Few municipalities can imagine losing half their corporate boundaries to an involuntary de-annexation, but that's what may happen to the small city of Stockbridge, Georgia.
Senate Bill 262 on Gov. Nathan Deal’s desk would amend Stockbridge’s charter, slicing out about 51% of its assessable residential and commercial property value, according to the city’s fiscal analysis. If Deal signs the bill, the charter would be amended without the city’s consent.
The carved-out property would be incorporated as Eagles Landing, if voters who live in the proposed new city limits agree in a November referendum. Advocates say becoming a city would allow the community to attract higher-income families and more businesses. SB 263, authorizing the incorporation, also has been sent to the governor.
The legislation de-annexing Stockbridge property is unprecedented, city officials and legal experts say, because most annexations are voluntary and new cities are usually created mostly from unincorporated areas.
Nearly 100 Georgia cities passed resolutions opposing it, citing concerns about the procedure lawmakers used as well as future bonding capacity.
“Nothing like this has ever happened in the state of Georgia where the General Assembly has provided for the incorporation of a new city by taking away land from an existing city,” said city attorney Michael Williams, who is of counsel at Wilson, Morton & Downs LLC.
Williams, a former bond attorney, said he used his contacts with various public finance officials to obtain an assessment of the pending legislation and its effect on other cities and their access to the bond market.
If the legislation is enacted, it would establish a new, negative legal precedent for the state that could adversely affect the entire population and potentially credit ratings of the triple A-rated state, according to municipal advisor Larry Kidwell, president of Brentwood, Tenn.-based Kidwell & Co., a firm that is registered with the state to work in Georgia.
“If Stockbridge can be broken up by the Georgia Legislature, what would prohibit the Legislature from doing the same thing to other cities of the state?” Kidwell said in a November letter to Williams. “The passage of the proposed legislation would set the precedent for further destabilization to occur within the state.”
The pending legislation poses another problem. Neither bill apportions Stockbridge’s outstanding debt, leaving a much smaller city after de-annexation to pay a combined $14.5 million of unrated bonds.
Attorneys for bondholders who own $13.03 million of the debt have warned the city that potential litigation and default lies ahead if the legislation is approved.
Stockbridge has hired three law firms to explore lawsuits if Deal signs the bills.
“There’s a contract impairment claim by the bondholders and the city that can be made if this goes through,” Williams said in an interview. Stockbridge’s “loan was premised on the pledge of the city to levy the taxes necessary, but that pledge was in the context of the city limits as they existed at the time.”
“If this goes through only half of the city will be left,” he said.
Williams said the city is “very lean” in terms of staff and has been frugal over the years to maintain its good financial status. The city does not impose an ad valorem tax, and supports its budget with various taxes and fees.
While Stockbridge could implement a property tax to support the budget and pay debt, Williams said the proposed annexation could make it difficult for the small city to levy taxes high enough.
“The concern is that [the proposed city of Eagles Landing] has taken most of the high-value commercial and residential portions, and so what’s left is lower-value commercial and residential tax-base and the less affluent portions of the city,” he said.
De-annexation would “significantly impede” Stockbridge’s ability to generate future revenue through a property tax by decreasing its non-exempt total assessed property value to $378,777,158 from $756,736,737, according to a city-commissioned fiscal study from the Carl Vinson Institute of Government at the University of Georgia.
“Although the city of Stockbridge does not currently impose a property tax on its residents, this loss of valuable property impacts the ability of Stockbridge to make up for the revenue it will lose if de-annexation occurs,” the study concluded.
Stockbridge is about 20 miles south of Atlanta in Henry County. It had an estimated population of 28,700 in 2016, up from 25,636 in 2010, according to the U.S Census Bureau.
The city consists of about 8,500 acres or 13 square miles, and will celebrate its centennial in 2020.
The city would lose 48% of its assessable residential property value and 54% of the assessable commercial property if Eagles Landing is formed, the UG study said.
If the de-annexation takes place, the city still would be obligated to pay off $13.02 million of privately placed Urban Redevelopment Agency revenue bonds and $1.5 million of water and sewer bonds issued through the Georgia Environmental Facilities Authority. Both have final maturities in 2031, according to the Dec. 31, 2016 audit.
The $13.02 million of bonds, issued in 2005 and 2006 to buy land and build city hall, are backed by Stockbridge’s taxing power, even though the city doesn’t currently assess a property tax.
