Nations v. Downtown Development Authority

338 S.E.2d 240, 255 Ga. 324, 1985 Ga. LEXIS 1004

• Court: Supreme Court of Georgia
• Decided: December 11, 1985
• Docket: 42829, 42839, 42840, 42841, 42842
• Status: Published

Opinions

Gregory, Justice.

On March 3, 1982, the Atlanta City Council adopted a resolution activating the Downtown Development Authority of the City of Atlanta (DDA), pursuant to 1976 Georgia Constitution, Art. IX, Sec. VIII, Par. II (1983 Georgia Constitution, Art. IX, Sec. VI, Par. Ill), and OCGA § 36-42-1 et seq., The Downtown Development Authorities Law. On January 3, 1984, the City Council adopted a resolution stating, in part, that “the Underground Atlanta area is a slum and blighted area within the meaning of OCGA § 36-61-2 (17),” and approving an Urban Redevelopment Plan (Plan) for the revitalization of the Underground area. On June 3, 1985, the City Council adopted a resolution amending the Plan, and authorizing the City to acquire all property within the Underground Atlanta Urban Redevelopment Area by any methods available at law, including eminent domain. The Plan, as amended, calls for the development of the Underground area into a “festival marketplace” of retail, dining and entertainment establishments. Additionally, a portion of the property encompassed by the Plan will be developed to include an office complex, museum, convention area, public park, pedestrian malls, terraces, streets, sidewalks, bridges and parking facilities.

The Plan further contemplates that pursuant to its authority under 1983 Georgia Constitution, Art. IX, Sec. VI, Par. IV, and OCGA § 36-42-9 et seq., the DDA will issue $85,000,000 in revenue bonds, the proceeds of which will be used in part to reimburse the City for its costs in acquiring any property needed for the project, and, in part, to finance construction of the project. Once it has acquired the necessary property, the City will lease the project property to the DDA. The DDA will sublease the commercial portions of the project to a private developer who will provide central management of the project and who will, in turn, sublease the commercial facilities to private operators. A fixed portion of the profits generated from the businesses will be paid to the developer. The developer will pay to the DDA a fixed percentage of this amount. Under § 5.3 of the lease agreement between the City and the DDA, the DDA agrees to pay as rent to the City all project revenues which will be deposited directly into the Revenue Fund, from which fund the principal and interest on the revenue bonds are to be paid. Additionally, the DDA will pay to the City $10 per annum in rent.

In August 1985, the City Council approved the Bond Resolution in conjunction with this project, authorizing the DDA to issue the aforementioned revenue bonds. The Bond Resolution includes the lease between the City and the DDA, as well as a proposed Trust Indenture, between the DDA and the National Bank of Georgia (NBG) as trustee. The stated purpose of the Trust Indenture is to secure the revenue bonds issued by the DDA. Under the terms of the Trust Indenture, the DDA assigns all of its interest in the lease to the trustee, NBG. In a separate assignment of the lease, the City proposes to assign all its interest in the lease to the trustee.

Subsequently, the State of Georgia initiated a bond validation proceeding pursuant to the Georgia Revenue Bond Law, OCGA § 36-82-60 et seq. Appellants here were permitted to intervene in the case, and raised numerous constitutional and statutory challenges to the validation of the bonds. The trial court entered judgment which determined that all things required by the Constitution and laws of Georgia relating to the issuance of the bonds had been met, and therefore confirmed and validated the bonds and security. The judgment authorized the DDA to issue the bonds and held that, when issued, they would be a valid, binding and enforceable obligation of the DDA. Appellant in Case No. 42829 is a taxpayer. Appellants in Case Nos. 42839, 42840, 42841 and 42842 are owners of approximately forty percent of the property within the project area who have resisted the City’s efforts to condemn their property.

1. OCGA § 36-82-73 et seq.,¹ require a governmental body desiring to issue revenue bonds to seek validation of the bonds in the appropriate superior court. It is the duty of the district attorney, or Attorney General in his absence, to file a petition in the name of the State against the governmental body. The petition shall set forth (1) service of the notice, (2) the name of the governmental body, (3) the amount of the bonds to be issued, (4) the purpose for which the bonds are to be issued, (5) the interest rate, (6) how much principal and interest is to be paid annually, (7) when the bonds are to be paid in full, and (8) the security to be pledged to the payment of the bonds. OCGA § 36-82-75. Any citizen of Georgia who is a resident of the issuing governmental body may become a party to the proceedings. At a duly scheduled hearing the judge shall hear and determine all questions of law and fact and render judgment confirming and validating the issuance of the bonds or refusing to do so. OCGA § 36-82-77 (a). These statutory provisions govern the scope of the superior court’s inquiry in this matter and likewise limit the issues before us.

