Unintended consequences

Walter C. Jones

May 1, 2008

There are many reasons the Atlantic Station development is unique, but part of it has to do with taxes, schools, the Supreme Court and the speaker of the House.

Another has to do with unintended consequences.

Both involve a financing scheme that can't be duplicated without action by the General Assembly and voters' approval.

The huge expense of Atlantic Steel's environmental remediation was funded partially through a Tax Allocation District (TAD), an arcane financial strategy that the Georgia Supreme Court ruled in February, from now on, must be structured differently.

In a case over the planned sale of government bonds to fund development of the Beltline rail corridor, the court ruled unanimously the state Constitution prohibits school taxes from going for any purpose other than education.

Unintended consequence No. 1 was triggered by the lawsuit that aimed to stop that one project and ended up jeopardizing dozens of similar ones across the state.

That's because TADs exist to finance civic improvements through the sale of bonds. And the bonds are repaid through the added taxes derived from increases in property values that those civic improvements spark. Since school taxes are more than half of all property taxes, their inclusion in a TAD makes a big difference in the amount of bonds that can be sold and repaid.

Supporters of TADs argue that schools can benefit in the long run from increased taxes triggered by property taxes when the civic improvements are complete. A large group of those supporters are real estate developers who also hope to benefit from the rising property values TADs can spawn.

After the state's highest court handed down its decision, the developers ginned up a lobbying campaign for a constitutional amendment, Senate Resolution 996, to nullify the court's ruling.

SR 996 sailed through the Senate with ease on a 46-3 vote less than three weeks after introduction. Then it slowed in the House, which resulted in unintended consequence No. 2. The bill was delayed while the House sidetracked all tax bills in light of Speaker Glenn Richardson's various tax-reform proposals. The plan there was to conduct a wide-reaching study of the entire tax code and only pass new proposals that conform to a newly formulated philosophy on taxation.

If Richardson's original proposal had passed, it would have eliminated property taxes for schools, which would have left the TADs' mechanism in worse shape than the court did. Of course, his idea morphed into merely the elimination of the car-tag tax, but the desire for a comprehensive review lingers.

Generally, when Republicans like Richardson and the rest of the legislative leadership talk about tax philosophy, it has to do with minimizing taxes, relying on the power of free enterprise and giving control to the government closest to the people. Supporters say TADs fit in all categories.

Local politicians like TADs because voters in the specified district agree to tax themselves, and it doesn't appear to be a tax increase. At least it's a less onerous one because the taxes rise as property values do, presumably at the same time that retail sales and other measures of business revenue are improving.

The House finally did pass a slightly amended version of the bill in the final hour on the last day of the session with a vote of 129-38, which prompted the Senate to have to agree 15 minutes before adjournment. That cut it kind of close. Next, voters will have to be convinced in November to go along. And still, the Legislature must update the law next year to reflect it before the city of Atlanta can launch its planned Westside TAD, the Perry-Bolton TAD and the BeltLine TAD and other communities around the state can do the same.