This story is part of a periodic series that examines Atlanta’s tax allocation districts.
By David Pendered
Georgia State University released a research paper Tuesday that portrays Atlanta’s massive TAD program as “quite successful” despite some management techniques that appear to be “odd.” Default in one district could occur in 2024.
The paper, by former Atlanta budget Commissioner Dick Layton, observes that most of Atlanta’s tax allocation districts have experienced a tremendous amount of new development:
- “With the exception of the four Commercial Corridor TADs, Atlanta’s [tax increment finance] program can be considered to have been quite successful overall. The assessed value has more than doubled in all of the city’s other six TADs and have increased nearly 75-fold and 138-fold in Atlantic Station and Princeton Lakes, respectively.”
Then the Great Recession began, in 2007. Property assessments began plummeting across the city. In some cases, the dip didn’t show up until 2012, by which time Fulton County’s tax assessor had established new property values to reflect values lost during the recession.
The Atlantic Station TAD is of particular concern.
This TAD was clobbered by declining property values. One reason, the paper noted, is that when the condo market crashed, investors turned apartments to rental units and appealed property assessments, ultimately winning lowered assessments.
What happened next at Atlantic Station caught Layton’s attention.
Atlanta has paid the interest on the Atlantic Station bonds but not much of the principal. Rather than paying down the principal, as initially contemplated, Atlanta has invested the tax collections in an account that earns less than the interest rate on the bonds, according to the paper:
- “The city’s failure to pay down bond principal as originally planned in favor of investing TAD fund balances in money market funds yielding less than the interest rate payable on such bonds for a redevelopment project that is substantially complete seems odd.”
This decision sets the city up for potential default on the bond payment in 2024, according to the paper:
- “With $151.4 million in principal still outstanding, rising interest costs, and fewer than nine years remaining before the bonds are due, a default in the payment of these junior lien obligations could occur without substantial and sustained growth in Atlantic Station tax increments and the application of those taxes to bond payments between now and December 1, 2024.”
Layton’s report is the first to portray the enormity of Atlanta’s tax allocation districts.
Atlanta ranks second in the country in terms of a locality issuing TAD bonds during the years the paper examines, 2000 to 2015.
Atlanta has issued $578 million in bonds, second only to Denver’s $800 million. These rankings exclude California localities, which issued a total of $1.5 billion in TAD bonds during the review period.
A full 18 percent of the Atlanta’s assessed property value is located in TADs.
This is 8 percent higher than permitted by state law.
However, when the TADs were created, they accounted for no more than a total of 10 percent of city assessed values. The high growth rate in tax allocation districts is one factor that prompted the Atlanta City Council and then Mayor Shirley Franklin to race to create as many TADs as possible before the 10 percent cap was reached.
Layton researched and wrote the paper.
Layton served as Atlanta’s budget commissioner during Maynard Jackson’s first two terms as mayor. Layton moved to the private sector, advising on public finance. Layton now serves as a director with Public Financial Management, Inc., a provider of municipal advisory services.
The paper intends to update one GSU released in 2004. The purpose of that paper was to examine the phenomenon of TADs and the risks they present.
Atlanta officials generally ignored recommendations contained in the first paper as they raced to create TADs in hopes of sparking a wave of urban renewal.
Both papers were released by GSU’s Andrew Young School of Policy Studies. The first paper was researched and written by Carolyn Bourdeaux and John Matthews.
Bourdeaux now serves as director of the Center for State and Local Finance at Georgia State. Matthews now divides his time teaching between Georgia State and Georgia Tech.