Franzen v. Downtown Dev. Auth. of Atlanta

Court: Georgia Supreme Court
Case Number: 845 S.E.2d 539
Decision Date: June 29, 2020
Case Type: Development Authority

This case concerns a redevelopment plan which the City of Atlanta adopted for a blighted area known as The Gulch. The area was assiggned for redevelopment under the Urban Redevelopment Law (O.C.G.A. 36-61-1 et seq.) and as an enterprise zone under the Enterprise Zone Employment Law (O.C.G.A. 36-88-1). The city, the city’s Downtown Development Authority (DDA), and a private developer entered into an enterprise zone development agreement under which the developer would acquire the land and construct a live/work community in several phases.

The city and the DDA established a financing program which included revenue bonds to be issued by the DDA. Because the project was designated as an enterprise zone, the city would collect infrastructure fees from qualifying businesses and service enterprises that would eventually be established in the Gulch. These infrastructure fees were the sole security for the revenue bonds, issued to the developer as incentive for constructing the project. The city and the DDA entered into an IGA for the city to collect the infrastructure fees to be passed on to the DDA to service outstanding revenue bonds. The fees would then pass to a trustee of the bond account for payment to the developer. The timing and amount of the distribution of the revenue bonds was tied directly to construction progress and growth of businesses. Neither the city nor the DDA had any obligation to pay for the revenue bonds other than by transferring the collected infrastructure fees. The developer had no rights to any funds other than those fees.

The DDA was required to get a feasibility report confirming that the annual forecasted fees would equal no less than 110 percent of the maximum debt service of all outstanding revenue bonds. This process was intended to assure that the bond issuance remained financially sound and feasible. The DDA sought to validate a maximum bond amount of $1,250,000,00.00.

The superior court validated the bonds but intervenors appealed with multiple arguments. The Supreme Court affirmed the lower court’s ruling. Among other findings, the Court held that the IGA was not unlawful as the four needed requirements under Article IX, Section III, Paragraph I of the constitution for a valid IGA were present. Even though ‘development or infrastructure’ are not defined, the construction a work/live community in a blighted area certainly qualifies under the ordinary meaning of the terms.

It was argued that the imposition of infrastructure fees under the Enterprise Zone Act violated Article IX, Section II, Paragraph VII(c) since that community redevelopment provision only allows for the creation of enterprise zones and tax exemptions for qualifying businesses. The Court held that nothing in that provision of the Constitution prohibits, precludes, or limits the exercise of the power of the General Assembly (under Article III, Section VI, Paragraph I) to make all laws not inconsistent with the Constitution. Thus, even though Article IX, Section II, Paragraph VII(c) fails to mention ‘fees’, the General Assembly could provide for such in O.C.G.A. 36-88-6(g) under the authority of Article III, Section VI, Paragraph I.

The Court noted that the record showed the city’s ordinance clearly limited infrastructure fees and corresponding exemptions only to qualifying businesses that created at least five full-time jobs, so did not create a prohibited area-wide tax exemption”.

Finally, the Court noted that due to the incremental nature of the financing plan, the standard of whether a proposal is sound, feasible, and reasonable is a question for the trial court and its findings must be sustained if there is any evidence to support them. Since the incremental draw down bonds are only issued if sufficient fee revenues are projected to service the bonds and since economic feasibility reports must confirm this, sufficient safeguards have been built in to justify the trial court’s holding.