Property tax abatements granted by government authorities for luxurious developments are the center of a political firestorm in Atlanta, blasted by officials and scrutinized by community groups for diverting money from the public schools and shifting tax burdens to homeowners.

Meanwhile, the development authorities of the smaller suburban cities of Brookhaven, Dunwoody and Sandy Springs are quietly granting millions of dollars in the same kinds of tax abatements for projects ranging from Roswell Road luxury apartments to State Farm’s massive new campus to an Atlanta Hawks basketball team practice facility.

The State Farm regional headquarters in Dunwoody is among the projects that have received tax abatements from city development authorities. (File)

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 millions in revenue right now on projects 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 development authorities, sometimes within city limits.

“People may have a philosophical disagreement with providing tax abatements, but the long-term benefit in investments we get from these deals far outweighs the amount of the abatement,” said Michael Starling, Dunwoody’s economic 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 abatements, according to interim Chief Financial Officer Robert Morales. He said that, as one example, around 43 teachers could have been hired with that money. The district is in the midst of a budget crunch that recently led the administration to postpone construction of a new Cross Keys High School and an expansion of Dunwoody High.

In fiscal year 2019, the Fulton County School System lost $6.2 million in “potential 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 determine whether proposed developments require tax abatements to be economically viable, or whether they would continue without the incentives and thus, retain potential revenues,” he said.

For local cities, the deals are sometimes a way to leverage other benefits. The city-created but self-funded development authorities collect a small percentage of their deals as fees that can be used to fund other “economic development” projects. And the deals can involve negotiated terms where the developer helps to build streets or create affordable housing.

“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 operate independently. They receive no funds from their parent governments and don’t place any debt on them, either.

Development authorities have a number of ways to offer tax breaks to developers.

One is to issue bonds for construction funding on behalf of the developer, which cuts a federal tax on bond interest 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 locally is a largely fictional real estate transaction 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. During 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 developer 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 authority itself.

In the deals, a certain percentage of property tax is abatement. The dollar values are estimated at the beginning because they will vary in reality with the market.

The Atlanta debate

In Atlanta, concerns about tax abatements and other incentive mechanisms have stirred for years. Critics like Fulton County Commissioner Lee Morris, a Buckhead resident, expressed concerns that abatements were being used routinely in hot markets like Buckhead and Midtown rather than on projects that wouldn’t happen otherwise. Another longstanding concern is that developers get two shots at abatement requests – one from the county development authority and one from Invest Atlanta, the city’s version.

Atlanta Public Schools Superintendent Meria Carstarphen talks about the impacts of tax breaks on revenue and equity at a 2019 meeting of the Northwest Community Alliance. (File)

Concerns exploded into major controversy in the past two years, particularly with criticisms from Atlanta Public Schools Superintendent Meria Carstarphen, who says abatements and other tax breaks are costing her district tens of millions of dollars a year. She briefly served on the board of the Development Authority 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 development authorities from granting abatements in cities that have their own authorities.

Local cities

Development authorities in Brookhaven, Dunwoody and Sandy Springs have executed abatement deals sparingly in the years since the cities incorporated – all within the past 14 years. But the deals add up to millions of dollars in tax abatements on major and sometimes controversial projects.

Brookhaven’s authority has granted an $11 million abatement on its single deal. Sandy Springs’ five “phantom lease” deals total millions in abatements. And Dunwoody’s half-dozen deals total about $46.3 million in abatements.

In Brookhaven and Sandy Springs, the authorities have negotiated payments in lieu of taxes, or PILOT, to pay for additional improvements as a kind of bonus.

Brookhaven’s $11 million abatement for the Hawks facility in Executive Park – touted by officials as making the area an “NBA city” – includes $302,900 annual PILOT over the 15-year “lease,” which started in 2018. The city and the authority are using the money to buy a former gas station on Buford Highway, which is intended to be an ambulance station and a future redevelopment site.

The Sandy Springs Development Authority has granted abatements to projects that, in City Council meetings, were praised as modernizations by some and criticized by others for boosting density and traffic. They include the massive Gateway mixed-use project on the Buckhead border, which replaced an apartment complex targeted by the city; the Modera apartments on Roswell Road; and the Aston apartments within the city’s own City Springs civic center.

The Aston City Springs apartments received a tax abatement deal from the Sandy Springs Development Authority. (File)

Kraun said that the deals for all of those projects involve PILOT agreements that return a significant portion of the tax savings to the city in the form of infrastructure improvements. For Gateway, about 72% of the savings, or $770,000, went to a Windsor Parkway/Roswell Road realignment at its driveway. Modera put 25% of its savings, about $675,000, to building an adjacent public street called Denmark Drive. And about 33% of Aston’s savings, or $770,000, is earmarked for “public infrastructure” in City Springs.

Opinions still vary on whether such projects are worth the subsidies. Former City Councilmember Karen Meinzen McEnerny opposed the Gateway project at the time and still does. “I don’t think it delivered what the community expected. Its design is not pedestrian-friendly with frontages being covered in advertising,” she said.

“It’s a wonderful project and has been very successful for the city,” said Councilmember Tibby DeJulio.

The Dunwoody Development Authority doesn’t use PILOT deals, but does include certain requirements, such as job numbers, that owners must meet to retain the tax break, according to Starling, the economic development director. The fee the authority collects on deals – one-eighth of 1% — has left it with about $889,000 in the bank, which it is considering spending on promotion or infrastructure improvements in Dunwoody Village or Georgetown.

The authority’s deals include a $33.8 million abatement, over 14 years, for the first two skyscrapers in State Farm’s massive new campus at Hammond Drive and Perimeter Center Parkway. A longtime argument for abatements is that everyone does them, a point Starling echoed in explaining how Dunwoody aims to remain competitive for office towers.

“My belief is every Class A office building, certainly within DeKalb and Fulton, had a tax abatement structure on them … I have not heard of a new office building that didn’t have abatements,” he said.

Dunwoody’s first abatements, granted in 2012, were an estimated total of $8.2 million over 10 years for the renovation of office buildings at 64 and 66 Perimeter Center East. The idea was to help the landlord offer lower rents, Starling said. State Farm has since leased both entire buildings. However, Starling said, it is “hard to say if State Farm came because of the abatement.” The building was already leasing well at that time, around 2018.

The Dunwoody authority is now negotiating two more major abatement deals: a possible $2.3 million break for the Perimeter Market project on Ashford-Dunwoody Road and a possible $19 million abatement for the gigantic, long-stalled High Street project across Hammond from the State Farm campus. It remains to be seen how the public will respond to those mega-deals.

“I certainly understand the critics and there should be conversations and debate on how we provide incentives to any private businesses,” said Starling. “Every project is different. Transparency is important.”

–Dyana Bagby, Hannah Greco and John Ruch