Fulton grants tax breaks for luxury apartment projects

Development authority didn’t calculate cost of incentives for Buckhead, Midtown, North Fulton deals
North Buckhead: 1,610

Credit: Hyosub Shin

Credit: Hyosub Shin

North Buckhead: 1,610

Developers of luxury apartments in wealthy neighborhoods have received tens of millions of dollars in tax breaks the past two years from a Fulton County incentive program envisioned for corporate expansions and relocations.

For that public investment, the posh towers and complexes in Midtown, Buckhead and other Fulton development hot spots create relatively few permanent jobs.

The Development Authority of Fulton County, which arranges the tax breaks, doesn’t ask for many jobs in return.

Nor does it require revitalizing distressed areas, preserving historic buildings or setting aside apartments with rents that teachers or firefighters can afford — things some other communities across the nation do in return for such breaks.

An Atlanta Journal-Constitution investigation found that the authority doesn’t even calculate the cost of the tax breaks to measure against the potential public benefits.

It approves them nonetheless, although county policy requires the cost-benefit analysis.

Critics say the lack of such analysis can make it hard to gauge whether taxpayers get a good deal for the government largess. With county taxpayers facing a 17 percent property tax hike, and cities and school districts scratching for revenue, some fear the incentives put more pressure on taxpayers by subsidizing projects that would have been built anyway.

“They’re saying we just give out candy, we don’t check on cavities,” said Brent Lane, an expert in economic development and competitiveness at the University of North Carolina.

Development authority officials say the deals are part of their mission to grow jobs, boost the Fulton economy and pump up the county’s tax rolls. Tax collections go up on these properties when they’re built even with the tax breaks, providing revenue schools and local governments never counted on getting. That’s more important than the “purported value” of the tax breaks, the authority says.

Without the incentives, they and some developers say, the projects won’t happen.

“We are competing with other states and cities,” said Sandra Zayac, an authority attorney with the law firm Schiff Hardin. “We’ve heard from developers that this is the reason developers are building here.”

Dave Stockert, CEO of Atlanta-based Post Properties, which is developing a 26-story tower near Phipps Plaza, said the incentives were key in deciding whether to build. They help offset high construction and land costs in pricey areas like Buckhead, he said, and help keep rents in line.

For the tony Elle project on Pharr Road in Buckhead, developed by JLB Partners, Zayac said the tax break was granted to make “the project economically feasible.”

Mere months after the incentive was approved, though, the Elle sold for more than $100 million, or about $40 million more than its reported cost to build. The tax break will benefit the new owner for a decade, an incentive likely worth several million dollars.

Other apartment projects targeting the high-rent market are underway in Fulton and elsewhere without such incentives.

Some industry watchers fear these tax deals juice up the already hot market for luxury development and inflate the supply of apartments the vast majority of renters can’t afford.

In the in-town Atlanta area alone there are more than 5,000 luxury units expected to be built in the next 12 months and potentially thousands more in the pipeline, according to real estate research firm Haddow & Co. These developments often target rents of $2 or more per square foot, which could make a typical two-bedroom unit cost $2,000 or more a month.

“I believe when … we have to bribe people to do projects at the corner of Peachtree and Piedmont, we need to roll up the sidewalks and go home,” said Atlanta City Councilman Howard Shook, who represents Buckhead, where at least five of the projects have been approved. “It’s an implausible assertion that people will no longer do projects unless they get a tax break.”

The Fulton incentives, economic development researchers say, could be better used to stimulate development of affordable housing or to renew blighted areas.

“They’re priming a pump that’s already going very well,” Lane said.

‘Why should we?’

State and local development agencies have pumped up use of incentives nationwide in recent years to try to woo jobs and investment. Meanwhile, taxpayers have demanded more disclosure about the public costs and benefits, as demonstrated by the debate over stadiums for the Atlanta Braves and Falcons.

Knowing the public expense and what taxpayers get in return are “essential” to well-run incentive programs, Lane said.

