Mr. Johnson is based in our Atlanta office.

Proposed legislation seeks to strengthen tax increment financing as a redevelopment tool – and to change the way it works.

The Georgia General Assembly is currently considering legislation designed to strengthen and restore the potential of tax allocation districts (TADs) as a tool for stimulating economic development.

TADs represent Georgia's version of tax increment financing. They permit local governments to capture the growth in ad valorem tax revenue within a defined area (the increment), and to utilize that revenue in support of economic development projects or other identified public improvements in that area – either on a "pay-as-you-go" basis or as security for tax allocation bonds. Examples of successful TADs include Atlantic Station in Atlanta and Camp Creek MarketPlace and Business Center in East Point.

Since 1983, the Georgia Constitution has authorized the General Assembly to empower local governments to issue tax allocation bonds. In 1985, the General Assembly enacted the Redevelopment Powers Law, authorizing certain local governments to issue such tax allocation bonds, and authorizing certain school boards to pledge a portion of the educational ad valorem tax revenues as security for the payment of such bonds.

However, the Georgia Supreme Court ruled in 2008 that it was unconstitutional to use school tax revenues within a TAD for purposes not directly related to the support and maintenance of public education. Because school taxes frequently constitute the lion's share of the ad valorem tax dollars collected within a jurisdiction, this ruling by the Supreme Court had the effect of drastically reducing the amount of revenues potentially available for TAD projects.

Amendment 2, ratified by the voters of Georgia in last year's general election, sought to reverse the effects of this Supreme Court ruling and provide clear authorization for the use of school tax revenues in support of TAD projects. It proposed to revise the existing constitutional provision so as to provide clear authorization for legislation permitting the use of "county, municipal, and school tax funds, or any combination thereof, to fund such redevelopment purposes and programs, including the payment of debt service on tax allocation bonds." The amendment was designed to provide clear authority for the use of school tax revenue in support of TAD projects, but only if the General Assembly provides authorization for such use by a future general law, and only if the school board in question consents by resolution to the use of its revenues within the specific TAD in question.

The Approved House Bill

Representative Earl Ehrhart introduced H.B. 63 earlier this year to implement the provisions of Amendment 2, to make certain modifications in the Redevelopment Powers Law, and for certain other purposes. As passed in the House of Representatives on March 5, 2009, the bill repeals the existing Redevelopment Powers Law and replaces it with a modified version. Highlights of the approved House Bill include the following:

  • The bill significantly limits the ways in which an area can qualify for designation as a TAD. Previously, the qualifications for a "Redevelopment Area" were broadly defined to include (among other things) areas that were "underutilized" or "underdeveloped." The proposed legislation limits TAD eligibility to urbanized areas as determined by the U.S. Census Bureau which more narrowly meet traditional notions of "blight," "deterioration" and "inadequate infrastructure." The bill also expands the definition of redevelopment to include recreational facilities public art and cultural facilities, and it expands the definition of eligible redevelopment costs to include costs related to school facilities.
  • The bill changes the standards for a TAD redevelopment plan. Previously, it was necessary for such a plan to show that the planned redevelopment would not occur "but for" the approval of the redevelopment plan. Under the House Bill, a plan may also be approved if it establishes the existence of natural, historical or cultural assets whose preservation, protection or improvement would not occur "but for" the approval of the plan. The House Bill also requires that the redevelopment plan include a "school system impact analysis."
  • The bill also includes a provision not technically related to the Redevelopment Powers Law. This provision is designed to limit the practice of issuing bonds to finance private-use facilities where the source of repayment is a payment in lieu of taxes with respect to property that may otherwise be tax exempt (as where it is owned by a development authority). Under this provision, no such bonds would be authorized without the consent of the local governments and school districts that would otherwise derive property tax revenue from the property.

H.B. 63 was adopted by the Georgia House of Representatives on March 5, 2009. As of March 6, 2009, the bill was awaiting assignment to a Senate committee. (The text of H.B. 63 as passed in the House is available here.)

At Holland & Knight, we have worked with a variety of institutions to help them make the most of the tools provided under the Redevelopment Powers Law. If we may be of assistance to you, or if you would like to learn more, please let us know.

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