takes office this month, APS board chairman Courtney English recently announced the decision to hire Davis as a consultant to manage the Beltline conflict for a $1 fee.

It could be the first time they discuss the issue face-to-face following Reed’s criticism of Davis for threatening to sue the city.

The mayor compared Davis’ lawsuit threat to a hostage crisis, noting “if you’re going to take hostages, you’d better be ready to shoot the hostages,” according to a Channel 2 Action News report.

Reed said a lawsuit would backfire on the school system.

“For him to be taking such an aggressive position is disappointing and it’s going to be met with similar aggression,” Reed said. “….But I’m not going to have my love of children questioned or my commitment to children questioned.”

Davis, for his part, said he has “great respect” for the mayor and the aid he’s given APS.

“But I also know our children need the money,” he said. “My loyalty is to the children of this city.”

It’s unknown how receptive the APS board will be to the mayor, who backed some of their opponents in last fall’s election. The conflict has also caused tensions between Reed and English, who the mayor supported during the 2013 race.

If you talk to longtime politicos like former APS board chair Mike Holiman, who cast a vote in favor of the Beltline TAD in 2005, the bluster will inevitably lead to resolution.

“What we’re watching is a negotiation and part of that is trying to court public opinion and trying to bring political pressure on elected officials,” he said. “But ultimately, I think they will reach an agreement.”

Katy Barksdale, also a former school board member, said all parties need to “be realistic” about what money is available in post-recession Atlanta and make compromises.

“Anyone who has been around Atlanta and even naysayers of the Beltline would say it’s a good thing for the city. And everybody knows the No. 1 issue in Atlanta is to get the educational system strong,” she said. “So how do we work together to achieve the goals so that we make Atlanta stronger? … This divisiveness doesn’t help anybody.”