BRADENTON, Fla. - The GeorgiaSupreme Court in a unanimous decision yesterday ruled that the state's constitution prohibits Atlantafrom using school tax revenue to secure tax allocation district bonds financing its BeltLine project.

The ruling, city officials and attorneys said, not only represents a setback for the nearly $2 billion BeltLine project, but also redevelopment efforts across the state dependent upon bond financing through tax allocation districts that use tax increment financing.

Despite passionate pleadings asking them to consider the benefits to Atlanta the BeltLine could provide, justices in an eight-page opinion largely ignored the project except to reference to it by title. They overturned a lower court's validation of $200 million of TAD bonds sought by the city with the support of Fulton County and the Atlanta Independent School System.

"We hold that certain proposed funding for the BeltLine plan violates the Educational Purpose Clause" of the state constitution, their opinion said. "School taxes cannot be used to fund the BeltLine plan which provides a benefit to all citizens, and which has little, if any, nexus to the actual operation of public schools in the city of Atlanta."

The BeltLine is envisioned as a 22-mile transit, park, and redevelopment project that loops around the city's inner core. Loss of the school tax revenue reduces anticipated public funding, which was $1.8 billion, by approximately $800 million, Atlanta Mayor Shirley Franklin said.

"What it will mean is the city of Atlanta and Fulton County can continue with the BeltLine, but only using the tax revenue, the incremental financing, based on tax revenue from the city and the county which is approximately half," Franklin said in an interview yesterday. "So, the project is going forward. It will not go forward with funding underwritten by educational dollars."

Franklin said the city would look for other partnerships - federal, state, or private - to make up for the loss of the school revenue.

TADs and tax increment bond financing, were authorized in 1985 when the Georgia Legislature enacted the Redevelopment Powers Law to fund infrastructure and other redevelopment costs in blighted areas.

Georgia law requires TAD bonds to be validated. Those that were validated and sold with a school district revenue pledge before the Supreme Court ruling are protected, said Sharon Gay, a partner at McKenna Long & AldridgeLLP, a law firm that touts its service representing TADs.

Gay added that the city faces a daunting task asking the high court to reconsider its decision, given that it was unanimous.

"It was a decision in the context of the Atlanta BeltLine, but of course it has statewide implications," said Gay, who fielded calls from clients much of yesterday. "There are dozens of economic revitalization projects pending right now that are currently in limbo."

There are more than two dozen existing TADs in Georgia and others in the process of being developed. Their sponsors, most of whom depended on bonds to finance their plans, now must decide if they can proceed without school district funding.

School district funding typically represents about half of the revenues flowing into a TAD. However, Georgia law allows other types of revenues, such as local option sales taxes, to be pledged.

"We were working in communities all over the state that were planning to use tax allocation district bonds to do significant renovations," Gay said. "In Georgia, the state doesn't grant to local communities very many economic development tools, so this just has significant public policy implications statewide."

The Supreme Court's decision yesterday was the result of an appeal of Atlanta's bond validation by local attorney John Woodham. He argued that the use of school tax revenues for non-educational purposes violated Georgia's constitution. The high court heard arguments in the case Sept. 25.

The decision cannot be appealed, but the court could reconsider it if the city requests it. q

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