DEVELOPMENT AUTHORITIES - Dan McRae · 2013. 6. 25. · U.S. and Georgia Constitutions Its...

DEVELOPMENT AUTHORITIES

Daniel M. McRae, Partner

Seyfarth Shaw LLP 1075 Peachtree St., N.E., Ste. 2500

Atlanta, GA 30309 404.888.1883

404.892.7056 fax [email protected]

[email protected]

June, 2013

THE PREMIER LOCAL AUTHORITY FOR ECONOMIC DEVELOPMENT

DEVELOPMENT AUTHORITY- CENTRIC

►DEVELOPMENT AUTHORITIES HAVE LONG BEEN THE FIRST (“PREMIER”) TOOL USED FOR ECONOMIC DEVELOPMENT IN GEORGIA

►TODAY, PARTNERING WITH STAKEHOLDERS IS VITAL

►BUT IN MANY WAYS, ECONOMIC DEVELOPMENT IS STILL:

“DEVELOPMENT AUTHORITY-CENTRIC”

2 | © 2013 Seyfarth Shaw LLP


• PART OF THE CITY OR COUNTY?

• A DEPARTMENT OF THE CITY OR COUNTY?

• CONTROLLED BY THE CITY OR COUNTY?

• A SEPARATE LEGAL ENTITY?

IS A DEVELOPMENT AUTHORITY


ANSWER

• SEPARATE LEGAL ENTITY ►A DEVELOPMENT AUTHORITY IS A TYPE

OF “PUBLIC CORPORATION.” See O.C.G.A. Sec. 36-62-2(1).


CORPORATE GOVERNANCE

A Development Authority is Governed By a Hierarchy– ►U.S. and Georgia Constitutions ►Its Governing Law

• Specific Laws • Development Authorities Law for “statutory”

development authorities. O.C.G.A. Sec. 36-62-1 et seq.

• Its Local Constitutional Amendment and related local acts of General Assembly for “Constitutional” development authorities



Applicable Laws • Example- Reporting of “public “benefits” it

provides (applies to certain incentives). See O.C.G.A. Sec. 50-36-1

• Example: Open Meetings Act, O.C.G.A. Sec. 50-14-1 et seq.,

• Example: Open Records Act, O.C.G.A. Sec. 50-18-70, et seq.

• Example: State Code of Ethics, O.C.G.A. Sec. 45-10-3



►Its Activating Resolution • If a Statutory Development Authority

►Its Bylaws • Adopted by Board of Directors

►Its Board of Directors • Set Policy and Adopt Resolutions

• statutory development authority- resolutions must be adopted by majority of whole board, not just majority of a quorum. O.C.G.A. Sec. 36-62-4(b)



►Its Officers • Carry Out Policy and Implement Resolutions

►Its Staff • Provides Support to Officers and Board

►Its Attorney • Development authority engages its own attorney • Advises board, officers and staff • Represents interests of development authority

• For example, acts as its “Issuer’s Counsel” when it issues revenue bonds


THE ORIGINS OF DEVELOPMENT AUTHORITIES

• “Statutory” ► Created by General Assembly under Development Authorities Law

• After Attorney General Opinion ruled against Industrial Development Authorities • 1963 Industrial Development Authorities Law

►Constitution was amended to authorize development authorities ► Statewide pattern

• 1969 and later ► Activation by City or County required

• “Constitutional” ► Pursuant to Local Constitutional Amendment (“LCA”) ► 1987 and earlier ► each LCA is different ► referendum was required

• Local Act (of General Assembly, not under home rule powers) ► Prior to 1969 ► no referendum required ► each Local Act is different

• Note – This presentation excludes Downtown Development Authorities and Joint Development Authorities


IN YOUR COMMUNITY- WHAT AUTHORITIES DO YOU HAVE?

• check local Constitutional amendment and local acts (Constitutional authorities only)

• check activating resolution of parent government (statutory authorities only)

• check filings with Secretary of State (statutory authorities only)

• check “Authorities Registration” with Georgia Department of Community Affairs (all authorities)


THE BOARD MEMBERS

STATUTORY DEVELOPMENT AUTHORITIES

• § 36-62-4. Authorities created; directors; activation of authorities • (a) There is created in and for each county and municipal corporation in the state a public body corporate

and politic to be known as the "development authority" of such county or municipal corporation, which shall consist of a board of not less than seven and not more than nine directors to be appointed by resolution of the governing body of the county or municipal corporation. . . . [T]he terms of all directors shall be for four years. If, at the end of any term of office of any director, a successor thereto has not been elected, the director whose term of office has expired shall continue to hold office until his successor is so elected.