“If you don’t do that, you don’t have any idea if you should be doing anything at all,” he said. It leaves unanswered the basic question: “Does this make economic sense based upon the public return?”

Henry County’s policy ties incentives to a minimum of 25 full-time jobs, and it sets a minimum economic impact. Recipients could also lose tax breaks if a project fails to meet expectations.

To qualify for bond financing and tax breaks similar to those Fulton offers, Atlanta’s development authority, Invest Atlanta, runs a cost-benefit analysis and recently started requiring developers to reserve 10 percent of apartment units as affordable or workforce housing.

Mayor Kasim Reed pushed for the housing requirement and has pressed Fulton to adopt that stance.

“When taxpayer money is used to finance residential construction, I believe it’s fair and appropriate to ensure that regular working people … should be allowed to live in those communities,” Reed said.

Shook, the Atlanta city councilman, says Fulton’s moves undermine the city’s efforts.

“(The) developers know they can effectively go down the street for the same thing, or maybe a better deal,” he said.

In a recent interview, Fulton development officials bristled at suggestions that it can or should force conditions on developers in exchange for tax abatements.

“Why should we?” said long-time Fulton authority chairman Bob Shaw.

Al Nash, the authority’s new executive director, said his agency does not have the power to require affordable housing. However, an authority lawyer later said that the organization has talked with Invest Atlanta about a potential housing policy.

Lewis Horne Jr., an agency attorney, said if the county chooses to create policy on affordable housing or other economic goals, the authority will obey.

“We are not going to impose things on (developers) lightly,” said Horne, a partner at Schiff Hardin.

A workforce housing requirement “sounds good,” he said, but such requirements have ramifications. The Invest Atlanta policy, for example, he said, could end up penalizing tenants who rent an affordable unit but then get a pay raise and become ineligible.

“I think we are talking about a difference in philosophy of government,” Horne said.

The proof of the authority’s success, Horne said, is in the development it has stimulated.

“We see our projects as milestones,” he said.

‘Follow the marketplace’

The Fulton authority says that it follows an incentives policy established by county commissioners in 1993.

The authority, however, has broadened its use of incentives beyond those envisioned in the policy, which its officials refer to as guidelines. It also has made some decisions that appear to conflict with the policy.

Among other things, the policy states that the “benefits of the incentives offered must equal or exceed the predetermined cost to the County.” Included with the policy was a description of a computer model to assess costs and benefits. It even seeks to weigh demographic impacts, such as changes in population and income, and the cost of services.

The policy makes no mention of apartments for the type of incentives the authority has awarded luxury apartment developers. It mentions just corporate expansions and relocations.

To qualify, the policy spells out minimum requirements. Among them, a company establishing a U.S. corporate headquarters must invest $50 million or more and employ a minimum of 250 people. The threshold is lower for projects in South Fulton, where the county was trying to stimulate growth — with a regional headquarters qualifying as suitable, with a minimum of 150 employees and $25 million in investment. There’s also a lower standard for investment in blighted areas.

Such incentives helped convince UPS to move its headquarters from Connecticut in the 1990s, and to coax companies such as Cox Enterprises, whose media holdings include the AJC, to build and expand their headquarters in the county.

Authority officials say the policy didn’t “envision a great many categories of economic development projects undertaken over the intervening years by the DAFC…”During the economic surge last decade, the authority granted the same type of deals for luxury hotels, high-rise condos and speculative office towers.

However, the authority said the Board of Commissioners has recently requested that it devise a policy for the residential deals it has been authorizing.

The tax break, which is part of a complicated bond and lease transaction, comes in phases. It kicks in after the project is finished, starting at 50 percent the first year and winding down to 5 percent by Year 10. By Year 11, the project is taxed at the full amount.

Using a conservative methodology, the AJC calculated the tax breaks for 10 luxury apartment projects and two high-end student housing towers. The value of those alone is at least $64.5 million. The dozen projects examined are those for which lease agreements have been completed since 2012.

