Georgia de-annexation fight hits federal court on two fronts

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A Georgia city’s bondholder and the city itself filed separate federal lawsuits challenging a state-sanctioned process by which the city’s assessable property value could be sliced in half through an involuntary de-annexation.

Capital One Public Funding LLC, which holds the $11.75 million of outstanding bonds issued in 2005 and 2006 by the Stockbridge Urban Redevelopment Authority, filed suit Friday against state and local elections officials in an attempt to void a Nov. 6 referendum on creating the new city of Eagle’s Landing.

If voters within the proposed city limits of Eagle’s Landing approve the referendum, the new municipality will be created from about 50% of the land that now lies in Stockbridge. A small portion would be annexed from unincorporated Henry County.

State laws allowing for Stockbridge’s de-annexation and Eagle’s Landing’s referendum “are unprecedented in Georgia because they fail to make any apportionment of Stockbridge’s underlying debt and related contractual obligations to the new city of Eagle’s Landing,” said Capital One’s complaint, filed in the U.S. District Court for the Northern District of Georgia.

Approval of the referendum would violate the contracts clauses of the U.S. and Georgia constitutions, resulting in a “substantial impairment” and loss of Capital One’s contractual rights and the benefit-of-the-bargain it relied on when purchasing Stockbridge’s bonds, the suit said.

On May 8, Gov. Nathan Deal approved Senate Bill 262, amending Stockbridge’s boundaries without the city’s consent, and SB 263 setting the stage for November’s referendum on whether to authorize creation of the new city of Eagle’s Landing.

“That unprecedented act guts the city of Stockbridge,” Balch & Bingham attorney Christopher Anulewicz said at a press conference Tuesday, announcing that the city had filed a four-count federal lawsuit in U.S. District Court.

The new law “financially impairs the city of Stockbridge, all to make a country club a city,” he said.

Only residents in the proposed new city limits will vote in the referendum.

Stockbridge is home to about 29,000 residents, according to the 2017 estimate of the U.S. Census Bureau.

Two of the four counts in Stockbridge’s complaint allege violations of the Voting Rights Act and racial gerrymandering in violation of the Equal Protection Clause of the 14th amendment.

Currently, 53.37% of the voters in Stockbridge are African-American and 32.5% are white, the complaint said. If de-annexation occurs, 43.98% of voters in Eagle’s Landing will be African-American and 42.81% will be white.

The African-American voters who would be shifted into the new city will have their voting strength reduced by 10% while the voting strength of white residents from Stockbridge shifted into Eagle’s Landing will increase by 10%.

“The result will be the reduction in the ability of African-American and other minority voters who are moved out of the city of Stockbridge and into the proposed city of Eagle’s Landing to elect representatives of their choice,” the suit said.

A third count in the 23-page lawsuit deals with Stockbridge’s bonds, and difficulties the city will face paying debt service if de-annexation occurs and the city loses 48% of its residential property value and 54% of its commercial property value.

Stockbridge, which hasn’t levied a property tax in more than 30 years, would see its annual gross revenues drop to about $4.8 million from more than $9 million, according to the complaint. It contends that Eagle’s Landing would benefit from bond-financed assets, even though the proposed city won’t be required to contribute toward debt service.

Stockbridge relied on a “continued and consistent level of revenue stream from commercial businesses and properties” to repay the bonds held by Capital One Public Funding, the suit said. Impairment of the revenue stream through de-annexation violates the contracts clauses of the Georgia and U.S. constitutions, it contends.

The suit seeks an injunction to prevent the state laws from being implemented as well as attorneys’ fees in a fourth count.

Anulewicz said Tuesday that the lawsuit was filed because the state law is harmful to Stockbridge as well as 100 municipalities in Georgia “because if it happened to the city of Stockbridge, it can happen to any city in this state.”

“It is bad policy,” he said. “It is unlawful and we plan to stop it.”

Proponents of creating Eagle’s Landing have said that Stockbridge has enough money in its fund balance and reserve to pay off the bonds. They’ve also claimed that they get no benefit from the bond-financed assets, which includes city hall.

Stockbridge attorney Mike Williams said the city has a “healthy fund balance” because of its fiscally conservative management.

“If the assessment is that we should spend all the money and sell city hall just so that a country club can become a city, that’s irresponsible,” said Williams, who is of counsel with Wilson, Morton & Downs LLC.

Stockbridge also filed a lawsuit in state court attempting to strike down the de-annexation legislation, but Henry County Superior Court Judge Arch McGarity ruled against the city July 18.

The suit is pending before the Georgia Supreme Court.

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