• § 36-62-5. Qualifications of directors; officers; compensation; expenses; bylaws; powers • (a) The directors shall be taxpayers residing in the county or municipal corporation for which the authority is

created, and their successors shall be appointed as provided by the resolution provided for in Code Section 36-62-4. The governing authority of a county or municipality may appoint no more than one member of the governing authority as a director.

• (b) The directors shall elect one of their members as chairman and another as vice-chairman and shall also elect a secretary and a treasurer or a secretary- treasurer, either of whom may, but need not, be a director.

• (c) The directors shall receive no compensation for their services but shall be reimbursed for their actual expenses incurred in the performance of their duties; provided, however, the directors of the development authority activated by counties having a population of 550,000 or more according to the United States decennial census of 1980 or any future such census shall be paid a per diem allowance to be determined by the governing authority of such counties for each day, or part thereof, spent in the performance of their duties.


“CONSTITUTIONAL” DEVELOPMENT AUTHORITY

CONSULT YOUR LOCAL CONSTITUTIONAL

AMENDMENT AND RELATED LOCAL ACTS


WHAT’S YOUR JOB?

• YOUR “GOVERNMENTAL MISSION” IS IN THE CONSTITUTION. • STATUTORY DEVELOPMENT AUTHORITY-

• Georgia Constitution Article IX, Sec. VI, Para. III: The development of trade, commerce, industry, and employment opportunities being a public purpose vital to the welfare of the people of this state, the General Assembly may create development authorities to promote and further such purposes or may authorize the creation of such an authority by any county or municipality or combination thereof under such uniform terms and conditions as it may deem necessary.


WHAT’S YOUR JOB?

“CONSTITUTIONAL” DEVELOPMENT AUTHORITY • Consult your local constitutional amendment and related

local acts. • Most Constitutional development authorities have much

the same “Governmental Mission” as statutory development authorities. ►Some Constitutional development authorities have more powers

and/or a broader “governmental mission” than statutory development authorities.

►Some Constitutional development authorities have fewer powers and/or a narrower “governmental mission” than statutory development authorities.


STATUTORY DEVELOPMENT AUTHORITY- SOME POWERS:

(6) "PROJECT" INCLUDES:

(A) ANY ONE OR MORE BUILDINGS OR STRUCTURES TO BE USED IN THE PRODUCTION, MANUFACTURING, PROCESSING, ASSEMBLING, STORING, OR HANDLING OF ANY AGRICULTURAL, MANUFACTURED, MINING, OR INDUSTRIAL PRODUCT OR ANY COMBINATION OF THE FOREGOING, IN EVERY CASE WITH ALL NECESSARY OR USEFUL FURNISHINGS, MACHINERY, EQUIPMENT, PARKING FACILITIES, LANDSCAPING, AND FACILITIES FOR OUTDOOR STORAGE, ALL AS DETERMINED BY THE AUTHORITY, WHICH DETERMINATION SHALL BE FINAL AND NOT SUBJECT TO REVIEW; AND THERE MAY BE INCLUDED AS PART OF ANY SUCH PROJECT ALL IMPROVEMENTS NECESSARY TO THE FULL UTILIZATION THEREOF, INCLUDING SITE PREPARATION, ROADS AND STREETS, SIDEWALKS, WATER SUPPLY, OUTDOOR LIGHTING, BELT LINE RAILROAD SIDINGS AND LEAD TRACKS, BRIDGES, CAUSEWAYS, TERMINALS FOR RAILROAD, AUTOMOTIVE, AND AIR TRANSPORTATION, TRANSPORTATION FACILITIES INCIDENTAL TO THE PROJECT, AND THE DREDGING AND IMPROVING OF HARBORS AND WATERWAYS, NONE OF WHICH FOREGOING DESCRIPTIVE WORDS SHALL BE CONSTRUED TO CONSTITUTE A LIMITATION, PROVIDED THAT NONE OF THE IMPROVEMENTS DESCRIBED IN THIS SENTENCE SHALL BE THE PRIMARY PURPOSE OF ANY PROJECT; . . .