Deals for a number of other luxury projects are in the works, which could add millions of dollars to that tax break total.

Fulton development authority officials, in an interview with the AJC, repeatedly said the value of tax breaks can’t be determined until projects are built and the abatements run their course for 10 years.

Also, Horne said, the authority doesn’t calculate the value of the incentives because it does not want to promise developers an incentive it can’t deliver.

Later, though, an authority lawyer told the AJC it has spent eight years looking into methods for determining costs and benefits and has charged its new executive director with pursuing an analysis. The lawyer also said that the authority will roughly estimate the value of the tax breaks if the developer asks them to. It does not make such estimates for the public and has no records of estimates for the dozen apartment projects the AJC examined.

The authority does ask developers to estimate how many permanent jobs a project will deliver. While each project brings hundreds of temporary construction jobs, of the 12 projects the AJC analyzed, only two are expected to create more than 100 permanent jobs. Ten are projected to create 50 jobs or fewer; one is expected to create only eight.

Agreements between the authority and developers do not spell out how much the jobs will pay and often do not state whether they’re full-time.

Only one project approved since 2012 appears to meet Fulton's 1993 job creation guidelines: the massive Avalon community in Alpharetta, which resurrected a failed development called Prospect Park. The $600 million project, which opens in late October, includes not only apartments but also high-end stores and offices. A hotel and conference center is planned as part of a second phase.

According to authority documents, the project is expected to create 850 to 1,250 permanent jobs.

No tax breaks for luxury apartments in South Fulton have been granted in the past two years. Officials said that isn’t for lack of trying.

“We have to follow the marketplace,” Horne said. “We can’t point developers in a direction.”

Deals draw little notice

When the authority votes on the projects, they are approved under the auspices of bond deals, and the meeting agendas make no mention of the tax savings.

The meetings are open to the public, but few people attend outside of those who have business with the agency.

Authority staff or bond attorneys vet deals before they reach the board, Horne said, and some are turned downbut he did not name any in the interview.

Once the authority votes, the county’s board of assessors routinely signs off. It could shoot down deals, but the authority says its goal is to present ones that assessors will approve.

County commissionerswhich recently approved the $60 million a year tax hike, don't vote on the tax breaks. County Chairman John Eaves declined comment through a spokesman.

At a Sept. 25 meeting of the Fulton board of assessors, an authority lawyer presented another deal, a high-rise apartment tower in Midtown.

It was approved with little discussion.

Atlanta City Hall reporter Katie Leslie contributed to this report.

The Development Authority of Fulton County

The development authority’s board wields significant clout, signing off on tax breaks and approving bonds that can lower financing costs for projects. The Fulton County Commission appoints the board’s members. Here’s a snapshot of them, the authority’s executive director and its legal counsel:

Robert J. Shaw, chairman: Former Fulton and Georgia Republican Party chairman Bob Shaw works with law firm Arnall Golden Gregory as a senior policy advisor on government affairs and public policy and as a manager of government affairs with iSquared Communications. He also has served on the board of the Georgia Department of Economic Development and as CEO of the Association of Development Authorities of Georgia. Nominated most recently by Commissioner Tom Lowe, Shaw's term ends in 2017.

Dr. John E. Maupin Jr., vice chairman: Until his recent retirement, Maupin was president of Morehouse School of Medicine. Maupin also serves as a director of Regional Financial Corp, of Healthsouth Corp, and LifePoint Hospitals. His term is to end next year.

Dr. Samuel Jolley Jr., secretary: Jolley has previously served as president of Morris Brown College on two occasions in separate bids to keep the struggling institution afloat. Jolley was appointed by Commissioner Bill Edwards for a term that ends in 2017.

Walter Metze, treasurer: In 1990, Metze ran unsuccessfully for Atlanta City Council for a seat eventually won by Emma Darnell. As a commissioner, she later appointed him to the development board. His term is slated to end in 2017.

