Franzen v. Downtown Dev. Auth. of Atlanta

• Decision Date: 29 June 2020
• Docket Number: S20A0328
• Court: Georgia Supreme Court
• Parties: FRANZEN et al. v. DOWNTOWN DEVELOPMENT AUTHORITY OF ATLANTA et al.

309 Ga. 411

845 S.E.2d 539

FRANZEN et al.

v.DOWNTOWN DEVELOPMENT AUTHORITY OF ATLANTA et al.

S20A0328

Supreme Court of Georgia.

Decided: June 29, 2020

Carranza M. Pryor, The Pryor Law Firm, PO Box 52068, Atlanta, Georgia 30355, John Floyd Woodham, Woodham Law, LLC, 2625 Piedmont Road Suite 56-295, Atlanta, Georgia 30324, for Appellant.

Matthew James Calvert, Hunton Andrews Kurth, LLP, 600 Peachtree Street, N. E. Suite 4100, Atlanta, Georgia 30308-2216, Robert Sparks Highsmith, Keith M. Wiener, Holland & Knight LLP, One Atlantic Center, Suite 2000 1201 West Peachtree Street, Atlanta, Georgia 30309-3453, Paul L. Howard, Fulton County District Attorney's Office, 136 Pryor Street, S.W. 4th Floor, Atlanta, Georgia 30303, Douglass Payton Selby, Hunton & Williams, LLP, Bank of America Plaza, Suite 4100 600 Peachtree Street, N.E., Atlanta, Georgia 30308-2216, Laura T. Wagner, Hunton Andrews Kurth LLP, Bank of America Plaza, 600 Peachtree Street, NE Suite 4100, Atlanta, Georgia 30308-2216, Alvin LaMont Kendall, The Kendall Law Firm, 1133 Cleveland Avenue, Atlanta, Georgia 30344, for Appellee.

Christopher M. Carr, Ross Warren Bergethon, Department of Law, 40 Capitol Square, S.W., Atlanta, Georgia 30334, for Other Party.

Melton, Chief Justice.

This case involves one of three related bond validation proceedings, all of which concern the redevelopment of an area of downtown Atlanta commonly referred to as "The Gulch."¹ After several days of hearings, the trial court concluded that issuance of the bonds in this case would be sound, feasible, and reasonable. For the reasons set forth below, we affirm.

1. Background

The relevant facts show that, in 1998, the City of Atlanta ("City"), through its City Council, adopted a Westside Redevelopment Plan that expressly declared the City's goal of redeveloping The Gulch, which had been blighted and underdeveloped for some time. This plan states:

The Railroad Gulch – The ravine created in Atlanta by the railroads has long been a nuisance to the citizens of Atlanta as it has visually, socially, and physically divided the area since the early 1900's. To overcome these conditions[,] the infusion of capital and the assistance of government is needed to redevelop this 150 acre area.... With the impending development of the new Atlanta Arena, [Tax Allocation District] funds could be used to help fill development gaps for tourism uses, ... office and retail uses, and other redevelopment needs and uses that might exist. Such developments offer Atlanta the best opportunity to redevelop the "[G]ulch" since the founding of the city over 150 years ago.

On July 14, 2010, the City designated a certain area which included The Gulch as "Atlanta Urban Redevelopment Area No. 1," pursuant to the Urban Redevelopment Law. See OCGA § 36-61-1 et seq. On November 20, 2017, in order to facilitate redevelopment, the City further designated The Gulch redevelopment area to be an "enterprise zone" under the Enterprise Zone Employment Act. See OCGA § 36-88-1 et seq.²

Under the Enterprise Zone Employment Act, a local governing body may designate one or more geographic areas as enterprise zones if they suffer from certain enumerated conditions, such as pervasive poverty, high unemployment, and underdevelopment.³ In order to encourage economic development within these blighted enterprise zones, certain qualifying entities—those creating at least five new full-time jobs within the designated enterprise zone area—can obtain exemptions from property, occupational, and, in the case of enterprise zones created under OCGA § 36-88-6 (g), sales and use taxes that would otherwise be imposed. See OCGA § 36-88-6 (g) (2). The local governing body that designated the enterprise zone is also authorized, if it chooses to do so, to assess and collect annual enterprise zone infrastructure fees from each qualifying business or entity, in an amount not to exceed the amount of sales and use tax on the exempted transactions. The Enterprise Zone Employment Act expressly authorizes a local governing body to pledge the infrastructure fees as security for revenue bonds issued for development or infrastructure within the enterprise zone. See OCGA § 36-88-6 (g) (4). This combination of exemptions, fees, and bonds enables the redevelopment of these impoverished areas.