Some Powers-Continued:

(N) THE ACQUISITION, CONSTRUCTION, INSTALLATION, MODIFICATION, RENOVATION, OR REHABILITATION OF LAND, INTERESTS IN LAND, BUILDINGS, STRUCTURES, FACILITIES, OR OTHER IMPROVEMENTS AND THE ACQUISITION, INSTALLATION, MODIFICATION, RENOVATION, REHABILITATION, OR FURNISHING OF FIXTURES, MACHINERY, EQUIPMENT, FURNITURE, OR OTHER PROPERTY OF ANY NATURE WHATSOEVER USED ON, IN, OR IN CONNECTION WITH ANY SUCH LAND, INTEREST IN LAND, BUILDING, STRUCTURE, FACILITY, OR OTHER IMPROVEMENT, ALL FOR THE ESSENTIAL PUBLIC PURPOSE OF THE DEVELOPMENT OF TRADE, COMMERCE, INDUSTRY, AND EMPLOYMENT OPPORTUNITIES. A PROJECT MAY BE FOR ANY INDUSTRIAL, COMMERCIAL, BUSINESS, OFFICE, PARKING, PUBLIC, OR OTHER USE, PROVIDED THAT A MAJORITY OF THE MEMBERS OF THE AUTHORITY DETERMINES, BY A DULY ADOPTED RESOLUTION, THAT THE PROJECT AND SUCH USE THEREOF WOULD FURTHER THE PUBLIC PURPOSE OF THIS CHAPTER. (statutory authority)


“CONSTITUTIONAL” DEVELOPMENT AUTHORITY

CONSULT YOUR LOCAL CONSTITUTIONAL

AMENDMENT AND RELATED LOCAL ACTS


SOME CONSTRAINTS IMPOSED BY THE DEVELOPMENT AUTHORITIES LAW

• Code Section 36-62-7. Lease, sale, or management of projects • No project acquired under this chapter shall be operated by an authority or any municipal corporation,

county, or other governmental subdivision. Such a project shall be leased or sold to, or managed by, one or more persons, firms, or private corporations…. If revenue bonds or other obligations are to be issued to pay all or part of the cost of the project, the project must be so leased or the contract for its sale or management must be entered into prior to or simultaneously with the issuance of the bonds or obligations; provided, however, that the acquisition and development of land by an authority as the site for an industrial park as provided in this chapter or the acquisition and development of land by an authority as the site for a sports facility or amphitheater in accordance with Code Section 36-62-2 and the operation of such a sports facility or amphitheater shall not be deemed to be the operation of a project and, notwithstanding anything in this chapter to the contrary, an authority shall not be required to enter into a lease of such a project or a contract for its sale or management as a condition to the issuance of bonds or other obligations of the authority to provide financing therefor. If sold, the purchase price may be paid at one time or in installments falling due over not more than 40 years from the date of transfer of possession. The lessee or purchaser shall be required to pay all costs of operating and maintaining the leased or purchased property and to pay rentals or installments in amounts sufficient to pay the principal of and the interest and premium, if any, on all of its bonds and other obligations as such principal and interest become due. If the project is managed, the management contract must contain a term not less than the final maturity date of any bonds or other obligations of the authority to provide financing for the managed project and must provide that all costs of operating and maintaining the managed project, including all management fees payable under the management contract, shall be paid solely from the revenues of the managed project and from the proceeds of any bonds or other obligations of the authority to provide financing for the managed project. Any such management contract may contain provisions allowing the authority to terminate the management contract, but if the authority exercises any right to terminate a management contract, it must immediately enter into another management contract meeting the requirements of this Code section.


Some Constraints Imposed by Other Laws

CONSTRUCTION LAW

• Georgia Local Government Public Works Construction Law • Applies to both statutory and Constitutional development authorities • Applies to “public works construction” meaning “the building,

altering, repairing, improving, or demolishing of any public structure or building or other public improvements of any kind to any public real property” (other than certain transportation projects)

• “public improvements” and “public real property” not defined • Requires public sealed bidding or public sealed proposals • Advertising required • Requires bid, payment and performance bonds

►Exception: no bid bond if RFP and if contract price not a factor


SOME CONSTRAINTS IMPOSED BY THE GEORGIA SUPREME COURT

• “This Project is designed to fulfill the governmental functions of improving streets and of providing facilities for municipal administration and police and jail services. Accordingly, it does not appear to fit within the definitions of commerce, trade, or industry.” Odom case, 1983.

