Audit finds $226 million, calls for oversight; Invest Atlanta asserts independence as entity of state
By David Pendered
A new audit is raising questions about the management of an Atlanta program that uses millions of dollars in property taxes to induce developments including Atlantic Station. the National Center for Civil and Human Rights, and the BeltLine.
The city audit recommends the Atlanta City Council increase its oversight of the program. Invest Atlanta, the city’s development arm that administers the program, has responded that it takes issue with the recommendations and asserts its independence of council purview.
One finding in the audit, which is to be presented Monday to the city council, involves the status of $226 million now sitting in city coffers. The audit says it can find no indication of whether that money is available to be spent, or is earmarked for some use, or even if it should be returned to the governments that collected the money – the city, Atlanta public schools and Fulton County.
The audit, conducted by city Auditor Leslie Ward and approved by the city’s Audit Committee, looked at Atlanta’s 10 tax allocation districts.
These TADs are geographically defined areas that met the state’s definition of blight. Because of this designation, the property taxes collected on new developments in these districts can be steered into new roads, greenspace and other public amenities to attract developments that otherwise would go elsewhere in the region.
In practice, this has meant that the tax increment from new condos, shops and offices built within the 10 districts – including Atlantic Station, along the BeltLine and near the future home of the National Center for Civil and Human Rights – is set aside to pay for public amenities in each of those districts.
Atlanta authorized Invest Atlanta as its economic development agency to administer the TADs. In creating the TADs, Atlanta convinced the city school system and Fulton County’s board of commissioners to join in most, if not all, of the TADs – meaning that tax dollars that otherwise would fund operations for the school system and county are directed to urban renewal in the city.
Georgia state law allows local governments to create TADs as a way of promoting redevelopment. Atlanta has been the most aggressive government in Georgia to use the program, enacting districts from Atlantic Station through Downtown and all the way to the extreme southwestern tip of the city, at Princeton Lakes.
Indeed, the success is so great that Atlanta’s TADs now represent 15 percent of the city’s tax base, according to the audit. The size of the program prompted the audit of its oversight, according to the audit.
Incidentally, Atlanta’s 15 percent of valuation in TADs is a greater proportion than the 10 percent that is allowed by a state law the Legislature enacted in 2009.
The $226 million cited in the new audit evidently is an outcome of the explosive development that happened in Atlanta communities during the go-go years of the past decade.
As real estate development collapsed during and after the great recession, the cash collected through property taxes on new development evidently accrued because it was not released to induce additional developments.
Meanwhile, program managers at Invest Atlanta evidently decided to hold cash, rather than spend it to retire debt ahead of schedule, according to the audit. That decision will cost taxpayers millions of dollars over the life of the loans, according to the audit.
In the case of money borrowed to induce Atlantic Station, the audit found:
“Although the special revenue fund for Atlantic Station had a balance of $33.4 million at the end of fiscal year 2011, the Atlantic Station audited financial statements noted that the city deferred an optional principal payment of $8.2 million on 2006 bonds.
“Based on the amortization schedule in Invest Atlanta’s 2011 independent financial audit of Atlantic Station, the deferral increased estimated total debt service costs over the life of the issue by $19 million.”
Invest Atlanta responded to the audit by concurring with some of the general recommendations.
However, it raised objections to some proposals, saying they would reduce the authority’s ability to spur the local economy. Invest Atlanta recently has started to update the city’s economic development strategy with help from a team of consultants being paid $265,000. The report is due by year’s end.
Invest Atlanta also contends that it is independent of the city because it was created by the state and has its own board of directors:
“Although activated by the city, Invest Atlanta is its own legal entity governed by the Development Authorities Law of the State (O.C.G.A. Section 36-62-1 et seq.) (the “Act”). Invest Atlanta is governed by its own 9-member public-private board of directors ….”
The board is chaired by Atlanta’s mayor and comprised of representatives of city council, Fulton’s board of commissioners, Atlanta’s school board, and appointees of the mayor and city council.
Invest Atlanta formerly was known as Atlanta Development Authority, and renamed itself in August.
According to the Georgia Secretary of State, the entity’s full name is Invest Atlanta Partnership, Inc. The entity is listed as a non-profit corporation with Veronica Burroughs as the CEO. According to Invest Atlanta’s website, Brian McGowan is president/CEO and Burroughs is legal counsel.
The performance audit is to be presented Monday to the city council as a routine communication.
Here are the steps toward greater oversight the audit recommends:
“To improve oversight and accountability of use of public funds generated by the tax allocation districts, the 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;
- Before seeking reallocation of increment to new projects, require Invest Atlanta to prepare for City Council consideration an amendment to the existing redevelopment plan;
- Work with Invest Atlanta to re-evaluate its redevelopment strategies in the corridor districts as appropriate, considering currenteconomic conditions in those districts.”
“The 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 its affiliates to provide detailed budgets at least annually showing proposed uses of tax allocation districts by fund.
The city audit comes five weeks after Invest Atlanta released results of its own internal review conducted by a consultant hired by Invest Atlanta.
That review, by HR&A, found at least $68 million in available cash in city accounts. The sum cited by HR&A likely is part of the $226 million identified in the city audit. The difference of $158 million may be earmarked for some use that was known to the consultant but not to city auditors.
City Auditor Leslie Ward told a council committee in April that she had not been informed that Invest Atlanta was conducting its own review. Evidently, the city’s Audit Committee, which signed off on the city audit, also was unaware that Invest Atlanta was conducting its own review.