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FEBRUARY 2020 ■ www.ReporterNewspapers.net
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As city authorities grant tax breaks, school districts eye budget impacts
BY DYANA BAGBY, HANNAH GRECO
AND JOHN RUCH
Property tax abatements granted by
government authorities for luxurious
developments are the center of a polit
ical firestorm in Atlanta, blasted by of
ficials and scrutinized by communi
ty groups for diverting money from the
public schools and shifting tax burdens
to homeowners.
Meanwhile, the development au
thorities of the smaller suburban cit
ies of Brookhaven, Dunwoody and San
dy Springs are quietly granting millions
of dollars in the same kinds of tax abate
ments for projects ranging from Roswell
Road luxury apartments to State Farm’s
massive new campus to an Atlanta
Hawks basketball team practice facility.
City officials say the tax breaks are
worth it to compete with other cities,
fund other local improvements, and
boost the tax base in the long run, once
the abatements expire. But the DeKalb
and Fulton county school districts say
the breaks contribute to losses of mil
lions in revenue right now on proj
ects that may have happened without a
break, essentially giving away money in
a time of tight budgets. They come on top
of tax breaks offered by county develop
ment authorities, sometimes within city
limits.
“People may have a philosophical dis
agreement with providing tax abate
ments, but the long-term benefit in in
vestments we get from these deals far
outweighs the amount of the abatement,”
said Michael Starling, Dunwoody’s eco
nomic development director. “We’re
banking on these deals now to bring in
higher property taxes in the future.”
“This is an area of great concern for
us,” said Marshall Orson, chair of the
DeKalb County Board of Education. “We
have no say in whether an abatement is
granted or what proceeds are diverted or
how they are used.”
In 2019, the DeKalb County School
District lost $3.9 million to tax abate
ments, according to interim Chief Fi
nancial Officer Robert Morales. He said
that, as one example, around 43 teach
ers could have been hired with that mon
ey. The district is in the midst of a budget
crunch that recently led the administra
tion to postpone construction of a new
Cross Keys High School and an expan
sion of Dunwoody High.
In fiscal year 2019, the Fulton County
School System lost $6.2 million in “poten
tial revenue” from various abatements
and incentives, and $4.8 million in fiscal
2018, according to Chief Financial Officer
Marvin Dereef.
Dereef said there are certain types of
tax breaks the school district can review.
“Unfortunately, it can be difficult to de
termine whether proposed developments
require tax abatements to be economi
cally viable, or whether they would con
tinue without the incentives and thus, re
tain potential revenues,” he said.
For local cities, the deals are some
times a way to leverage other benefits.
The city-created but self-funded develop
ment authorities collect a small percent
age of their deals as fees that can be used
to fund other “economic development”
projects. And the deals can involve nego
tiated terms where the developer helps to
build streets or create affordable hous
ing.
“These benefits are in addition to the
jobs these companies bring to our city
and the enhancement of the city’s tax
base,” said Sandy Springs spokesperson
Sharon Kraun.
The system
Development authorities are created
by county or city governments, but oper
ate independently. They receive no funds
from their parent governments and don’t
place any debt on them, either.
Development authorities have a num
ber of ways to offer tax breaks to devel
opers.
One is to issue bonds for construc
tion funding on behalf of the develop
er, which cuts a federal tax on bond in
terest due to the authority’s tax-exempt
status as a government body. The Sandy
Springs Development Authority did that
in 2014 for the Weber School, a private
school.
But the most common practice local-
ft
This is an area of
great concern for
us. We have no
sag in whether
an abatement is
granted or what
proceeds are
diverted or how
they are used.
MARSHALL ORSON
CHAIR OF THE DEKALB COUNTY
BOARD OF EDUCATION
ly is a largely fictional real estate transac
tion that essentially gets around a state
law that bars tax abatements without the
property changing hands. In such deals,
the authority technically becomes the
owner of the property and issues bonds
for the project that are purchased by
the developer itself. The developer then
pays the principal and interest on the
bonds back to the authority as “rent” on
a “lease” that typically lasts 10 years. Dur
ing that period, the authority uses its tax-
exempt status to grant a partial property
tax discount. After the “lease” expires, the
technical ownership reverts to the devel
oper and the normal property tax rates
apply.
All of that happens only on paper in
what Kraun described as a “phantom
lease.” The developer remains fully in
control of the property and gets its tax
break. The terms of the “lease” deal may
also require other benefits or a payment
in lieu of taxes, which is made to the au
thority itself.
In the deals, a certain percentage of
property tax is abatement. The dollar val
ues are estimated at the beginning be
cause they will vary in reality with the
market.
The Atlanta debate
In Atlanta, concerns about tax abate
ments and other incentive mechanisms
have stirred for years. Critics like Ful
ton County Commissioner Lee Mor
ris, a Buckhead resident, expressed con
cerns that abatements were being used
routinely in hot markets like Buckhead
and Midtown rather than on projects
that wouldn’t happen otherwise. Anoth
er longstanding concern is that develop
ers get two shots at abatement requests
- one from the county development au
thority and one from Invest Atlanta, the
city’s version.
Concerns exploded into major con
troversy in the past two years, particu
larly with criticisms from Atlanta Public
Schools Superintendent Meria Carstar-
phen, who says abatements and other tax
breaks are costing her district tens of mil
lions of dollars a year. She briefly served
on the board of the Development Author
ity of Fulton County, pushing for it to be
more transparent. She has criticized tax
abatements on Buckhead luxury projects
as giveaways to developers and says that
graduating public-school students is an
economic development and equity issue.
Late last year, the Fulton development
authority rejected a $2.2 million tax
abatement for a Buckhead tower, the first
such rejection in recent memory. The
Buckhead Council of Neighborhoods, a
coalition of homeowners associations,
formed a “task force” to study reform of
abatements and other tax discounts. And
county and state officials have discussed
legislation to prevent county develop
ment authorities from granting abate
ments in cities that have their own au
thorities.
Local cities
Development authorities in Brookhav
en, Dunwoody and Sandy Springs have
Continued on page 8