The bonds are owned by Capital One Public Funding LLC, whose law firm, Chapman and Cutler LLP, warned the city about potential litigation in a March 30 letter, a day after the General Assembly ended its session.
“SB 262 and SB 263 infringe Capital One's constitutional rights under the contracts clause of the U.S. Constitution and the Georgia Constitution by taking away a significant source of the security and source of repayment for the bonds that was contractually bargained for by the bondholders,” Chapman and Cutler partner Laura Appleby wrote to the city attorney.
Unless the bonds are properly apportioned between Stockbridge and Eagle's Landing, and the bondholders have the benefit of the full security that they were originally promised, Appleby said, “We have serious concerns regarding the ability of [Stockbridge] to continue to pay debt service on the bonds because it will have lost a large portion of its ad valorem tax base.”
For Eagles Landing, cityhood represents an opportunity to improve demographics to attract higher-income families and more business, according to the community’s developer, J.T. Williams.
The community stretches across more than 3,500 acres in portions of Stockbridge and unincorporated Henry County, purchased and developed by Williams and his sons.
According to Williams, household income in the area he developed is an average $128,000, which he said is twice as much as cities within the county and the county itself.
The proposed new city would cull 11.9 square miles from Stockbridge and Henry County, capturing a population of 18,227 people, according to a feasibility study on the new city by the Center for State and Local Finance at Georgia State University’s Andrew Young Policy Studies.
Vikki Consiglio says creating the city of Eagles Landing is about building a municipality that controls its own destiny, reflects its needs and provides the services and amenities residents want but don’t receive from Stockbridge or the county, such as senior centers and parks.
“We’ve been working on cityhood almost three years,” said Consiglio, chairwoman of the Eagles Landing Educational Research Committee, a nonprofit advocating for incorporation. “We live in a high-income area.”
As a city, Consiglio said, Eagles Landing would gain more control over its taxes and finances, and that would also give it the ability to attract higher-end businesses and restaurants, and improve public schools that she says are “not the caliber they need to be” now.
“I pay taxes today and get nothing back,” said Consiglio, who lives in a portion of unincorporated Henry County that would be annexed into the new city.
When asked if she would view taking half of Stockbridge’s assessed property value as inequitable, she said, “If anything it’s the other way around. The inequity is with the city of Stockbridge not servicing the 19,000 citizens to be de-annexed.”
Stockbridge is governed by an elected mayor and five city council members who represent the city at-large. City officials said they offered to elect officials by districts, and add two more council seats to ensure Eagles Landing is represented – an offer that would require annexing portions of the community into Stockbridge. The city also said there are plans to add more parks and build more amenities, such as a fine arts center.
“We’ve been known as Eagles Landing and we want to continue to be Eagles landing,” Consiglio said. “People don’t want to be in Stockbridge.”
The new city plans to offer its residents code enforcement, planning and zoning, police, libraries, solid waste services, parks and recreation without levying a property tax, paying its expenses with available revenues, most of which are a proportionate share of taxes and fees collected in Stockbridge, according to the GSU study.
Those fees include as a local option sales tax, building and zoning fees, hotel-motel taxes, franchise fees and others. The study estimated Eagles Landing would collect revenues of $7.5 million while spending between $5.4 million and $6 million on city needs.
Based on the estimates, “we find that the proposed city of Eagles Landing is financially feasible,” the study concluded.
In what has become a contentious issue about de-annexation, nearly 100 cities across the state adopted resolutions opposed to stripping Stockbridge of its land.
In Atlanta, the capital of Georgia, the City Council voted 12-2 on Feb. 19 to oppose the legislation, saying in its resolution that it would be “inconsistent with the 2018 legislative policies adopted by the Georgia Municipal Association.”
“De-annexation of existing municipalities negatively affects the tax base, economic development, and bond capacity developed by cities over years,” said Atlanta’s resolution. It added that existing municipalities may also experience adverse effects to the delivery of services, the transfer of city-owned assets, and their credit ratings.
Gov. Deal received SB 262 and 263 on April 5. He has 40 days to sign or veto them, or allow them to become without his signature.
“The governor is in the midst of the bill review process, studying each piece of legislation that reached his desk,” Deal’s spokeswoman Jen Talaber Ryan said in an email. “No decisions regarding signing legislation are made before this process is complete.”