January 10, 2023

Senate committee endorses narrow reforms for development authorities

Rep. Margaret Mary Oliver, D-Decatur, wanted a joint committee to continue to explore potential reforms, but that proposal was nixed. “I would have liked the report to go further,” she said. “I think there’s work to do, and I think an intelligent, public discussion with the developers and with policymakers is necessary.”

By Zachary Hansen, The Atlanta Journal-Constitution

A Georgia Senate committee made multiple recommendations for ways to improve transparency and the actions of local development authorities but stopped short of broad changes to the ways the jobs- and development-recruiting agencies operate.

The bipartisan committee, which formed as a result of recent scandals and controversial tax break deals, released its final report at the end of December. The report includes six recommendations to tighten up the largely autonomous agencies, from an operations audit to additional training for development authority members.

Recommendations that could have substantially changed the way development authorities handle business and offer tax incentives were shelved.

Development authorities are appointed by elected leaders but act as shadow government agencies with broad powers to reduce companies’ local government and school property taxes in exchange for jobs and investment. But they receive limited oversight and have faced withering criticism in recent years.

Proponents tout the agencies as crucial for Georgia to compete for blockbuster deals like the future Rivian and Hyundai Motor Group electric vehicle plants.

Critics contend many development authorities are too quick to give tax breaks for projects that would happen regardless. One think tank in Michigan recently called the Rivian incentives the worst economic development deal of 2022. Though the EV upstart has promised 7,500 jobs, the Center for Economic Accountability criticized a joint development authority that granted Rivian some $700 million in property tax breaks because Rivian has yet to turn a profit, echoing the sentiments of a judge who struck down the incentives.

Recent ethical abuses, including a scandal over per diems or stipends at the Development Authority of Fulton County, critics say, showcase that legislation is needed to clamp down on authorities’ power.

Sen. Steve Gooch, R-Dahlonega, feared tougher action could hamstring deals and upend the state’s competitiveness.

“For the most part, I think they’re working well,” Gooch said. “I haven’t heard any compelling reasons to change the laws that we currently have on the books..”

Rep. Margaret Mary Oliver, D-Decatur, wanted a joint committee to continue to explore potential reforms, but that proposal was nixed.

“I would have liked the report to go further,” she said. “I think there’s work to do, and I think an intelligent, public discussion with the developers and with policymakers is necessary.”

Lawmaker: Other states ‘write checks’

Georgia’s development authority system is a convoluted way to effectively get around the state Constitution’s gratuities clause, which prohibits government officials from giving public funds away without an equal return.

Other states, such as Texas, don’t have this provision and are able to use cash to woo companies. Development authorities bypass the state constitution through complicated bond-for-title deals that place the title of a property into the development authority’s hands.

As government agencies, development authorities pay no taxes. With title in hand, they can lease the properties back to companies and as part of that arrangement reduce or eliminate local taxes during the term of the deal.

“We have to work hard to incentivize companies to come to Georgia versus other states who can literally just write checks,” Gooch said.

Sometimes these deals become divisive and can end up in court. A judge recently declined to approve bonds at the center of the Rivian deal, casting into doubt roughly $700 million in tax breaks. That ruling is being appealed.

Jeff Rader, a former DeKalb County commissioner, told the senate committee that development authorities sometimes incentivize projects in hot markets with little justification. In urban counties, he said residential and retail projects can get a boost from tax abatements, either giving them an unfair market advantage or lifting up an unsustainable project.

“In DeKalb, I know that every one of the tax abatements on multifamily that we’ve had has been for market-rate projects and projects that were viable and (in) hot markets,” he said.

Promoting ‘self-oversight’

Sen. Max Burns, R-Sylvania, the committee’s chair, said he would like to preserve development authorities’ autonomy, allowing them to make decisions and deals that best serve their communities.

“I think that the development authorities are more than capable of providing some self-oversight,” he said.

Burns said establishing a list of best practices would go a long way in encouraging development authorities to best serve their communities. Among the committee’s recommendations was a request for the Georgia Economic Development Association to develop training materials to provide to local authorities, with recommendations tailored for urban and rural boards.

A topic of discussion that was cut from the final report was whether development authorities should be required to have representatives from other taxing government entities on their boards. Some authorities, like Invest Atlanta, have a school board representative on their board, but they are not required to, despite development authorities having the ability to abate school taxes.

Gooch argued schools and development authorities have different motivations, and he worried a school board representative could tank good deals.

“You’re not taking money away from the school,” Gooch said. “You’re simply incentivizing that company to move to that community or expand their existing facility, and then the additional revenue may be abated for a short time.”

Julian Bene, a former Invest Atlanta board member, told the committee he’s concerned many authorities have conflicts of interest and are motivated by deal fees and attracting new jobs even if the financials don’t make sense. Even though the committee’s final report lists only a few changes he’d like to see, he said it’s a good first step.

“It may cause some development authorities to be more mindful, the ones who need to be more mindful,” Bene said.

Development authority recommendations

  • Require two hours of additional training for development authority board members
  • Prohibit board members serving expired terms from voting after six months
  • Limiting contractor liability for development authority projects with certain lease agreements known as a usufruct
  • Ask the state Department of Audits and Accounts to conduct a performance audit on the state’s development authorities
  • Ask the Georgia Economic Development Association to create a “best practices” plan
  • Explore local legislation where multiple development authorities have overlapping jurisdictions

A note of disclosure

Cox Enterprises, owner of The Atlanta Journal-Constitution, also owns about a 4% stake in Rivian and supplies services to the company. Sandy Schwartz, a Cox executive who oversees the AJC, is on Rivian’s board of directors and holds stock personally. He does not take part in the AJC’s coverage of Rivian.

Development Authorities Final Report by Zachary Hansen on Scribd