Atlanta City Council begins probe of TADs, the popular urban renewal program flagged by city audit
By David Pendered
Atlanta’s most successful urban renewal program over the past two decades is the subject of a work session on Monday that’s been called by two committees of the Atlanta City Council.
The primary purpose of the session is to consider results of an audit of the city’s tax allocation districts (TADs) that was released in May by Atlanta’s internal auditor, Leslie Ward. The audit portrays the city’s program as needing more oversight by the council, and it identified $226 million that it says is sitting in city coffers with no specific use attached to the money.
Since the audit was released, the city agency that manages the TAD program has hit two more bumps – one involving a warning issued by a New York bond rating house, the second involving Mayor Kasim Reed.
First, Moody’s Investors Services has flagged the amount of bonds issued on behalf of the city’s renewal program in its routine report of the city’s fiscal condition.
If the TAD-backed projects can’t pay their taxes, the city’s bond rating could be affected, Moody’s reported. These bonds account for half of Atlanta’s outstanding debt, according to Moody’s. Atlanta is not legally bound to repay the TAD bonds, but the audit noted that, in practice, investors expect to be repaid and other governments have had to find ways to make payment.
Second, the mayor did not protest when the city council cut $500,000 from the $3.1 million Reed had requested for Invest Atlanta, the city’s development arm that runs the program.
Initially, Reed had requested s total of $3 million for Invest Atlanta for the fiscal year that began July 1. That amount included an additional $1.1 million, above the continuation budget, for the agency to use to promote job creation and economic development.
After the council cut the mayor’s requested increase to $600,000, for a total appropriation of $2.5 million, Reed commended that amount in a statement.
The program at issue involves the city’s use of tax allocation districts, called TADs.
TADs are helping to pay for signature renewal projects including the Atlanta BeltLine; Atlanta Streetcar (some of the segments identified in the proposed transportation sales tax); Atlantic Station; Georgia Aquarium; and Center for Civil and Human Rights.
TADs are geographically defined tax districts. TADs work by selling bonds to raise money to induce development in a blighted area. Inducements often include money for roads, sewers, parks and other public amenities.
TAD-backed bonds are repaid by gathering the increment of property taxes collected on developments built after the creation of the district, and using that increment to make the payment.
TADs are financed with property taxes collected on behalf of Atlanta, and often the school system and Fulton County agree to allow their portion of taxes collected on new development in a TAD to be used to attract development.
Representatives of all three governments are invited to Monday’s work session, which is to start at 3 p.m. at Atlanta City Hall.
The audit made five specific recommendations for the council to consider. They are listed on pages 65 and 66 of the 94-page audit.
Here is the entire section on recommendations included in the audit:
“To improve oversight and accountability of public funds generated by the tax allocation districts, the city’s chief operating officer should:
- Propose for City Council approval modifications to the city’s service agreement with Invest Atlanta to require it to develop and report annual evaluations of each tax allocation district to assess progress towards completing specific projects and achieving goals established in the redevelopment plan.
- Develop a policy to review annually surplus increment once the redevelopment plan is substantially completed and establish criteria for using surplus increment to pay down debt, return surplus increment to participating jurisdictions, or reallocate surplus increment to a debt service reserve or for a specific development project.
- Before seeking reallocation of increment to new projects outside the intended scope of the redevelopment plan, require Invest Atlanta to prepare for City Council consideration an amendment to the existing redevelopment plan that includes at minimum:
- establishment of the “but-for” clause for the projects within the expanded scope;
- proposed specific uses of funds;
- anticipated benefits to be produced by the private sector
- entity receiving assistance;
- description of sanctions, such as a claw back provision, for failure to meet goals.
- Work with Invest Atlanta to re-evaluate its redevelopment strategies in the corridor districts as appropriate, considering current economic conditions in those districts.
In addition, the city’s chief financial officer should:
- Propose for City Council approval revisions to the city’s service agreement with Invest Atlanta to:
- include preparation of financial reports at least annually showing how public funds were used to support tax allocation district redevelopment plans.
- require Invest Atlanta and any of its affiliates to provide detailed budgets at least annually showing proposed uses of tax allocation district funds by fund.