• “ In Odom, the DDA sought to issue revenue bonds, the proceeds of which would finance the construction of a new city hall, renovate the existing police station and jail, and improve city streets. The project thus consisted of purely public elements. This court held that the scope of this project did not fall within the constitutionally designated purposes of Downtown Development Authorities which are the promotion and development of "trade, commerce, industry, and employment opportunities." 1983 Georgia Constitution, Art. IX, Sec. VI, Par. III. In the case before us the project is comprised of both public and private components which are integrated so as to produce the desired purposes. The trial court found that the project will promote and develop the public purposes of trade, commerce, industry, and employment opportunities. There is evidence in the record to support this determination.” Nations I, 1985.


BONDS AND PROMISSORY NOTES

• STATUTORY DEVELOPMENT AUTHORITY ►CAN’T ISSUE PROMISSORY NOTES ►CAN ISSUE REVENUE BONDS

• CONSTITUTIONAL DEVELOPMENT AUTHORITY ►CHECK LOCAL CONSTITUTIONAL AMENDMENT AND

LOCAL ACTS REGARDING WHETHER CAN ISSUE NOTES OR BONDS

• MOST CAN ISSUE BOTH

CAN PUBLIC OFFICIALS BE DIRECTORS OF A DEVELOPMENT AUTHORITY?

STATUTORY DEVELOPMENT AUTHORITIES- • O.C.G.A. Sec. 36-62-5(a) .....The governing authority of a county or municipality may appoint

no more than one member of the governing authority as a director.

CONSTITUTIONAL DEVELOPMENT AUTHORITIES- • MOST PROVIDE FOR ELECTED OFFICIAL(S) FROM ITS PARENT GOVERNMENT TO BE

ON THE BOARD. • IF NO SPECIFIC PROVISION, THINK ABOUT- • O.C.G.A. § 36-30-4

(CITY COUNCIL MEMBER NOT ELIGIBLE TO HOLD OTHER MUNICIPAL OFFICE) • O.C.G.A §45-2-2 (CAN’T HOLD MORE THAN ONE COUNTY OFFICE WITHOUT “SPECIAL

ENACTMENT” OF GENERAL ASSEMBLY)

• COMMON LAW CONFLICT OF INTEREST RULES • ALSO, THE GOVERNMENTS WHICH ACTIVATE A STATUTORY JOINT DEVELOPMENT

AUTHORITY MAY AGREE IN THEIR ACTIVATING RESOLUTIONS NOT TO APPOINT ELECTED OFFICIALS TO THE NEW ENTITY. OP. GA. ATTY GEN. NO. U96-24


BOARD APPOINTMENTS

• CAN APPOINTMENTS OF STATUTORY DEVELOPMENT AUTHORITY BOARD MEMBERS BE MADE BY INDIVIDUAL ELECTED OFFICIALS? ►“…THE COMMISSION AS A BODY HAS THE AUTHORITY TO

DECIDE MATTERS…”

McDilda v. Board of Commissioners of Bulloch County, et al.

230 Ga. App. 530, 497 S.E.2d 25 (1998)


STATUTORY DEVELOPMENT AUTHORITY –

• Sec. 36-62-4(a) There is created in and for each county and municipal corporation in the state a public body corporate and politic to be known as the "development authority" of such county or municipal corporation,

• O.C.G.A. Sec. 36-62-6(16) To expend for the promotion of industry, agriculture, and trade within its area of operations any funds of the authority determined by the authority to be in excess of those needed for the other corporate purposes of the authority;

• O.C.G.A. Sec. 36-62-9 “...No bonds or bond anticipation notes, except refunding bonds, shall be issued by an authority under this chapter unless its board of directors adopts a resolution finding that the project for which such bonds or notes are to be issued will promote the foregoing objectives and will increase or maintain employment in the territorial area of such authority.”

