Department of Community Affairs

DEPARTMENT OF COMMUNITY AFFAIRS

THE RURAL GEORGIA ECONOMIC DEVELOPMENT ACT OF 2006

AN ANALYSIS ON SENATE BILL 414

A POLICY REPORT

ALEC YOUNG

INTERN

ATLANTA, GEORGIA

MARCH 2006

CONTENTS

1. INTRODUCTION……………………………………………………………………..2

2. COMMERCIAL COMMUNITY IMPROVEMENT DISTRICTS IN GEORGIA...... 4

3. THE SEEDS OF SENATE BILL 414...………………………………………………..8

4. THE FRUITS OF FLORIDA: OLD MONEY AND A MOUSE……………………..14

5. SENATE BILL 414 VERSION LC 36 0230S………………………………………...25

6. RECOMMENDATIONS FOR SENATE BILL 414 AND HOUSE BILL 1323……..27

7. BIBLIOGRAPHY……………………………………………………………………..32

8. APPENDIX……………………………………………………………………………35

Introduction

Republican State Senator Cecil Staton’s Senate Bill 414 (SB 414), theRural Georgia Economic Development Act of 2006, presented to rural Georgians may benefit the aging U.S. population more than the population of rural Georgia. A recently apt Atlanta Journal Constitution article reports 3.3 million of 78.2 million baby boomers turn 60 this year,[1] and a MetLife market study concludesbaby boomers ages 66 – 84 will constitute 20% of the total population by 2030.[2] Americans born within 1946 - 1964, with an annual spending power of 2.1 trillion, will be the focus of future market niches, and coupled with their high voter turn-out gives them an influential role in politics.[3] This legislative bill captures the opportunity for private developers to create retirement communities with greater return on investments while brandishing the hospitable environments of rural Georgia for economic development. Quoted in Macon.com, Staton states, “This would be particularly useful in developing retirement communities inSouth Georgia. Florida has been doing this for years.”[4] Taking Florida as a model for economic development, Georgia could positionitself as an extension to the retirement capital of the nation and share in its revenues fromretiring baby boomers.

The original SB 414provides for the creation of community improvement districts (CIDs) in Georgiacounties classified as Tiers 1 through 3, a four tier Department of Community Affairs (DCA) classification system of counties that targets depressed areas for financial assistance. Due to a bill revision,[5] every county in the state will be authorized to create a CID, but doing this may divert the intention of the legislation to focus on the development of rural communities in the state. Limiting the creation of CIDsto Tier 1 counties would be the best strategy in centering private endeavors in rural areas, but including Tier 2 counties might help garner additional support from voters and provide for better regional communication and use of resources without completely jeopardizing the original intention of the bill.

The creation of community improvement districts is not a new concept for the state. The Georgia Constitution of 1998, Article IX, Section VII enables the General Assembly the ability to create CIDs for any county or municipality. But the biggest difference between the CIDs already allowed by the state’s constitution and the one presented in the legislation lies in the inclusion of residential properties. The purposes of both CIDs permit for the creation and management of land infrastructures, improvements, and facilities, but Georgia’s Constitution clearly denies the authority of CIDs to “levy taxes, fees, and assessments within the community improvement district…for residential, agricultural, or forestry purposes and specifically excluding tangible personal property and intangible property.”[6] To give a background on how CIDs operate and their effectiveness, we will now look at current Commercial Community Improvement Districts (CCIDs) in Georgia. The designation of “commercial” helps delineate the type of CIDs created under the state’s constitution from the broader scoped commercial and residential CIDs that private developers will be empoweredto create under the bill currently in legislation. Lacking a standard naming convention for these special districts, Commercial CIDs may also be classified as Special Improvement Districts, Economic Improvement Districts, or Public Improvement Districts.[7] Commercial CIDs, however, should not be confused with Business Improvement Districts (BID). The later seem to be smaller in scale and center on the economic redevelopment of downtowns. For an in-depth study on BIDs, refer to a 1999 BaruchCollege report by Professor Jerry Mitchell called, “Business Improvement Districts and Innovative Service Delivery.”[8] Georgia’sDCA summarizes a BID as an approved district by petition of at least 51% of the taxpayers or owners of at least 51% of taxable property subject to taxes in the district, and the adoption of the BID will confer an annual millage from all property owners within the district for “supplemental services.” With a five year renewable term limitation, some of the district’s strategies for improvements “include, but are not limited to, advertising, promotion, sanitation, security, and business recruitment and development.”[9] But our emphasis will be on Commercial and Residential CIDs.