Dr. Michael J. Bell, member: Bell is a professor of public finance at Georgia State University. As CFO of Atlanta under former Mayor Bill Campbell, his scrutiny of city finances put him on the outs with the mayor and he left shortly after he detailed concerns about the city's investments to federal prosecutors. He's served high-ranking positions in Fulton and DeKalb governments. He was appointed by Commissioner Robb Pitts for a term to end next year.

Sam Bacote, member: Bacote, appointed by John Eaves, is a former principal for Atlanta Public Schools and was a member of the city's Citizens Review Board. In 2012, as a member of Common Cause Georgia, he ran afoul of Mayor Kasim Reed over the group's criticism of the contract awards at Hartsfield-Jackson International Airport. Fulton Chairman John Eaves appointed him for a term that ends in 2017.

Pendleton Hodge, member: Hodge, a lawyer, heads Penn Hodge Properties, an Atlanta-based real estate firm. He is a member of the Greater North Fulton Chamber of Commerce and serves on the board of the Georgia Department of Economic Development. He was appointed by Commissioner Liz Hausmann and is serving a term that ends 2017.

Steve Broadbent, member: Broadbent is a Johns Creek City Councilor and once ran unsuccessfully against Eaves for Fulton commission chairman. Among the issues he cited was discontent in North Fulton over what he called taxpayer abuse by the county. Broadbent was appointed by Hausmann to a term ending in 2017.

Al Nash, executive director: Nash is a former executive with developer Columns Group and former chairman of North Fulton Chamber of Commerce. He's a former chair of the Regional Business Coalition, representing 16 chambers of commerce in 13 metro counties. In 2007 he was named to a legislative study committee to examine Fulton County and make recommendations on reorganizing how it is run. Before recently joining the Fulton authority, Nash was executive director of Progress Partners, the economic development arm of the North Fulton Chamber.

Lewis C. Horne Jr., legal counsel: Horne is a partner with Schiff Hardin of Atlanta. In 1997, Horne was appointed to conduct an investigation of the East Point Business and Industrial Development Authority, in the wake of a criminal charge against its chairman. Horne also served as president of the National Minority Golf Association.

Policy vs. practice

Fulton County commissioners in 1993 adopted a policy for an array of development incentives, to make certain that the costs would not outweigh the public benefits. This is the basic information to be used to make that calculation:

  • the number of jobs a project will create
  • its level of investment in Fulton County
  • the value of any proposed incentives
  • the amount of water, sewer and impact fees collected or waived

With that information, a computer model was to project the demographic and economic impact of the project in terms of change in employment, population, households, taxes, income, the cost of services and other incentives.

In practice, however, the Development Authority of Fulton County told the AJC that it cannot calculate the value of tax incentives for projects it authorizes and does not attempt a cost-benefit analysis. So who qualifies? An authority brochure says that its staff "evaluates each proposed project, including the number and quality of new jobs each project creates." It also says it rejects deals for proposed projects that do not adhere to the "Policy for Development Incentives."

How we got this story:

The AJC noticed a high volume of bond deals in recent years for luxury apartments by the Development Authority of Fulton County. The AJC wanted to find the answers to a few simple questions: What are these deals, what is the public investment and are taxpayers getting the bang for their bucks? The AJC analyzed hundreds of pages of documents from the authority, including lease agreements, meeting minutes, agendas and county policies for incentives. The newspaper interviewed top authority officials and tried to figure out the value of the incentives — something the authority and other county agencies said they couldn’t do. The AJC also spoke to experts in the economic development field and officials with other jurisdictions to try to determine how other authorities account for their incentives.

To calculate the potential value of the tax breaks for most of the luxury apartments, the AJC used the value of the authorized bonds as the fair market value of the completed projects. For two finished projects, the AJC used the actual fair market value as determined by the county’s board of assessors. Because future property values and millage rates can’t be predicted, the newspaper kept the taxable values and millage rates steady for the 10-year life of the tax abatements. The AJC then calculated annual tax savings with abatements for each project. This or a similar method is used by other local economic development agencies.