• § 36-82-62. Additional powers (a) In addition to the other powers which it may have, any governmental body shall

have power under this article: (1) To acquire, by gift, purchase, ...., and to construct, to reconstruct, to improve, to

better, and to extend any undertaking wholly within or wholly outside the governmental body or partially within and partially outside the governmental body;

WHERE CAN THE DEVELOPMENT AUTHORITY DO BUSINESS?


• CAN A CITY DEVELOPMENT AUTHORITY DO BUSINESS OUTSIDE ITS CITY? OUTSIDE ONE COUNTY? ►IF THE CITY IS LOCATED IN TWO OR MORE COUNTIES

►IF THE DEVELOPMENT AUTHORITY IS A

CONSTITUTIONAL DEVELOPMENT AUTHORITY AND ITS LOCAL CONSTITUTIONAL AMENDMENT AUTHORIZES THIS

►IF THE DEVELOPMENT AUTHORITY IS A JOINT DEVELOPMENT AUTHORITY

• Has Jurisdiction throughout Participating Local Governments

SPECIAL SITUATIONS FOR CITY DEVELOPMENT AUTHORITIES


CONSTITUTIONAL DEVELOPMENT AUTHORITY—

• LOOK AT WHAT ITS LOCAL CONSTITUTIONAL AMENDMENT SAYS (SUBJECT TO THE ORIGINAL REFERENDUM AND THE OTHER PROVISIONS OF THE CONSTITUTION)-

• FOR EXAMPLE- ►“THE COUNTY DEVELOPMENT AUTHORITY SHALL HAVE

SCOPE AND JURISDICTION THAT SHALL BE LIMITED TO THE TERRITORY EMBRACED BY THE COUNTY.”

WHERE CAN THE DEVELOPMENT AUTHORITY DO BUSINESS?


RELATIONSHIPS WITH OTHER PUBLIC BODIES

CAN DEVELOPMENT AUTHORITY BOARD MEMBERS BE REMOVED BY ITS LOCAL GOVERNMENT? • STATUTORY DEVELOPMENT AUTHORITIES

►NO REMOVAL PROVISION. • BYLAWS CAN’T PROVIDE FOR REMOVAL

• CONSTITUTIONAL DEVELOPMENT AUTHORITIES ►CHECK LOCAL CONSTITUTIONAL AMENDMENT AND LOCAL

ACTS • VIOLATION OF CODE OF ETHICS CAN LEAD TO REMOVAL BY

GOVERNOR ►BESIDES THE FINANCIAL SELF-DEALING “SAFE HARBOR,”

THERE ARE STILL 8 OTHER “CRASH LANDINGS” UNDER THE STATE’S “CODE OF ETHICS.”



• THE DEVELOPMENT AUTHORITY’S STAKEHOLDERS – ►Its parent local government ►Other local governments and local officials

• For example, County Board of Tax Assessors ►State officials

• For example, Governor, Commissioner of Economic Development, Commissioner of Georgia Department of Community Affairs

►Its State Legislative Delegation ►Its Federal Legislative Delegation ►More (Varies Locally)



• IF RELATIONSHIPS ARE BAD, CAN A CITY OR COUNTY DISSOLVE ITS DEVELOPMENT AUTHORITY?


DISSOLUTION RULES STATUTORY DEVELOPMENT AUTHORITY- • O.C.G.A. § 36-62-14(b) “If an authority does not have any outstanding unpaid

bonds or bond anticipation notes, the authority may be dissolved as provided in this subsection.”

FOR A CONSTITUTIONAL DEVELOPMENT AUTHORITY-

• GEORGIA CONSTITUTION ARTICLE XI, SECTION I, PARAGRAPH IV “(b) Any amendment which is continued in force and effect after July 1, 1987,

pursuant to the provisions of subparagraph (a) of this Paragraph shall be continued in force and effect as a part of this Constitution, except that such amendment may thereafter be repealed but may not be amended. The repeal of any such amendment shall be accomplished by local Act of the General Assembly, the effectiveness of which shall be conditioned on its approval by a majority of the qualified voters voting thereon in each of the particular political subdivisions affected by the amendment.”



• DOES THE CITY OR COUNTY HAVE THE RIGHT TO APPROVE THE DEVELOPMENT AUTHORITY’S BONDS?


