By Tom Baxter

One of the most mind-boggling things about economic development authorities in Georgia is just how many of them there are.

Few people have studied the subject as closely as Rep. Mary Margaret Oliver, but in testimony before a House subcommittee Monday morning, even she couldn’t say precisely how many economic development authorities there are in the state — the number is somewhere between 700 and 900 — or even exactly how many there are in her county of DeKalb — around 30, she said.

We don’t know, either, how much debt all the authorities have generated in bonds. Even the question of who has the responsibility for that debt if an authority defaults is somewhat fuzzy. In Georgia, “development” and “transparency” are concepts that have had an uneasy relationship with each other. Development authorities can engage in negotiations with private companies, issue bonds to pay for their projects and pass out tax breaks to developers, with much less scrutiny than other governmental bodies.

The substitute bill which Oliver spoke for before the subcommittee combines elements of three bills she introduced earlier in this session, all aimed at bringing these concepts into closer alignment. They apply only to Fulton, Gwinnett, Cobb and DeKalb counties because that’s where the most problems have come to light and because Oliver represents part of DeKalb. But that doesn’t mean the authorities in the other 150 counties couldn’t some more transparency as well.

One section of the bill would set a cap on the per diem expenses authority board members can claim so that it could not exceed the expenses members of the legislature can claim, which currently is $16,200 a year. That is likely to be the easy part. Only the big four Metro counties can pay authority members for their expenses, and Fulton is the only one that does so. This came to light last year when an Atlanta Journal-Constitution/Channel 2 investigation revealed that Fulton authority members were being paid by the agenda item at each meeting, resulting in hundreds of thousands in expenses, some of which involved payments to companies in which members had a financial interest.

J. Scott Trubey, who broke that story, reported later on an internal investigation of the financial dealings between a member of the authority, JoAnna Potts, and a company seeking to do business with the Development Authority of Fulton County. Potts resigned before the report was made public, but Oliver pointed out at the hearing that under current law she wasn’t required to do so. Her bill establishes a formal procedure for a board member to be removed and makes development authorities subject to ethics oversight by local governments.

The hardest sell is likely to be the requirement that all local governments that could be affected when a development authority gives developers a tax break must be given seven days’ notice. Currently, only county governments must be notified, and a legal notice in the local paper is considered sufficient. Oliver said she believes the legislation will combat the growing practice of developers “shopping” their proposals around to different authorities so that they can get a deal with the easiest requirements on issues such as affordable housing.

Kevin Shea, president of the Georgia Economic Developers Association, said the notification provisions could “stifle” economic development. His group also opposes the bill, he said, because of “concerns about local politics being injected into the process” in the removal of authority directors.

Oliver wasn’t successful last year in passing legislation that had some elements of her current bill. She said Monday she thinks she’s making progress. The problems in Fulton County and the $700 million fiasco surrounding the Stonecrest Development Authority in DeKalb County have focused public attention on the shadowy workings of development authorities so that legislators are under greater pressure to address the problem.

Oliver is a Democrat, however, and although her bill has Republican co-signers, its fate still lies in the hands of the legislature’s Republican leadership.

When a local government raises taxes, it gets people’s attention. When an economic development authority gives developers a tax break, everybody else pays a greater share of the tax burden, but the pain is veiled while the development is celebrated. And to repeat, there are a lot more development authorities in Georgia than governments that can tax directly. That’s why every taxpayer, not just those in the four Metro counties addressed in the legislation, has a stake in what happens to this bill.

Tom Baxter has written about politics and the South for more than four decades. He was national editor and chief political correspondent at the Atlanta Journal-Constitution, and later edited The Southern...

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  1. To: Tom Baxter

    Re: Development Authorities

    Firstly, let me say that I always look forward to your column in the Saporta Report. There are few columnists who “connect the dots” in as engaging way as you do, and I hope you continue to provide commentary for a long time to come.

    As a real estate developer, I know something about development authorities and the finncing that they sponsor. In general your reporting is correct; I do want to point out that in most instances, development authorities don’t “finance” anything. They provide tax exemptions (federal through tax exampt bonds, and ad valorem through certain types of bonds) but they do not normally encumber the tax payers in any way. A developer uses the tax exemptions to attract private lenders to fund a project which may or may not be financeable without the tax exemptions. The responsible party for the debt remains the developer, not the development authority or the taxpayer.

    Secondly, the ad valorem tax examption is for value created by the development. In a case where the assessed value of the property prior to the development was on vacant land, the foregone taxes are relatively low. While the developer does not pay taxes on the developed value of the property for a period of time, it could be argued that 1) the value wouldn’t have been created without the tax break and 2) the jurisdiction does accrue value after the end of the tax exempt period.

    That being said, there is obviously the argument that the development would have occurred anyway, and that the quid pro quo for the tax exemption is insufficient (e.g., a minor amount of “affordable” housing, which turns out not to be very affordable, say 15% of the units at 80% of area median income.)

    There is also the argument that if the development didn’t occur at that location it would have occurred elsewhere. That of course depends on the facts of the matter.

  2. Having litigated over the resulting tax abatements, I think I can call myself something of an expert on this subject. This entire enterprise sits on shaky constitutional ground. As I read it, the state constitution does not permit any of these special tax deals.
    Most of the problems that have been reveled in recent years would have been avoided if existing law had been followed. My experience has been with the Development Authority of Cobb County, but I have read a ton of case law and all of Georgia law relative to development authorities and revenue bonds. As for additional tax breaks that have popped up recently on the bond interest, I’ve been forced to read more than I ever wanted in IRS Code.
    Supposedly, tax abatements are a tool for locals to use in competing for new investment and jobs. Buy who wins when the “competition” is between counties in Metro Atlanta, and they all offer tax abatements? We know for certain that the losers are all the taxpayers who routinely pay all their bills.
    Although the actual financing of projects usually comes from a bank loan, or even from the company self-financing with cash, I am not aware of any litigation that has ever gone to conclusion on whether other taxpayers or the taxing authority can be held accountable when a deal goes bad. Given the operational secrecy f the Authorities and the indifferent and murky application of state law, it isn’t hard to imagine a jury would smell a rat in government offices.

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