2. (a) Under the proposed lease between the City and the DDA, the City will lease the real property to the DDA. In addition to $10 per year, the DDA will pay, as rent, the project revenues which will be deposited in the Revenue Fund and ultimately paid out to the bondholders. The proposed lease will also require the DDA to covenant to use its best efforts to issue the bonds and permit the proceeds to be used to acquire and construct the project. Further, the City will promise, under § 5.4 (b)^{2 3}of the lease, to make up 90 percent of any shortfall which exists because project revenues are inadequate to pay the bondholders. The City will agree to include in its budget each year an amount sufficient to pay anticipated sums due under the § 5.4 (b) provision. The trial court’s judgment specifically approved this provision and concluded as a matter of law that the City is authorized to levy and collect taxes for the purpose of meeting this requirement of the lease. We hold the trial court erred in this regard.

The City states in its brief that “the bond obligations are guaranteed by the City [under § 5.4 (b)], and the City has the unquestioned and unquestionable right to levy taxes to meet its guaranty obligations.” The appellants point to 1983 Georgia Constitution, Art. IX, Sec. V, Par. Is which fixes an upper limit of debt which may be incurred by the City, and prohibits the incurring of any new debt by the City without the consent of a majority of the qualified voters. It is conceded that consent of the voters was not obtained. The City responds that the intergovenmental contracts clause of the Constitution⁴ authorizes the City to contract with the DDA and that the payments which may be made under § 5.4 (b) are payments under an intergovernmental contract and therefore not a debt which violates the debt clause. We perceive the City’s undertaking in § 5.4 (b) goes beyond the authority existing under the intergovernmental contracts clause. While that clause authorizes governmental entities to contract among themselves for time periods not exceeding 50 years, it does not authorize every type contract, but only those regarding, “joint services, for the provision of services, or for the joint or separate use of facilities or equipment” and must deal with “activities, services, or facilities which the contracting parties are authorized by law to undertake or provide.” The clause does not supersede other provisions of the Constitution, such as the debt clause, which place limitations on the powers of government. It merely carves out exceptions. Mulkey v. Quillian, 213 Ga. 507 (100 SE2d 268) (1957). Section 5.4 (b) creates a debt of the City which is barred by the debt clause unless it constitutes an exception to the debt clause because it is a contract authorized by the intergovernmental contracts clause. We hold it is not a contract authorized by the intergovernmental contracts clause.

The intergovernmental contracts clause offers a solution to problems such as that dealt with in Barwick v. Roberts, 188 Ga. 655 (4 SE2d 664) (1939). There this Court held the obligation the State Department of Agriculture undertook to pay to an individual as rent for the use of real estate under a lease, which was to extend over a period of years, was a debt and in violation of the debt clause. Had the intergovernmental contracts clause as it now exists been a part of the Constitution at the time (it was adopted in 1941 as an amendment to the 1877 Constitution, Ga. Laws 1941, p. 50) the Department could have leased similar facilities from a governmental entity for a period not to exceed 50 years and thereby provided the facilities it sought to provide under the program in question. Thus the intergovernmental contracts clause would have provided an exception to the debt clause. But here the City’s promise to use its taxing power to pay up to 90% of any shortfall due the bondholders should the project proceeds prove to be insufficient is not a contract for services or joint services, nor is it a contract for the joint or separate use of facilities or equipment. The City, which is the lessor of the land in question, will receive rent from the DDA for the land and for the facilities which the DDA will have constructed from bond proceeds. The City will pass the rent on for the ultimate benefit of the bondholders. In addition, the City will “guarantee” the bond obligations under § 5.4 (b). This latter obligation is a debt which does not come within the exceptions created by the intergovernmental contracts clause and is therefore barred by the debt clause.

