Joint Dev. Auth. of Jasper Cnty. v. McKenzie

• Decision Date: 28 April 2023
• Docket Number: A23A0574,A23A0596
• Parties: JOINT DEVELOPMENT AUTHORITY OF JASPER COUNTY, MORGAN COUNTY, NEWTON COUNTY AND WALTON COUNTY v. McKENZIE et al. STATE OF GEORGIA v. McKENZIE et al.
• Court: Georgia Court of Appeals

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JOINT DEVELOPMENT AUTHORITY OF JASPER COUNTY, MORGAN COUNTY, NEWTON COUNTY AND WALTON COUNTY v. McKENZIE et al.

STATE OF GEORGIA v. McKENZIE et al.

Nos. A23A0574, A23A0596

Court of Appeals of Georgia, First Division

April 28, 2023

BARNES, P. J., MCFADDEN, P.J. and HODGES, J.

HODGES, Judge.

These cases come before us following the Morgan County Superior Court's denial of a petition to validate taxable revenue bonds in an amount up to $15,000,000,000 in connection with the proposed development and construction of an electric vehicle manufacturing facility by Rivian Horizon, LLC ("Rivian") in Morgan and Walton Counties (the "Project"). As discussed in more detail below, the State and the Joint Development Authority of Jasper County Morgan County, Newton County, and Walton County (the "JDA") entered into numerous, complex agreements with Rivian which were structured so as to eliminate any obligation for Rivian to pay ad valorem taxes as a way to induce Rivian to locate its facilities in Georgia. Several residents of the impacted counties (the "Intervenors") intervened in the action to oppose validation of the bonds and other aspects of the Project. The superior court denied validation of the bonds. It also found that Rivian's interest in the land for the Project would constitute a taxable estate for years and that its interest in the personal property for the Project would not be a bailment for hire, effectively rendering Rivian liable for ad valorem taxes. The JDA and the State now appeal, and we have consolidated the cases for issuance of an opinion.

The JDA and the State both allege the same enumerations of error specifically, that the superior court erred (1) in denying validation of the bonds based on improper consideration of the Project's economic feasibility; (2) in denying validation of the bonds because of concerns that local infrastructure costs may offset the Project's benefits; (3) in denying validation of the bonds on the ground that the Bond Resolution waived performance audit requirements; (4) in finding that the rental agreement between the parties does not create a bailment for hire; and (5) in finding that the rental agreement does not create a usufruct. For the reasons outlined below, we affirm the superior court's finding that the nature of Rivian's interest in the equipment of the Project is not a bailment for hire. We reverse the superior court as to its other findings.

The evidence in this case is undisputed, although the parties strongly disagree about the implications of that evidence. The JDA is a public body corporate and politic created pursuant to the Development Authorities Law of the State of Georgia (OCGA § 36-62-1 et seq.). It was created for the public purpose of developing and promoting, for the public good and general welfare, trade, commerce, industry and employment opportunities in its area of operation. In April 2022, it adopted a bond resolution permitting it to issue bonds to Rivian in connection with the Project. It also reached several agreements with the State and Rivian in furtherance of this Project, including, as is relevant to this case, an Economic Development Agreement ("EDA") and a Rental Agreement concerning the real and personal property involved with the Project. The documents extensively cross-reference each other as part of a comprehensive scheme.

The Bond Resolution

In April 2022, the JDA adopted a Bond Resolution in which it made a finding that

the Project will increase employment in the territorial area of the [JDA] and thereby develop and promote trade, commerce, industry and employment opportunities for the public good and the general welfare within the territory of the [JDA] and will promote the general welfare of the State; that the Project, and the use thereof will each further the public purposes of the Act for which the [JDA] was created, and that the Project and the [bonds] will each be sound, feasible, and reasonable.

Through the Bond Resolution, the JDA agreed to issue taxable revenue bonds in one or more series, under such provisions, in aggregate principal amount of up to $15,000,000,000 [ ], and to apply the proceeds of the sale of the [b]onds (whether derived directly or indirectly from the issuance of the [b]onds) to finance, directly, in whole or in part, the acquisition, construction, and improvement of certain vehicle manufacturing and research, development, training, sales and/or service facilities, including potential battery manufacturing facilities, and related facilities on [particular land]. . .

