Voters brought an abrupt end to a controversial plan to de-annex a large part of the city of Stockbridge, Georgia, giving the thumbs-down to a ballot measure that would have created a new city of Eagle’s Landing.
The election result ends a saga that raised numerous legal questions and underscored the power the Georgia legislature wields over cities.
Of the 7,509 people participating in Tuesday’s election, 57.12% voted not to create Eagle’s Landing.
The decision culminates a three-year-long effort that forced the nearly 100-year-old city of Stockbridge to spend more than $480,000 defending itself against the involuntary de-annexation before lawmakers, the governor, and the courts.
The voters' decision means there will be no legal precedent answering the question of whether state lawmakers properly apportioned Stockbridge’s debt in approving the legislation permitting the de-annexation.
The case that emerged in Stockbridge offers a “very good example” of why investors need to understand what they own, and to follow holdings closely, said Tom Schuette, partner and co-head of investment research and strategy at Gurtin Municipal Bond Management.
“I think this is more of an isolated incident as opposed to a harbinger of a threat to cityhood nationally,” he said.
The 29,000 residents of Stockbridge will celebrate its centennial in 2020.
“Fortunately, the referendum vote failed which would have allowed the formation of a new city in Henry County while taking established property from the great city of Stockbridge,” said Mayor Anthony Ford. “We are extremely excited and grateful.”
The city will move forward “united as one dynamic community made up of diverse Americans” that represents all of its citizens, he said.
Vikki Consiglio, chairwoman of the nonprofit Eagle’s Landing Educational Research Committee created to advocate for incorporation, said it’s now up to Henry County and state elected officials to provide the amenities and economic development that she says her area lacks.
“We may be have been defeated in the polls but we are not defeated in spirit. This has always been about the right to vote,” she said. “We wanted the citizens to decide. They did that at the polls.”
Consiglio said thousands of citizens voted for creating the city and “for a common goal that something needs to happen in the Eagle's Landing community area.”
While annexations are common, experts said most are voluntary and new cities are usually created mostly from unincorporated areas, as opposed to large sections of existing municipalities.
In Stockbridge’s case, municipal bond analysts and bond attorneys criticized Georgia lawmakers for passing two bills this year — one revising Stockbridge’s boundaries and another authorizing the creation of Eagle’s Landing — without apportioning Stockbridge’s $11.75 million of unrated bonds among the two municipalities.
That led Stockbridge’s bondholder, Capital One Public Funding LLC, to file a federal suit contending that the de-annexation would result in an impairment and loss of its contractual rights. COPF sought a preliminary injunction to void the legislation and stop the referendum.
U.S. District Judge Leigh Martin May denied COPF’s request on Oct. 19 because she said language in the legislation authorizing the new city of Eagle’s Landing would require it to be “a successor in interest to the debt agreement” held by Stockbridge.
Georgia Attorney General Christopher Carr and Eagle’s Landing proponents also pointed to that language in their filings.
Capital One’s expert, bond attorney J. Hobson “Hobby” Presley Jr., disagreed in a filing prior to the ruling.
“Dramatic, government-sanctioned reductions in a tax base quite simply are not expected in municipal debt markets without debt apportionment,” Presley wrote Sept. 13.
On Oct. 22, Moody's Investors Service told The Bond Buyer that the judge’s ruling did not change its stance on the bills, and that it stood by a May commentary that said the legislative package was credit negative for Stockbridge “because de-annexation would reduce the city’s tax base and the bills include no provisions to reapportion outstanding debt.”
Carr also cited another reason Capital One wasn’t impaired by the state’s legislation. In an Oct. 3 filing, he said “states have always had near unfettered discretion to modify [municipal] boundaries as they see fit, and that risk should be widely known and considered in the municipal bond market.”
“Therefore, in issuing or purchasing municipal bonds, the risk that the state may exercise its long-established power to redraw municipal lines should certainly be a known risk that goes into the calculation of the bond price,” Carr wrote. “The state’s exercise of those powers is not an impairment, but simply the occurrence of a known potential contingency of municipal law.”
Carr was referring to a case in 1868 when Judge Forest Dillon ruled that “municipal corporations owe their origin to, and derive their powers and rights wholly from, the legislature.”
Schuette said many municipal investors that have done their homework understand that Dillon’s Rule “still looms large” over municipal powers.
“At this point, I don’t think the Stockbridge de-annexation should overly worry investors,” he said. “Until we see more evidence otherwise, we tend to believe that Stockbridge is an idiosyncratic story as opposed to a representative emerging risk.”
