Wednesday, June 4, 2003

[Editor's note: The following e-mail was provided to The Citizen as part of an exchange between Mayor Steve Brown, members of the Peachtree City Council and the city's Development Authority.]

I have been asked to provide a response to the various allegations against the Development Authority contained in Mayor Steve Brown's e-mail to Rick Gauthier and the members of the Peachtree City Council dated May 21, 2003. My responses coincide with the numbered items in this e-mail.

1. Borrowing money by the Development Authority for the payment of operating expenses is appropriate under the Development Authorities' Law.

The May 21 e-mail alleges that borrowing money for operating expenses is illegal. The allegation of illegality implies that some criminal activity has occurred. There are no criminal statutes which prohibit a development authority from borrowing money for operating expenses. Therefore, no crime has been committed by the simple act of borrowing money for operating expenses by the Development Authority of Peachtree City ("the Authority"). Such a negligent and careless allegation simply cannot be supported under the law.

More importantly, borrowing money by the Authority for operating expenses is specifically permitted under the Development Authorities' Law. As you know from the opinion I provided to you dated Jan. 10, 2003, the operation of the Tennis Center and the Amphitheater by the Authority are appropriate projects under Official Code of Georgia Annotated ("O.C.G.A"). O.C.G.A. §36-62-2(6) as it complies with the requirement in the Development Authorities' Law that any project promote the public purpose of the development of trade, commerce, industry and employment opportunities. I stand by that opinion. For your information, when I met with Representative Lynn Westmoreland on March 19, 2003, he indicated that the attorney he asked to review this same issue agreed with my opinion.

O.C.G.A. §36-62-2(6) sets out the powers of development authorities. That code section states in part as follows:

Each authority shall have all of the powers necessary or convenient to carry out and effectuate the purposes and provisions of this chapter, including, but without limiting the generality of the foregoing, the power:

(12) to construct, acquire, own, repair, remodel, maintain, extend, improve and equip projects located on land owned or leased by the Authority or land owned or leased by others and to pay all or part of the cost of any such project ... from any contribution or loans by persons, firms, or corporations or any other contribution, all of which the Authority is authorized to receive, accept and use;

(13) to borrow money ... and to use the proceeds thereof for the purpose of paying all or part of the cost of any project, including the cost of extending, adding to, or improving the project ... and to otherwise carry out the purposes of this chapter and to pay all other costs of the Authority incident to or necessary and appropriate for such purposes... .

(16) to expend for the promotion of industry, agriculture, and trade within its area of operations any funds of the Authority determined by the Authority to be in excess of those needed for the other corporate purposes of the Authority; and

(17) to do all things necessary or convenient to carry out the powers expressly conferred by this chapter.

Subparagraphs (12) and (13) make it abundantly clear that the Authority has right to borrow money and to use the borrowed money to pay all or part of the costs of any project (in this case, the costs of the Tennis Center and Amphitheater) and to "otherwise carry out the purposes of [Development Authorities' law] and to pay all other costs of the authority incident to or necessary and appropriate to such purposes." This is exactly what the Authority has done by borrowing money from Peachtree National Bank to pay some of the operating costs of these projects.

Further, the Authority has a contractual obligation with the City to operate these facilities in the best manner possible. Pursuant to the Fredrick Brown, Jr. Amphitheater Agreement and the Planterra Tennis Facility Agreement, entered into by and between the Authority and the City of Peachtree City, both of which are dated Nov. 18, 1993, the Authority is responsible for the efficient management and operation of these facilities. This includes the timely payment of all bills and other invoices related to the operation of the facilities. At times the Authority was required to use the funds borrowed from Peachtree National Bank to cover expenses when income from the facilities was down. This was particularly true during the winter months when the Amphitheater was not selling tickets and play at the Tennis Center was down.

During the course of the operation of the facilities by the Authority, if money had not been borrowed by the Authority, there were only two options. The first was for the Authority to request that the City pay these bills from already limited financial resources. The second option was to not pay the amounts due and owing at all. Under either scenario, the Authority would have been in breach of both of the agreements with the City for failing to pay the expenses of the facilities as the Authority is required to do in each of these agreements. Thus, not only is the Authority's borrowing money to pay operating expenses legal, it was also required under the contracts between the Authority and the City.