Each bond bears interest at the rate of 6 percent annually and matures on December 1, 2047. The Bond resolution provides that the bonds and interest thereon

shall not be deemed to constitute a debt or liability of the State, or any political subdivision thereof, and its issuance shall not, directly or indirectly or contingently, obligate the [JDA], the State or any political subdivision thereof, including without limitation Jasper County, Morgan County, Newton County or Walton County, to levy any form of taxation therefor or make any appropriation for their payment. Nothing in the bonds or in the Bond Resolution or the proceedings of the [JDA] authorizing the issuance of the bonds or in the Act shall be construed as creating a debt of the State, or any political subdivision thereof, including without limitation Jasper County, Morgan County, Newton County or Walton County, within the meaning of any constitutional or statutory provision of the State.... The bonds and any interest due thereon shall not be a general obligation, debt, or a liability of the [JDA] and does not constitute or give rise to any pecuniary liability or charge against the general credit of the [JDA], but shall be a limited obligation of the issuer payable solely from and secured by the security, all as described in and subject to limitations set forth in this Bond Resolution. (Emphasis omitted.)

The Bond Purchase Agreement

Through this agreement, the JDA "proposes to issue its revenue bonds . . . in the form of up to four (4) draw-down instruments in a maximum aggregate principal amount of $15,000,000,000." Advances for these bonds may only be made with respect to costs of the Project, including the costs of construction and purchasing equipment, and costs of issuing the bonds.

The Economic Development Agreement

In April 2022, Rivian, the State, and the JDA agreed to the EDA.^[1] Through the EDA, Rivian will commit to construct an electric vehicle manufacturing plant, create 7,500 new jobs with an average annual wage of $56,000, and make a capital investment of at least $5,000,000,000. The JDA, several agencies of the State, and Rivian also agreed to performance and accountability standards related to Rivian's promises under the EDA. If Rivian fails to meet certain performance thresholds within a set time frame, it would be required to relinquish certain financial incentives received from the various agencies.

In exchange, the State and the JDA agreed to make available the facility site, which would be owned by the State, leased to the JDA, and then rented to Rivian pursuant to the Rental Agreement. The facility site consists of nearly 2,000 acres which spans Walton and Morgan Counties. The State and the JDA have obligations under the EDA to perform certain infrastructure work on the site, provide workforce training facilities and programs, and to provide certain financial incentives to Rivian. The State, through the Georgia Department of Economic Development, committed to a grant of $21,320,000 to the JDA for Rivian's benefit and a $111,307,760 grant directly to the JDA to offset some of the costs, as well as providing certain state tax incentives for Rivian.

The EDA further provides that Rivian, in its capacity as a tenant of the Project, would be responsible for repayment of the project bonds and it specifies that the project bonds shall not be a general obligation of the JDA, Jasper County, Morgan County, Newton County, or Walton County. Instead, Rivian and the JDA agreed that the project bonds "shall be a special and limited obligation payable solely from the payments (actual or constructive) received from [Rivian] under the Rental Agreement." The EDA acknowledges the language from the Bond Resolution that provides that payment of the bonds is not the responsibility of the State, the JDA, or any of the JDA's member counties, and that project bonds are not a debt of those entities nor are they backed by the faith and credit of those entities.

So that the relevant taxing authorities are not deprived of revenue as a result of the parties' attempt to structure the deal to avoid ad valorem taxation on Rivian's part, the EDA also contains an agreement that Rivian would make payments in lieu of taxes, which is memorialized in a separate agreement (the "PILOT Agreement"). In the PILOT Agreement, the tax assessors of Morgan and Walton Counties would represent that they have determined Rivian's interest in the Project to be exempt from ad valorem taxation during the period of the Rental Agreement with the JDA. The first PILOT payment scheduled for 2023 is for $1,500,000. Over 25 years Rivian would pay $300,000,000 in PILOT payments pursuant to the agreement. The EDA provides, however, that "[i]n the event that [Rivian] is required to pay any ad valorem taxes on any property interests in the Project, such amount of ad valorem taxes paid by [Rivian] shall be deducted from the PILOT Payments due from [Rivian]." The current annual ad valorem revenue for the undeveloped property at issue is $80,000.

The Rental Agreement

The JDA and Rivian also agreed to a Rental Agreement for the real and personal property involved with the Project.^[2] Through the...