In Building Auth. of Fulton County v. State of Ga., 253 Ga. 242 (321 SE2d 97) (1984), two bond issues were validated. In the retardation center bond issue Fulton County contracted with the authority for the use of facilities, one of the three elements in the first requirement of the intergovernmental contracts clause (services, facilities or equipment). The facilities were to be used by the county to engage in the activity of operating a retardation center for the benefit of its citizens, two of the three elements in the second requirement of the intergovernmental contracts clause (activities, services or facilities). No one questioned that the activity and facilities were ones the county was authorized by law to undertake or provide. In the government center bond issue the county contracted with the authority for services including the preparation of plans for the development of the center. Thus both requirements of the intergovernmental contracts clause were met in that the contract was for services to construct a facility. No one questioned that the services and facilities were ones which the contracting parties were authorized by law to undertake or provide.

Here the City is the lessor of land upon which its lessee, the DDA, will construct facilities. The lessee will pay rent to the city which will ultimately be paid over to the bondholders to repay the funds borrowed by the lessee to construct the facilities. Furthermore, the City under § 5.4 (b) will guarantee 90% of the debt to the bondholders should the rent be inadequate because the facilities fail to produce the expected revenue. The guarantee of the City is not a contract for services (either for the issuance of the bonds or for any other service), facilities or equipment which falls within the first requirement of the intergovernmental contracts clause. Neither is the guarantee an activity, service or facility which the City is authorized by law to undertake or provide. Hence it fails to meet the second requirement of that clause. Rather, the guarantee is a loan of the credit of the City for the benefit of the developers and in violation of 1983 Georgia Constitution, Art. IX, Sec. II, Par. VIII. (See footnote 5.)

Our holding in this opinion in no way alters our previous decisions upholding typical authority financing such as that described in Building Auth. of Fulton County, supra, and Frazer v. City of Albany, 245 Ga. 399 (265 SE2d 581) (1980).

(b) Appellants contend § 5.4 (b) violates 1983 Georgia Constitution, Art. IX, Sec. VI, Par. I, and OCGA § 36-42-9 (a). Article IX, Sec. VI, Par. I permits counties, cities and other political subdivisions to issue revenue bonds but limits payment of the bond obligations to the proceeds of the project and specifically precludes the exercise of the taxing power to pay principal or interest of the bonds. OCGA § 36-42-9 (a) provides that revenue bonds issued by an authority shall be paid solely from the property in question. Because our decision in Division 2 (a) above invalidates the § 5.4 (b) covenant it is not necessary for us to reach these issues.

(c) Appellants contend the assignment of the lease by the City for the ultimate benefit of the bondholders violates 1983 Georgia Constitution, Art. IX, Sec. II, Par. VIII,⁵ in the same manner this court found an unlawful donation or gratuity in Rich v. State of Ga., 237 Ga. 291 (227 SE2d 761) (1976). The argument points out that the City contends § 5.4 (b) is not a debt of the City. If this is the case, states the argument, then the assignment of that covenant is without consideration and a mere gratuity to the bondholders. We have held the § 5.4 (b) covenant invalid on other grounds. This leaves the funds ultimately available to the bondholders limited to the project property, as authorized by OCGA § 36-42-9 (a). Therefore, there is no violation of 1983 Georgia Constitution, Art. IX, Sec. II, Par. VIII.

(d) Appellants argue 1983 Georgia Constitution, Art. IX, Sec. II, Par. VII (a),⁶ while authorizing the sale of property earlier acquired through eminent domain to private enterprise for private use, does not authorize the initial acquisition of private property through eminent domain for the purpose of selling to private individuals. The argument is that the 1983 Constitution places Georgia in the position existing in 1953 and discussed in Housing Auth. v. Johnson, 209 Ga. 560, 563 (74 SE2d 891) (1953). That is, while private property acquired by eminent domain and put to a public use may be sold to private parties after it has served its public use, it may not be acquired for the purpose of selling it to private persons. We do not agree. We find the meaning of 1983 Georgia Constitution, Art. IX, Sec. II, Par. VII (a) to be the same in this regard as was present in the 1954 amendment to the 1945 Georgia Constitution discussed in Bailey v. Housing Auth., 214 Ga. 790 (107 SE2d 812) (1959). The authority “. . . to undertake and carry out community redevelopment . . .” includes the power to acquire by eminent domain the redevelopment property which may later be sold to “private enterprise for private uses.”