2. Borrowing money for construction by the Authority is also legal.

Again, there are no Georgia statutes which indicate that borrowing money for construction by a development authority is a violation of any criminal statute. Thus, there can be no dispute that the acts of the Authority in borrowing money for construction related activities are not prohibited criminal activity.

Further, as indicated above, subparagraph (12) of O.C.G.A. §36-62-6 explicitly states that a development authority can "construct, acquire, own, repair, remodel, maintain, extend, improve and equip projects." Additionally, subparagraph (13) of that same code section authorizes the Authority to "borrow money ... and to use the proceeds thereof for the purpose of paying all or part of the cost of any project, including the cost of extending, adding to, or improving the project." These are exactly the activities the Authority has engaged in with regard to the expansion of both the Amphitheater and the Tennis Center. The only way that the construction of these facilities could be completed was to borrow money. As is permitted under the Development Authorities Law, this is what the Authority did to accomplish these goals. Thus, this activity is provided for under the Georgia law and is not illegal in any way, shape or form.

3. The Authority has not made any misrepresentations to Tennis Center participants about the fiscal health of the facility.

The Mayor has claimed that the Authority "lied to Tennis Center participants about the fiscal health of the facility." It is difficult to respond to this allegation because it completely lacks any specifics with regard to what facts were misrepresented, who made such misrepresentations, to whom such misrepresentations were allegedly made, etc. As a result of threats made by the City Council to reduce or even cut off the funding supplied by the City to the Authority through the hotel/motel tax, members of the Tennis Center have been informed that some changes may be required in the operation of that facility. However, there has not been any indication that the benefits of the membership would be changed or reduced. One possibility suggested to Tennis Center members was that to offset any reduction in the hotel/motel tax support an increase the nonmember user fees may be required. These statements are all true and accurate.

4. No expenses have been sheltered in false line items.

The mayor has accused the Authority of sheltering expenses in false line items which he equates to a "MINI ENRON." As you are aware, the Enron debacle resulted from that company's attempts to shelter income and expenses through partnerships that were not legitimate. As a result of those actions, many associated with that company were charged with and prosecuted for criminal violations. Again, the mayor's implication appears to be that the Authority's actions have somehow violated criminal laws. This allegation simply has no basis in fact or the law.

No expenses have been "sheltered" in false line items in the Development Authority budget. Although recent reworking of the budget has resulted in re-categorization of some income and expenses, this has been the result of an attempt to permit the Authority members to better understand the finances of the Authority so that they can be better fine tuned. Any expenses were contained in previous budgets and profit and loss statements with the result that the net effect of the accounting for these expenses would have been the same, i.e., the profit or loss would have been the same.

More importantly, unlike the Enron situation in which the individuals running the company who have been charged with criminal violations handsomely profited from their actions, no one associated with the Authority now or in the past has ever directly benefited financially from the Authority's actions. The Authority is made up of a group of volunteers who are appointed by the City Council. They get paid nothing for their numerous hours of work and attending meetings and working on projects, all to assist in some way to hopefully better the lives of the citizens of Peachtree City. The members have gained nothing financially from their work on the Authority. To allege otherwise and to make the allegations contained in the May e-mail is an insult.

5. The Development Authority has responded to Open Records Act requests with all of the documents in existence.

On behalf of the Authority I have responded to Open Records Act requests from Paul Salvatore of the City of Peachtree City and from the mayor with several hundred pages of documentation, primarily copies of budgets and profit and loss statements. Even though Mr. Salvatore's request and that of the mayor were somewhat duplicative, we produced the requested documents twice to comply with the Authority's obligations under the Open Records Act. No requested documents were withheld. Importantly, I have never received any communication from the mayor or Mr. Salvatore requesting additional documents.

It is my understanding through other sources that the mayor claims that the Authority should have produced two additional types of documents: (1) documents what the funds from the loans by Peachtree National Bank were spent on and (2) documents with regard to the Tennis Center pro shop. With regard to the first category, there are no documents in existence in the possession of the Authority which detail the items for which the loans from Peachtree National Bank were used. During the course of the approximate eight years over which those loans were obtained, they have been used for various expenditures. Nothing in the loan documents requires the Authority to keep a detailed inventory or an accounting of these expenditures. There are no restrictions on the use of the funds contained in the loan agreements. The loan documents themselves have been produced to Mayor Brown and Mr. Salvatore.