Commercial Community Improvement Districts in Georgia

Unless the author is not aware of CCIDs created outside of the Atlanta metropolitan area, the title for this section of the report could actually read as “Commercial Community Improvement Districts in Atlanta.”[10] Even though every county throughout the state has the power to implement a CCID, the creation of one depends upon the willingness of commercial property owners, who “constitutesat least 75% by value of all real property within the (special district),” to levy taxes, fees, and assessments on all commercial properties within the proposed area. Thus, rural and suburban areas with moderate commercial activity fail to attract entrepreneurs willing to set up a special district. Residential properties are not taxable by CCIDs. “Any tax, fee, or assessment so levied shall not exceed 2.5% of the assessed value of the real property” and revenues generated within the special district can only be used for the following:

Street and road construction and maintenance.
Parks and recreational areas and facilities.
Storm water and sewage collection and disposal systems.
Development, storage, treatment, purification, and distribution of water.
Public transportation.
Terminal and dock facilities and parking facilities.
Such other services and facilities as may be provided for by general law.[11]

Special districts have used the last provision to fundplanning and feasibility studies. The inclusion of residential property could be an economic tool for rural and suburban development. As of the latest revision to SB 414,[12] 36-76-3 (a) specifically authorizes every county in the state the authority of “the county governing authority to create one more residential community improvement districts within the boundaries of the county.” The conversion from commercial to residential improvement districts clarifies and confirms the objective of the Act to focus on rural and suburban development, but the retention of allowing every county its powers fog its future implementation and outcome.

A board of directors, voted in by the special district, executes the plans in a Commercial Community Development District, butthe county or municipality maintains representation through an appointed post. The popularity of special districts, CCIDs and RCIDs, lies in the ability of businesses to pool monies (by issuing tax-free bonds[13] and short-term loans; levy taxes, fees, and assessments; or lease property), streamline planning, and determine their own course of action for improvements in their district while leveraging for public financial assistance. The first Atlanta improvement district created in 1987, Cumberland CCID, collected “$60 million in local tax collections leveraged against $3 billion in federal and state monies for projects that have either been completed, or have funding identified for future completion;” a leverage ratio of 50:1.[14] In 2002, the Cumberland CCID wins the Agency Award from the Georgia Section of the Institute of Transportation Engineers for their role in improving the Cumberland area through quality transportation management. One of their noteworthy projects includes the Kennedy Interchange that resulted in the improvement of traffic conditions along the Galleria/Cumberland Mall corridor.[15]

The Atlanta Downtown Improvement District, an excellent example of aspecial district that utilizes the full capability of a CCID, in coordination with the Central Atlanta Progress (CAP), a private, not-for-profit corporation assisting downtown economic development, implements various programs to provide safer pedestrian crossings, street aesthetic improvements, enhanced color-coded signage, Madvac street cleaning vehicles, additional off-duty police support, Wi-Fi for downtown workers, market information for business recruitment, a Downtown Growth and Development map, and feasibility and planning studiesfor a potential Bioscience District and “an eight-mile streetcar line along Peachtree Street,”[16] Other Commercial Community Improvement Districts in Atlanta include the North Fulton CID, Town Center Area CID, Perimeter CID, Gwinnett Place CID, Buckhead CID, Highway 78 CID, South Fulton CID, and the Midtown Improvement District.[17]