APPROVAL RULES PRIVATE ACTIVITY BONDS

►YES – IF THE BONDS ARE TAX-EXEMPT PRIVATE

ACTIVITY BONDS (THE “TEFRA APPROVAL”)

►NOTE – WITHOUT APPROVAL, THE DEVELOPMENT AUTHORITY CAN STILL ISSUE “TAXABLE BONDS”

►YES – IF IT’S A CONSTITUTIONAL DEVELOPMENT AUTHORITY AND THE LOCAL CONSTITUTIONAL AMENDMENT SAYS SO (RARE)



BECAUSE DEVELOPMENT AUTHORITY IS A SEPARATE ENTITY, IT CAN ENTER INTO MULTI-YEAR CONTRACTS WITH THE CITY OR COUNTY.

THE LEGAL BASIS FOR INTERGOVERNMENTAL AGREEMENTS (IGAs). ART. IX, SEC. III, PARA. I (A) OF THE CONSTITUTION

• “The state, or any institution, department, or other agency thereof, and

any county, municipality, school district, or other political subdivision of the state may contract for any period not exceeding fifty years with each other or with any other public agency, public corporation, or public authority for joint services, for the provision of services, or for the joint or separate use of facilities or equipment; but such contracts must deal with activities, services, or facilities which the contracting parties are authorized to provide * * *.”


MULTI-YEAR IGAs

• INTERGOVERNMENTAL AGREEMENTS CAN HAVE A TERM OF UP TO 50 YEARS.

• COMMISSIONERS AND MAYOR AND

COUNCIL CAN BIND THEIR SUCCESSORS THROUGH INTERGOVERNMENTAL AGREEMENTS WITH THEIR DEVELOPMENT AUTHORITIES.



COUNTIES AND CITIES ARE LEGALLY AUTHORIZED TO FINANCIALLY SUPPORT THEIR DEVELOPMENT AUTHORITIES THROUGH MILLAGE. • O.C.G.A. § 48-5-350 AUTHORIZES A CITY TO LEVY AD VALOREM TAXES OF UP TO

THREE MILLS TO “ITS DEVELOPMENT AUTHORITY OR A JOINT COUNTY AND MUNICIPAL DEVELOPMENT AUTHORITY FOR THE PURPOSE OF DEVELOPING TRADE, COMMERCE, INDUSTRY, AND EMPLOYMENT OPPORTUNITIES.”

• THE PARALLEL PROVISION FOR COUNTIES IS O.C.G.A. SEC. 48-5-220(20), WHICH ALLOWS A COUNTY TO PROVIDE SIMILAR FINANCIAL ASSISTANCE FOR SIMILAR PURPOSES UP TO 1 MILL.

• THIS IS IN ADDITION TO MILLAGE AUTHORIZED BY OTHER LAWS. “OTHER LAWS” INCLUDES A CONSTITUTIONAL DEVELOPMENT AUTHORITY’S LOCAL CONSTITUTIONAL AMENDMENT. FOR EXAMPLE,

“THE COUNTY, ACTING BY THE BOARD, IS AUTHORIZED TO LEVY AN ANNUAL TAX, NOT TO EXCEED ONE MILL, ON ALL TAXABLE PROPERTY WITHIN THE COUNTY FOR THE SUPPORT OF THE AUTHORITY AND FOR ITS USE AND PURPOSES, AND ALL FUNDS RAISED BY SUCH TAX SHALL BE PAID AND APPROPRIATED BY THE BOARD TO THE AUTHORITY AND WHEN PAID TO THE AUTHORITY, SHALL BECOME A PART OF ITS FUNDS AND MAY BE USED BY IT FOR ANY OF ITS PURPOSES AND POWERS AS HEREIN STATED OR AS MAY BE HEREAFTER PROVIDED BY LAW, WHICH TAX SHALL BE IN ADDITION TO ALL OTHER TAXES AUTHORIZED BY LAW.”



BONDS

• Historically, Development Authorities were active in the bond financing of all types of projects

• But federal tax law changes in the 1980’s removed access to tax-exempt financing for most types of Development Authority projects.

• When tax-exempt bond financing is available, it’s still the best way to finance a project.

• Most common tax-exempt development authority bonds ►“small issue” manufacturing bonds ►“qualified 501(c)(3)” bonds for federally recognized non-profits ►“exempt facility” bonds

• Most common development authority bonds ►“taxable” bonds


WHY ARE DEVELOPMENT AUTHORITY BONDS SO IMPORTANT?

