Court Again Tosses Suit Against Fulton Bonding Authority
Challenge to Fulton's sales-leaseback program goes back four years and appeal is expected
One week before it was set to go to trial, a Fulton County judge has once again tossed a long-running lawsuit that aimed to have declared illegal more than $5 billion in bonds issued by the county’s development arm.
The Dec. 20 bench ruling by Superior Court Judge Jerry Baxter comes four and a half years after the filing of the first challenge to the county's system for funding several major projects through "sales-leaseback" agreements with private developers.
The dispute has thrice gone to the Georgia Court of Appeals and made one trip to the state Supreme Court. Cary Ichter, an Ichter Thomas partner who represents the Development Authority of Fulton County and is preparing an order for Baxter to sign, said he expects another foray to the appellate courts.
The litigation involves two now-combined suits that, Ichter said, threaten to "wreak economic havoc" on the county and developers who have relied on the bonds' validity to fund the projects.
The suits were filed by former Fulton County Taxpayer Foundation president John Sherman and SJN Properties, who are represented by Martinson Hasbrouk & Simon attorney Robert Feagin III, Irwin Stolz Jr. of Athens' Hurt Stolz, and Atlanta solo John Woodham.
"We are anxious—and that's a good word to use—to see the written order," Stolz said. "We think it's wrong, and we'll certainly appeal."
He added, "Judge Baxter has been reversed three times, and we expect he will be reversed again. There are very knotty legal issues involved here; we think those issues need to be addressed and ruled on in the appellate court."
The cases stem from the county's adoption of a "50 percent ramp-up" method of funding dozens of projects that include hotels, retail centers and office parks. Under the terms of such arrangements, a developer transfers the title to a parcel of property to the development authority, which in turns issues tax-exempt revenue bonds to fund the planned project. The authority then leases the property back to the developer and uses the lease payments to finance the principle and interest on the bonds; at the end of 10 years, the developer can repurchase the property for a nominal fee.
Taxes are assessed at 50 percent of a property's appraised value the first year, and ramped up by 5 percent per year until the full value is reached.
The plaintiffs challenged the ramp-up system as an illegal scheme that doesn't provide an accurate assessment of the properties' value as required by law. The suits also decried the bonds as "phantom bonds" because, according to a plaintiffs' brief, "there is no actual financing of the project. The lessee is actually the purchaser of the bonds in a non-cash bond closing, pursuant to a Bond Purchase Agreement between the issuing development authority and the lessee. The sole or primary purpose of a 'phantom' bond transaction is to provide an ad valorem property tax abatement, preferential tax assessment and/or tax exemption to the lessee."