In order to gain a better understanding of the Rural Georgia Economic Development Act of 2006, a Residential Community Improvement District (RCID) initiative, we will now look at the FloridaCommunity Development Districts Statute[18] and the Florida Special District Handbook[19] provided by the Florida Department of Community Affairs. Florida’s experience with RCIDs dates back to 1967 when its legislature passed an Act for the creation of the Reedy Creek Improvement District.[20] All of the information from the next section will be derived from the Florida Statute and special district handbook and website,[21] and will be compared to the substitute to SB 414.[22]

The Seeds of Senate Bill 414

There may be times when governments lack funding for or perceive additional support of a specific area’s economic growth fall short of the benefits returned to the city. Special districts fill this reverse market failure gap by allowing private entities play a role in augmenting public services when thereturn on investments to an area outweighsits expenditures. Commercial Community Improvement Districts, as illustrated, seem to fare well, but the inclusion of residential property might be of a different account. For the residential aspect of improvement districts, we begin by examining the Florida Statute and handbook which governs theestablishment of these districts. Later on, a few fruits of their legislation will be brought out to help determine the quality of the seedsembedded in SB 414.[23] Indeed, the majority of the RGEDA 2006’s text appears to have been selectively uprooted from the Florida Statute. Georgia, peering over state boundaries, may have set its sight on an observed greener pastor. But lacking the ability to migrate and dependent upon program goals, Georgia’s soil may lack the necessary elements needed for similar Florida results.

Florida integrates both, commercial and residential, types of districts but separates themaccording to the county or municipality’s oversight powers. A special district created as a Dependent Special District (DSD) endows the county governing authority with the most control over the district’s activities. The governing authority board members assume the additional role as board members of the DSD and have authority over its budget. Conversely, “an Independent Special District (ISD) does not have any dependent characteristics.”[24] On the other hand, an ISD lack comprehensive land-usepowers, an important component vaguely defined in SB 414. This stipulation is explicitly mentioned several times in the Florida Statute:

190.002 (2) (c) “It is the policy of (Florida) that the exercise by any independent district … so establisheddoes not have any zoning or permitting powers governing development.”

190.002 (3) “It is further the purpose and intent of the Legislature that a district created under this chapter not have or exercise any zoning or development permitting power, that the establishment of the independent community development district as provided in this act not be a development order ....”

190.004 (3) “Community development districtsdo not have the power of a local government to adopt a comprehensive plan, building code, or land development code, as those terms are defined in the Local Government Comprehensive Planning and Land Development Regulation Act. A district shall take no action which is inconsistent with applicable comprehensive plans, ordinances, or regulations of the applicable local general-purpose government.”

Senate Bill 414 does require, in 36-76-3 (b) (7),the petition for creating an RCID to include “a designation of the future … public and private uses of land proposed for the area within the district as shown on the county land use plan, if one has been adopted” and, under (f) (2), “whether the establishment of the district is inconsistent with …the county comprehensive plan.” Nevertheless, land-use provisions inSB 414 should undeniably reflect the inability of RCIDs to revise government comprehensive plans after the establishment of a district. As shown later, the far-reaching powers of the Reedy Creek Improvement District (Reedy Creek ID), an ISD granted with county comprehensive planning powers, could be seen as an example where a corporation owns and operates the land as it sees fit. Relevant to land-use controls, the substitute to SB 414took out condemnation and eminent domain powers and poignantly added 36-76-8 (15) (b), which states “the district shall not have or exercise the power of condemnation or eminent domain.” Condemnation and eminent domain were not features that the proposers of SB 414 added when they copied from the Florida Statute on Community Development Districts (CDD);both powers in the statute read like the previous SB 414 versions:

“To hold, control, and acquire by donation, purchase, or condemnation, or dispose of, any public easements, dedications to public use, platted reservations for public purposes, or any reservations for these purposes authorized by this act and to make use of such easements, dedications, or reservations for any of the purposes authorized by this act.”[25]

“To exercise within the district, or beyond the district with prior approval by resolution of the governing body of the county if the taking will occur in an unincorporated area or with prior approval by resolution of the governing body of the municipality if the taking will occur within a municipality, the right and power of eminent domain… over any property within the state … solely to water, sewer, district roads, and water management.”[26]

The power of eminent domain in previous versions of SB 414 was also restricted for infrastructure improvements. But in light of last year’s U.S. Supreme Court ruling on Kelo v. City of New London, a county governing authority has the power to take private property and sell to private developers if economic development constitutes public use.[27] A few Georgia lawmakers this year hope to pass legislation that will be in opposition to the U.S. Supreme Court ruling and strengthen homeowner property rights.[28]

The establishment of Residential Community Improvement Districts under the RGEDA 2006 nearly parallels the creation of Independent Special Districts under Florida Statutes. A petition to the county governing authority for the establishment of an RCID accompanies:

A filing fee of $15,000.
The proposed name of the district.
The boundaries of the proposed district.
A map of the proposed district showing current major trunk water mains and sewer interceptors and outfalls, if in existence.
The written consent to the establishment of the district by all landowners whose real property is to be included in the district or documentation demonstrating that the petitioner has control by deed, trust agreement, contract, or option of 100 percent of the real property to be included in the district.
Any real property within the external boundaries of the district which is to be excluded from the district (and) address the impact of the proposed district on any real property … which is to be excluded from the district.
A designation of four persons to be the initial members of the board of supervisors, who shall serve in that office until replaced by elected members.
The proposed timetable for construction of the district services and the estimated cost of construction the proposed services. These estimates shall be submitted in good faith but shall not be binding and may be subject to change.
And a designation of the future general distribution, location, and extent of public and private uses of land proposed for the area within the district as shown on the county land use plan, if one has been adopted.[29]

Once filed, the county governing authority determines if the RCID is consistent with the county comprehensive plan and decides on the fate of the petition.[30] Upon authorization of the petition, landowners of the district, entitled to one vote per acre of land, elect four directors of the board, and the county governing authority appoints the fifth member of the board. Subsequently, the board appoints their own administrators. In conducting business, “action taken by the district shall be upon a vote of a majority of the members present,”[31] but the Florida Statute concludes with “unless general law or rule of the district requires a greater number.”[32] We will now look at various important implications and consequences from actions taken by special districts.

In “Beyond the Homeowners Association: Blending Community Development Districts, Tax Exempt Organizations and Commercial POAs for Larger Planned Communities,” attorney Doris S. Goldstein explains how developers in Florida in the past “funded elaborate recreational facilities such as golf courses and resort-type swimming pool complexes using Community Development District bond revenue, and then limited their use to CDD residents or made nonresidents distinctly unwelcome in other ways. Sometimes, these facilities were within gated communities.” Goldstein continues to explain that Florida Statutes make “no mention of whether these facilities must be open to the public. Instead, the requirement originates with the IRS. In the late 1990’s, in a case that involved a special taxing district similar to a CDD, the IRS ruled that the interest paid to bondholders would not be tax exempt unless district facilities built with the bonds are open to the public. Some developers now avoid the issue by funding ungated streets, common area landscaping and utilities through the CDD while keeping recreational facilities in the Home Owners Association (HOA).”[33] In coordinating with the HOA, an RCID, unlike a CDD, has the authority “to adopt rules necessary for the district to enforce certain deed restrictions pertaining to the use and operation of real property within the district.”[34] Perhaps the worst effect of RCIDs would be cases where developers sell improvements to the district, which they control, at inflated prices.[35] Goldstein presents an excellent opinion of such legal land fraud from The Cyber Citizens for Justice: