Georgia senate committee debates reforming development authorities
A Georgia Senate committee is close to wrapping up an evaluation of local government entities that give tax breaks to corporations and developers, and it’s possible legislation is on the horizon to alter the system.
On Thursday, the committee will seek public comment on development authorities, which have the power to recruit jobs and investment through property tax breaks.
Recent scandals and controversial deals prompted lawmakers to form the bipartisan committee to scrutinize the agencies. The committee is expected to deliver a report Dec. 10 that will recommend legislation, but most members have said they don’t want to dismantle the system.
Dan McRae, an attorney often credited with pioneering how development authorities work in Georgia, told the seven-member committee that without them, Georgia would fall behind rival states.
“If there’s no development authority, we’re out of business,” McRae said in August.
Development authorities, appointed by elected county and city officials, act like shadow governments and often have little oversight. Proponents say the boards’ ability to act outside local government allow flexibility to attract companies, pointing to blockbuster deals like the future Rivian and Hyundai Motor Group electric vehicle plants.
But critics contend recent ethical abuses, including a scandal over per diems at the Development Authority of Fulton County, highlight the need for change. They also argue many deals authorities strike would happen without tax breaks.
“These deals are very complicated,” Sen. Margaret Mary Oliver, D-Decatur, a committee member, told The Atlanta JournalConstitution.
“We have to have greater transparency.”
HUNDREDS OF AUTHORITIES
Every Georgia county and city has the ability to form its own development authority or industrial development authority. Cities can form authorities for their downtowns, while joint authorities can represent multiple jurisdictions. Some, founded years ago, are dormant but can be reconstituted.
DeKalb County, for instance, has 12 cities and part of Atlanta. The chairman of the county’s authority said in a recent committee meeting he didn’t know how many other authorities exist in DeKalb.
“Part of the challenge for this committee is just candidly knowing how many development authorities are in the state of Georgia, and we don’t know how many there are in DeKalb County,” said committee Chairman Sen. Max Burns, R-Sylvania. Burns said he doubts a list maintained by the Georgia Department of Community Affairs is accurate.
State lawmakers turned their attention to the activities of development authorities after reporting by the AJC revealed a culture of loose financial oversight at the Fulton authority, also known as DAFC.
The AJC found a former chairman and two former board officers at times were paid $200 “per diems” or stipends for each document they signed, each item discussed at meetings and sometimes claimed multiple payments for attending more than one event in a single day.
Per diem, Latin for “per day,” is generally understood as an allowance for meals and incidental expenses. But state law allows authorities in Fulton and three other large metro Atlanta counties to pay per diems for board members’ time.
DAFC officials later tightened policies, and much of the board has been replaced. Gov. Brian Kemp signed a bill authored by Oliver that enacted new ethics and per diem rules.
But the committee’s probe could prompt lawmakers to go further. Ideas include eliminating per diems, changing training requirements or requiring certain community members be appointed to authority boards, such as a school board representative. Some critics would like to restrict county authorities from doing deals inside cities that have their own authorities to limit incentive shopping.
THE URBAN-RURAL DIVIDE
Critics say communities can cost themselves tax revenue by providing inducements when none are needed.
An AJC review of DAFC tax breaks over a three-year period found the agency awarded preliminary or final approval to some $328 million in tax breaks, often in hot neighborhoods within the city of Atlanta, which has its own authority. Many of the projects were for luxury apartments, warehouses or office buildings with little public benefit in return.
A 2018 study by the Michigan-based W.E. Upjohn Institute for Employment Research found that 75% to 98% of the time, a company granted incentives would have made the same choice without local or state subsidies.
Incentive critics often say these should only be granted if the project could not be built “but-for” the tax break. Few, if any authorities, likely require a “but-for” standard before granting tax breaks.
Two joint development authorities, or JDAs as they’re known, provided hundreds of millions of dollars, each, in local property tax breaks Hyundai’s $5.5 billion EV factory near Savannah and Rivian’s $5 billion EV factory in Social Circle. Cox Enterprises, owner of The Atlanta Journal-Constitution, also owns about a 4% stake in Rivian and supplies services to the company,
A judge recently struck down local incentives for Rivian. The state and local JDA are appealing the ruling, and have said the incentives are vital for a “transformational” project that promises 7,500 jobs.
Ed Wall, a managing director of public finance investment banking at Piper Sandler, told the AJC that a few development authorities have reputations as rubber stamps.
“If you show up at the Fulton and DeKalb County development authority while breathing, your ass is going to get free taxes,” he said.
Decide DeKalb Development Authority Chairman Don Bolio defended his agency.
“For every $1 (in taxes) we abate, we expect $3 in additional tax revenue over the life of that project, which we think is a pretty fair number,” he said.