(e) OCGA § 22-1-3 provides: “It is the province of the General Assembly to determine when the right of eminent domain may be exercised. If, however, under pretext of -such necessity the General Assembly should pass a law authorizing the taking of property for private use rather than for public use, the courts should declare the law inoperative.” The appellants contend we should declare the entire project inoperative as being in conflict with the statute. We decline to do so. The taking is for the public purpose of redevelopment and not in violation of OCGA § 22-1-3. Bailey v. Housing Auth., supra at 793. The authority to sell to private enterprise for private use stems from the Constitution. 1983 Georgia Constitution, Art. IX, Sec. II, Par. VII (a).

3. (a) Relying on Hicks v. State of Ga., 99 Ga. App. 302 (108 SE2d 187) (1959), appellants argue that the trial court erred in validating the bonds because they are not “economically feasible.”

In Hicks, the trial court validated certain revenue-anticipation certificates issued by the City of Lavonia, the revenues of which were to be used to purchase a gas distribution system from the City of Toc-coa. The City of Toccoa had constructed this system from the proceeds of revenue-anticipation certificates previously validated and issued. As part of the municipal ordinance approving the revenue certificate resolution, the City of Toccoa covenanted that so long as any of the certificates were outstanding, it would not sell or otherwise dispose of the gas distribution system. At the time the City of Lavonia sought to have its revenue-anticipation certificates validated, a majority of the Toccoa certificates were outstanding. Finding that the City of Toccoa’s covenant not to sell while there were certificates outstanding was valid, the Court of Appeals determined that the City of Lavonia could not purchase the gas distribution system and, as a matter of law, could not carry out the purpose for which it sought to issue the certificates. Therefore, it held that the trial court erred in validating the certificates. In doing so, the Court of Appeals noted that the project was “unfeasible and economically unsound.” 99 Ga. App. at 307.

Appellants ask us to interpret Hicks to impose a duty on the trial court to examine the “economic feasibility” of a project sought to be financed by revenue bonds before it validates the bonds. Appellants suggest that the scope of the inquiry would be to determine whether the project will succeed or fail in the marketplace. Hicks does not require that such a determination be made. The opinion rests upon the determination that the project was not legally possible since Toc-coa could not sell its system. The trial court did not weigh the economic pros and cons of the proposed project. We also note that “[t]he. economic feasibility of the plan is not required to be shown by the state in its petition.” Rich v. State of Ga., supra at 295 n. 2.

(b) Appellants maintain that it has not been shown that the City has the capacity to acquire all the property needed for the Underground project, and therefore there is no indication that the purpose for which these bonds are issued will be carried out.

Under OCGA § 36-61-9 (c) of the Urban Redevelopment Law, the City has the power to condemn the project property owned by appellants “for the purpose of devoting it to a public use.” If, as appellants maintain, their property will be converted to a private use under the Plan, the City must afford the appellants the opportunity to develop their property themselves in accordance with the Plan. OCGA § 36-61-9 (c). In either event, the project will proceed. The validation of the issuance of the bonds for this project is not affected by the fact that acquisition of project property is an issue currently being litigated.

If the City proposed a project which required acquisition of property beyond its power to acquire, we would have a different question whether issuance of the bonds should be validated. But the project proposed by the City in this case requires that the City either acquire ownership or involve the present owners of the property in the project through their rights under OCGA § 36-61-9 (c). This project will proceed either by acquisition of property by the City or by participation of the current owners. The specific manner in which the project proceeds is an issue to be decided in the condemnation actions. Appellants will have the opportunity to litigate whether they have been deprived of any rights under OCGA § 36-61-9 (c) in that forum.

Therefore, the trial court correctly held that the appellants’ rights under OCGA § 36-61-9 (c) are not at issue in the validation proceeding. Further, the trial court did not err in refusing to continue the bond validation proceedings in order that appellants might have discovery on this issue.

4. Appellants argue that the plan is an attempt to use the Downtown Development Authority of the City of Atlanta to finance public improvements in violation of Odom v. Union City Downtown Dev. Auth., 251 Ga. 248 (305 SE2d 110) (1983). We do not agree.

In Odom, the DDA sought to issue revenue bonds, the proceeds of which would finance the construction of a new city hall, renovate the existing police station and jail, and improve city streets. The project thus consisted of purely public elements. This court held that the scope of this project did not fall within the constitutionally designated purposes of Downtown Development Authorities which are the promotion and development of “trade, commerce, industry, and employment opportunities.” 1983 Georgia Constitution, Art. IX, Sec. VI, Par. III.

