School vote would raise questions about Gulch deal

Atlanta Mayor Keisha Lance Bottoms speaks during the Stacey Abrams election night watch party at the Hyatt Regency in Atlanta, Tuesday, November 6, 2018. (ALYSSA POINTER/ALYSSA.POINTER@AJC.COM)

Atlanta Mayor Keisha Lance Bottoms speaks during the Stacey Abrams election night watch party at the Hyatt Regency in Atlanta, Tuesday, November 6, 2018. (ALYSSA POINTER/ALYSSA.POINTER@AJC.COM)

The Atlanta school board is considering a resolution that will attempt to restrict further use of school taxes to fund redevelopment on the city’s Westside, including the massive Gulch project.

The board has called a special meeting at 8 a.m. Friday to vote on a resolution that would require written approval before school property tax dollars can be used to fund future development in an area known as the Westside Tax Allocation District or TAD. The vote comes just days before a Fulton County Superior Court hearing that is required before the first set of bonds for Gulch redevelopment can be issued.

Three bond lawyers who were unable to comment on the record because of client conflicts told The Atlanta Journal-Constitution it’s unclear what the resolution would accomplish. Atlanta Public Schools agreed in 1998 and again in 2005 to forego future tax dollars within the district until 2038 to help fund redevelopment.

The Gulch deal is backed by Mayor Keisha Lance Bottoms and was approved last month by the Atlanta City Council. Future school taxes from the Westside TAD could be over $300 million of a public financing package that could rise as high as $1.9 billion for the downtown mini-city, which will stretch from Mercedes-Benz Stadium to the Five Points MARTA station. The proposed $5 billion Gulch development would bring a mix of apartments, office towers, hotels and retail stores to a 40-acre swath of parking lots and rail lines.

Since 1999, APS has contributed hundreds of millions of school tax dollars to support development projects included in five TADs, areas where property tax collections are frozen for a period of time. Future increases in tax collections from rising property values as the area redevelops are used to help pay for development.

In theory, after the TAD expires, the participating government bodies such as school systems reap the financial benefit of new, higher property values.

But current APS board members, who were not in office when the Westside TAD was created, are concerned about diverting tax dollars that could help students. For at least the last year some school leaders have said they want to renegotiate the terms of the TADs in which the district participates.

School board Chairman Jason Esteves said the board has not had a big voice in the Gulch deal and wants APS to be part of the process.

“We want to resolve outstanding issues that we have with the five TADs that APS participates in before having a conversation about the Gulch or any other economic development project,” he said.

Esteves said the board’s action isn’t to oppose the Gulch but instead to ensure “everyone is being good stewards” of school taxes.

APS spokesman Ian Smith declined to answer questions about potential legal action or what the district’s next steps might be. Superintendent Meria Carstarphen, who was not in office when the TADs were approved, declined an interview request through Smith.

A statement issued by the school district said, in part: “The resolution is intended to encourage ongoing collaboration with the city in hopes of reaching a resolution that will balance the board’s educational mission with the interest of economic development.”

Bottoms’ office interpreted the resolution as the school system’s intent to withdraw from the TAD, calling it “disappointing” after the city has worked with the schools, the state and Fulton County to revitalize the Gulch.

“The opportunity to leverage combined state and local resources to benefit Atlanta’s citizens has not been seen on this scale in this generation,” the statement said. “The city has relied on the written commitments from the board of education, as expressed in their prior official actions as to their commitment to the redevelopment of the Westside. The city is determined to continue its efforts to be a good and responsible partner to see this part of downtown prosper and is optimistic that APS will join in this effort as well.”

The Friday school board meeting comes before an expected hearing Monday before a judge to “validate” bonds to be used to help start development of the Gulch property. Under Georgia law, a validation hearing is required before a governmental entity can issue bonds. It’s typically a routine matter in which a judge assures investors who would purchase the bonds that the debt issued by the government agency is legal and binding.

But in recent years, taxpayers and other groups have attempted to challenge bonds for major projects, including Mercedes-Benz Stadium and SunTrust Park, though those objections have failed.

APS, as a participant in the TAD, might have standing to contest the bond validation.

On Nov. 5, the City Council approved a complex financing package allowing California-based developer CIM Group to use future sales and property taxes generated within the Gulch to help fund the project. The proposal drew significant opposition from the public during council meetings, and the city revised the proposed public financing package after Carstarphen and council members expressed concerns about the deal. The amendments, CIM and the city said, would allow council to move forward and not require approvals by the school system or Fulton, which also contributes property taxes to the TAD.

“The school board has not formally consented to the Gulch TAD but has directed the superintendent to negotiate with the city as to future use of the education taxes for redevelopment purposes in the Westside TAD,” the school board’s proposed resolution states.

The language also notes various financial pressures the district faces, including a school property-tax millage rollback approved by the board that will cost the district $25 million a year, and the passage by voters in November of a measure that provided school tax relief to some homeowners.

This isn’t the first time APS and the city have tussled over the use of school taxes for development projects. Talks between the school district and former Mayor Kasim Reed turned testy over the Beltline TAD. The school system was supposed to get a portion of its tax money returned to it in payments.

But because of financial hardship, in 2016, the two sides agreed to a new deal that called for Atlanta to pay back less money than previously agreed upon. At the time, a school official heralded the conclusion of that conflict as a signal of a “renewed partnership” with the city.

During the 2017 mayoral campaign, Bottoms said she’d be willing to renegotiate the TADs that APS participates in. The school district is part of, and the largest contributor to, five TADs, which have collected almost $434 million in school taxes from 1999 through June 30. Nearly $100 million of those school taxes have gone into the Westside TAD, the oldest of the five.

APS wanted the Eastside TAD closed as part of its terms for signing on to the Gulch deal, according to text messages between Bottoms and Carstarphen that The Atlanta Journal-Constitution obtained in June.

CIM did not make an executive available for an interview.

In a statement, the company said, “We believe the development of the Gulch will be great for Atlanta’s economy. By rebuilding this former industrial portion of downtown it will create jobs, connect communities, and generate future tax revenues.”

Under the plan, CIM would buy the bonds initially and recoup its investment from future tax revenue created by the development.

“CIM, its partners, and co-investors will be the sole initial purchaser of the bonds and will assume all of the bond repayment risks,” the statement said.

The Story So Far

After months of contentious debate, the Atlanta City Council approved in November an incentive package of up to $1.9 billion for developer CIM Group and partners to redevelop a 40-acre swath of parking lots and rail lines downtown known as the Gulch. City officials have said the package did not require approvals by Fulton County or Atlanta Public Schools, two other taxing jurisdictions that will forego tax revenue from the project, because the package did not change the structure of a longstanding special taxing district. On Friday, APS will vote on a resolution that, if approved, would require the school board’s written consent to use school tax dollars for development projects within the district, known as the Westside TAD.

The Gulch deal

CIM has proposed an up to $5 billion mix of apartments, office towers, hotels and retail. To help fund the project, CIM could recoup up to $625 million in property taxes through a special taxing district through 2038, and five pennies of the local 8.9-cent sales tax generated on site through 2048. Those incentives combined could generate up to $1.9 billion in revenue for CIM and its partners, not including financing costs.