• A GEORGIA REQUIREMENT FOR- ►“ABATEMENT” ►ANY SUBSTANTIAL CASH OR IN-

KIND INCENTIVES • BEST WAY TO BORROW MONEY


3 URBAN MYTHS (RURAL, TOO)

1. “My development authority can do abatement without bonds.”

2. “I can save money by using a promissory note instead of bonds.”

3. “Some development authorities can levy taxes.


MYTH NO. 1

• “My development authority can do abatement without bonds.” NO, IT CAN’T.

• Approximately 6 Georgia communities have Local Constitutional Amendments (LCA’s) that provide property tax abatement, automatically, without bonds or a development authority being involved. ►Examples: Jefferson County, Screven County, Early County.

• These LCAs are decades old and contain parameters that don’t fit today’s projects. ►Even in those communities, bonds are used.

• So, a bond-financed sale-leaseback structure is needed.


A BOND-FINANCED SALE-LEASEBACK STRUCTURE IS NEEDED

• WHAT ARE THE POWERS OF YOUR DEVELOPMENT AUTHORITY? ►A DEVELOPMENT AUTHORITY HAS THE POWER TO

FINANCE THE ACQUISITION OR FINANCING OF A PROJECT, THE POWER TO LEASE THE PROJECT, AND THE POWER TO GRANT AN OPTION TO PURCHASE THE PROJECT.

►PUT IT ALL TOGETHER, AND YOU GET…. A BOND-FINANCED SALE-LEASEBACK STRUCTURE.

►PROPERTY TAX ABATEMENT “ON DEMAND” IS NOT A POWER THAT EITHER A DEVELOPMENT AUTHORITY OR A LOCAL GOVERNMENT HAS.

• PROPERTY TAX SAVINGS RESULTS FROM THE BOND-FINANCED SALE-LEASEBACK STRUCTURE.


A BOND-FINANCED SALE-LEASEBACK STRUCTURE IS NEEDED

• “HOW CAN YOU JUSTIFY GIVING THE COMPANY AN OPTION TO BUY THE PROJECT FOR $1 WITHOUT VIOLATING THE CONSTITUTION’S PROHIBITION OF “GIFTS AND GRATUITIES”? ►CONNECTING THE PURCHASE OPTION WITH THE BONDS

PERMITS THIS. • “BONDS FOR TITLE” HAS LEGAL PRECEDENTS; “NAKED

LEASES” DON’T. DON’T YOU NEED THEM? ►See O.C.G.A. SEC. 36-80-16.1(e); W.C. Harris, et al. vs. DeKalb

County Board of Tax Assessors, 248 Ga. 277, 282 S.E.2d 880 (1981) • FINALLY, HOW MUCH BUDGET DO YOU HAVE FOR LEGAL

FEES TO DEFEND AGAINST TAXPAYER SUITS?


MYTH NO. 2

• “I can save money by using a promissory note instead of bonds.” ►FALSE- 95% OF THE TIME. ►BAD IDEA- 100% OF THE TIME.

• “Statutory” Development Authorities ►activated under Development Authorities Law ►don’t have the power to issue promissory notes

• exception- temporary bond anticipation notes when bonds have been validated and will actually be used for financing

►“Constitutional” Development Authorities ►created by Local Constitutional Amendment (LCA) ►each LCA is different ►most authorize promissory notes ►But- promissory notes aren’t validated, and validation is a Best

Practice for economic development projects


VALIDATION IS A BEST PRACTICE FOR ECONOMIC DEVELOPMENT PROJECTS

• Bonds are validated in Court

►development authority promissory notes are not validated • Judge’s final validation order is “forever incontestable and

conclusive.” Ga. Const. Art. IX, Sec. VI, Para. IV • Traditional- Use validation orders to cover-

►Incentives don’t violate Constitutional prohibition of “Gifts and Gratuities”

►Validity of “abatement” structure • leasehold valuation • usufruct

• nontaxable lease • PILOT (payment in lieu of taxes) bonds


VALIDATION IS A BEST PRACTICE FOR ECONOMIC DEVELOPMENT PROJECTS

Now- Also use validation orders to cover- • if the project is a public/private project (P3), it is Constitutional because

properly integrated • the project is not subject to the Georgia Local Government Public Works