In the case before us the project is comprised of both public and private components which are integrated so as to produce the desired purposes. The trial court found that the project will promote and develop the public purposes of trade, commerce, industry, and employment opportunities. There is evidence in the record to support this determination.

5. As noted earlier, the City relies upon the intergovernmental contracts clause, 1983 Georgia Constitution, Art. IX, Sec. Ill, Par. I, for authority to enter the lease agreement. But, as appellants point out, the lease allows for an initial period of 50 years plus an option provided in § 5.1 to extend the duration of the lease for an additional 25 years. This is the equivalent of a 75-year contract, Parker v. Gortatowsky, 127 Ga. 560 (56 SE 846) (1906); Ask Enterprises, Inc. v. Johnson Model Bedding, Inc., 155 Ga. App. 294 (270 SE2d 709) (1980), and therefore exceeds the authority given in the Constitution.

6. We hold the trial court erred in failing to require the limiting of § 5.1 to 50 years and the elimination of § 5.4 (b) from the lease and their effects upon other portions of the Plan. In other regards the trial court’s order validating the issuance of the bonds is affirmed. Since the 25-year option of § 5.1 and § 5.4 (b) are severable from the Plan and the lease they may be removed and the issuance of the bonds validated.

Judgment affirmed on the condition that lease § 5.1 is limited to 50 years and 5.4 (b) is eliminated, otherwise reversed.

Hill, C. J., Marshall, P. J., Smith and Bell, JJ., and Judge Dorothy A. Robinson, concur. Clarke, J., dissents as to Division 2. Weltner, J., disqualified.

1 See 1983 Georgia Constitution, Art. IX, Sec. VI, Par. IV: “The General Assembly shall provide for the validation of any revenue bonds authorized and shall provide that such validation shall thereafter be incontestable and conclusive.”

2 “In consideration of the acquisition and construction of the Project and the provision by the Lessee of the services and facilities herein provided, the City agrees that if on -the third business day immediately preceding any Interest Payment Date or any other date on which any principal or interest shall be payable on the Bonds there is not on deposit in the Debt Service Account in the Sinking Fund moneys sufficient to pay the interest, or principal, premium and interest (including principal payable by reason of mandatory redemption), payable with respect to the Bonds on such date, the City shall on that day pay the amount of such deficiency to the Lessee, by causing the same to be deposited with the Trustee for the benefit of and on behalf of the Lessee, for deposit into the Debt Service Account; provided, however, that the amount required to be paid by the City under the provisions of this paragraph (b) with respect to any such date shall not exceed ninety percent (90%) of the interest, or principal, premium and interest (including principal payable by reason of mandatory redemption), payable with respect to the Bonds on such date. The City shall include within its budget each year an amount sufficient to pay any sums anticipated to be paid during such year by the City under the provisions of this paragraph (b).”

3 1983 Georgia Constitution, Art. IX, Sec. V, Par. I: “(a) The debt incurred by any county, municipality, or other political subdivision of this state, including debt incurred on behalf of any special district, shall never exceed 10 percent of the assessed value of all taxable property within such county, municipality, or political subdivision; and no such county, municipality, or other political subdivision shall incur any new debt without the assent of a majority of the qualified voters of such county, municipality, or political subdivision voting in an election held for that purpose as provided by law.”

4 1983 Georgia Constitution, Art. IX, Sec. Ill, Par. I: “(a) The state, or any institution, department, or other agency thereof, and any county, municipality, school district, or other political subdivision of the state may. contract for any period not exceeding 50 years with each other or with any other public agency, public corporation, or public authority for joint services, for the provision of services, or for the joint or separate use of facilities or equipment; but such contracts must deal with activities, services, or facilities which the contracting parties are authorized by law to undertake or provide.”

5 “The General Assembly shall not authorize any county, municipality, or other political subdivision of this state, through taxation, contribution, or otherwise, to appropriate money for or to lend its credit to any person or to any nonpublic corporation or association except for purely charitable purposes.”

6 “The General Assembly may authorize any county, municipality, or housing authority to undertake and carry out community redevelopment, which may include the sale or other disposition of property acquired by eminent domain to private enterprise for private uses.”