Acting within this statutory framework, the City, the Downtown Development Authority of the City of Atlanta ("Development Authority"), and Spring Street, LLC, a private land developer ("Developer"), agreed to enter into an Enterprise Zone Development Agreement ("Development Agreement") to redevelop The Gulch into an active live/work community.⁴ Pursuant to the Development Agreement, the Developer would acquire the land located in The Gulch and then construct the live/work community there in a number of distinct phases. The initial phase requires the Developer, using its own finances, to construct a platform that physically raises The Gulch landscape to the level of surrounding streets. Once this platform is finished, homes and businesses would then be constructed in additional phases.

To partially fund this redevelopment project,⁵ the City and the Development Authority, acting as the City's redevelopment agency, established a master financing program, including the proposed issuance by the Development Authority of the revenue bonds ("Bonds") which are the subject of this case.⁶

Because The Gulch has been declared to be an enterprise zone, the City will collect infrastructure fees from the qualifying businesses and service enterprises that will eventually be established within The Gulch. The Bonds, which will be issued to the Developer as an incentive for its construction within The Gulch,⁷ will be secured solely by these infrastructure fees.⁸ Pursuant to an intergovernmental agreement ("IGA") between the City and the Development Authority, the City will collect the infrastructure fees and pass them along to the Development Authority to service any Bonds outstanding at the time.⁹ In turn, the Development Authority will turn the fees over to the trustee of the bond account for payment to the Developer.

The timing and the amount of the distribution of the Bonds to the Developer are directly tied to progress in construction of The Gulch and the growth of businesses (and corresponding infrastructure fees) therein.¹⁰ The purpose of the Bonds is to finance a portion of the costs associated with the Gulch Project, largely beginning after the Developer expends $400 million of its own funds in starting the redevelopment project.¹¹ The Bonds will be paid off solely from infrastructure fees collected within The Gulch through 2048, or when the Bonds are fully paid off, whichever occurs sooner.

The operative documents creating the financing structure clearly and unequivocally state that neither the City nor the Development Authority will have any obligation whatsoever to pay for the Bonds other than by transferring the infrastructure fees that have been collected. And, the Developer is given rights to pursue infrastructure fees only, not any other funds whatsoever. If infrastructure fees are ultimately insufficient to cover the debt created by the Bonds, the Developer has no recourse for the resulting loss against any of the government parties. In other words, if an insufficient amount of infrastructure fees is generated to support the debt service on the Bonds at any given time, the entirety of the shortfall must simply be borne by the Developer as a loss.¹²

In addition to information from the Developer regarding development and construction benchmarks prior to the issuance of Bonds, other prerequisites will be in place to ensure that future incremental issuances of Bonds will be well secured. Prior to each such draw-down issuance, the Development Authority must receive a report from a feasibility consultant confirming that the maximum annual forecasted net infrastructure fees will equal at least 110 percent of the maximum annual debt service for all outstanding Bonds at the given time. In this manner, there is assurance that the bond issuance will remain financially sound and reasonable throughout the course of The Gulch's redevelopment.

Ultimately, the Development Authority seeks to validate up to a maximum amount of $1,250,000,000 in Bonds, but the Bonds will be issued incrementally as the specified conditions above are satisfied. It is possible that a lower amount of Bonds will eventually be issued.¹³

To summarize in the simplest manner: (1) the Development Authority will issue revenue bonds in incremental amounts tied to progress in redevelopment of The Gulch enterprise zone; (2) the revenue bonds will be available only to the Developer, who will earn the bonds with development and construction work completed within The Gulch using the Developer's own money; (3) the debt service for the bonds will be funded exclusively by infrastructure fees; (4) the City will collect these infrastructure fees from businesses within The Gulch and pass them along to the Development Authority for payment of the bonds; and (5) the Developer has certain strictly limited rights to enforce the transfer of collected infrastructure fees, but has no right whatsoever to any other funds of the public entities involved in The Gulch project.

2. The Bond Validation Proceeding

On November 21, 2018, a bond validation hearing regarding the Bonds was set for December 10, 2018.¹⁴ On the morning of the hearing, four citizens of the City ("Intervenors"), who are the appellants in the present case, moved to intervene.¹⁵ See OCGA § 36-82-77 (a). At the same time, the Intervenors filed an answer to the Development Authority's petition for validation. The Intervenor's filing contained nine objections.

At the bond validation hearing, the Development Authority and the City presented their opening evidence, including the Bond documents described above and descriptions of the Bond mechanics. The Intervenors then testified to prove...