Construction Law (O.C.G.A. Sec. 36-91-1 et seq.) • the bonds do not constitute a “business loan” or confer any other “public

benefit” within the meaning of O.C.G.A. Sec. 50-36-1 (HB 87) • neither the Company nor any other participant constitutes an “applicant

for public benefits” regarding the bonds within the meaning of O.C.G.A. Sec. 50-36-1 ► therefore, such persons are not subject to Systematic Alien Verification of

Entitlement (SAVE) • the bonds are not subject to the PILOT Restriction Act (O.C.G.A. Sec. 36-

80-16.1) • the bond issue and the expenditure of the proceeds thereof are exempt

from the performance audit and performance review provisions of O.C.G.A. Sec. 36-82-100


“BONDS FOR TITLE”

DEVELOPMENT AUTHORITY

COMPANY

GRANT

GRANT SOURCE

$ RENT

BOND LEASE

BONDS

$ BOND PROCEEDS

TITLE

$ PURCHASE PRICE

Basic Structure to Use for Grants and

Property Tax Savings


MYTH NO. 3

• “Some development authorities can levy taxes.” NO, THEY CAN’T. • Local governments have the option to financially support their development

authorities. ► County: 1 mill to a county development authority or a joint city/county development authority (O.C.G.A. Sec.

48-5-220 (20)) ► City: 3 mills to a city development authority or a joint city/county development authority (O.C.G.A. Sec.

48-5-350) ► More: if governmental purpose or if provided in Local Constitutional Amendment

• Some Local Constitutional Amendments (LCAs) authorize additional millage. • A few LCAs mandate additional millage.

► To support the development authority. ► To pay off bonds that have gone into default.

• But no city or county development authority has the power to levy taxes. ► Taxes are levied by the local government. ► Bonds issued by local governments repaid by taxes are called “general obligation bonds.” ► Bonds issued by local authorities repaid by pledged revenues are called “revenue bonds.”

• An intergovernmental agreement (IGA) between the local government and the development authority can be used to “monetize” this millage.

► Monetization is through “contract revenue bonds.” ► IGA can be multiyear.


CONCLUSION

• THE RULES GOVERNING DEVELOPMENT AUTHORITIES GET MORE COMPLICATED EVERY YEAR

• DEVELOPMENT AUTHORITIES ARE AN INDISPENSABLE TOOL FOR ECONOMIC DEVELOPMENT

• STAKEHOLDERS MUST UNDERSTAND ►CORPORATE GOVERNANCE ►THE ROLE OF THE BOARD, THE OFFICERS, AND THE

STAFF ►RELATIONSHIPS WITH OTHER PUBLIC BODIES ►DO’S AND DON’TS ►CAN’S AND CAN’TS

• I HOPE THIS PRESENTATION WILL HELP!


REFERENCES

THIS PRESENTATION AND OTHER REFERENCES CAN BE DOWNLOADED AS FOLLOWS:

• January 2013 - “Development Authorities 101” • June 2012 - “Bonds 101” • June 2011 - "TIFs and TADs in Tough Times“; TIFs and

TADs Questions and Answers • January 2011 - “Introduction to Tax-Exempt Bonds” • January 2011 - “Introduction to 'Taxable Floaters' ” • August 2010 – "Bonds For Title" at http://danmcrae.info/whitepapers


QUESTIONS?

Daniel M. McRae, Partner Seyfarth Shaw LLP

1075 Peachtree Street, N.E., Suite 2500 Atlanta, Georgia 30309

Telephone: 404.888.1883 [email protected]

http://danmcrae.info

15807097


MORE INFORMATION

This presentation is a quick-reference guide for company executives and managers, elected and appointed officials and their staffs, economic developers, participants in the real estate and financial industries, and their advisors. The information in this presentation is general in nature. Various points which could be important in a particular case have been condensed or omitted in the interest of readability. Specific professional advice should be obtained before this information is applied to any particular case. Any tax information or written tax advice contained herein is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.) 15082485

DEVELOPMENT AUTHORITIES - Dan McRae · 2013. 6. 25. · U.S. and Georgia Constitutions Its...

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Transcript of DEVELOPMENT AUTHORITIES - Dan McRae · 2013. 6. 25. · U.S. and Georgia Constitutions Its...