O.C.G.A. §50-18-70(d), part of the Open Records Act, states that "no public officer or agency shall be required to prepare reports, summaries, or compilations not in existence at the time of the request" in response to an Open Records Act request. Thus, the Authority has no obligation to prepare a document to respond to the mayor's quest for an accounting of the expenditure of each and every penny of the Peachtree National Bank loans. The Authority is more than willing to turn over whatever records the mayor would like to see so that an independent forensic accountant can examine those records. However, it is my estimation that such an examination would cost in excess of $10,000 and there is no guarantee that it would result in providing the information that the mayor seeks. The Authority certainly does not have the money to spend on this exercise and I would be surprised if the City wishes to engage in such an expenditure. However, again, if the mayor wishes to have such a task undertaken, I strongly recommend that the Authority provide any and all information requested.

The other group of documents requested by the mayor have to do with the pro shop at the Tennis Center. As you know, the pro shop is owned and operated by Peachtree Trading Post, Inc. which is a private, domestic, for profit corporation owned by Virgil Christian. The Authority has no interest in that company and it is not entitled to share in any of the profits or required to absorb any of the losses of that entity. At the time Mr. Christian was being recruited to come to Peachtree City, the Authority considered owning and operating the pro shop. However, the overwhelming consensus amongst the Authority members was that they did not want to be involved in such an enterprise, particularly since the majority of such entities lost money. Therefore, the opportunity to run the pro shop was offered to Mr. Christian. He took this opportunity and formed his own private company primarily so that he could assist in recruiting new members for the Tennis Center. The records of the Peachtree Trading Post, Inc. are those of a private entity over which the Authority has no direction or control. Therefore, they are not subject to an Open Records Act request and have not been produced to the mayor or Mr. Salvatore.

6. The Authority has had an accountant work with its books and records in the past.

The mayor alleges that for the "first TEN years of operation, the accounting was poor to nonexistence." Initially, it must be noted that the Development Authority has been in existence for over thirty years and has been operating the Tennis Center and Amphitheater for approximately nine years so it is unclear as to which ten year period he is referring. During the vast majority of its existence, the Authority has had an independent accountant, most recently Ms. Alice Reeves, who has kept track of the income and expenditures, transported those into a profit and loss statement, cut checks and performed various other accounting functions. All of these tasks were performed in a good and workmanlike manner. Additionally, a banker, [the late] Mr. Tom Farr, oversaw many of the accounting functions of the Authority during his tenure as a member. Bills have been paid on time, the facilities have remained in operation and patrons of both facilities have been well served. Thus, the accounting has not only been in existence, but has properly performed its role for the Authority.

Recently the Authority has made a decision to have more detailed accounting of its income and expenditures. This has resulted in a revision of line items in the budget and profit and loss statement so that a more detailed picture can be shown of the Authority's financial picture. This is a part of a natural progression from 1993 when the Authority started operating an amphitheater that was in disrepair and not often used and a tennis center that was not even built to the two facilities in existence today which generate over $1 million in income. However, the fact that the Authority is becoming more detailed in the way it accounts for income and expenditures does not necessarily lead to the conclusion that its previous accounting methods were "poor to nonexistent."

7. The Authority relied upon its managers to monitor productivity and bonuses were given out to retain employees and maintain morale.

The mayor claims that the Authority had "no way to monitor productivity." However, the Authority is designed to operate like a board of directors for a large company. It is not charged with overseeing the minutia of the day-to-day operations of the two facilities. Those tasks are delegated to managers employed by the Authority. For a majority of the tenure of the Authority's involvement with the Amphitheater, Kristi Rapson was in charge of the day-to-day operations of that facility and now Donna Romeo has assumed that task. Similarly, Virgil Christian was initially responsible for the operations of the Tennis Center and now that task is primarily performed by Sean Ferreira. The Authority has relied on these individuals to gauge productivity at the facilities and to make alterations as they see fit to be more productive. Indeed, as evidenced by the overwhelming success of both of these facilities, these managers have done an outstanding job with these tasks. However, just as a board of directors does not wish to and cannot be involved in the day-to-day operational decisions, the Authority cannot do so either.

The mayor also complains that bonuses were given out during periods when losses were incurred by the facility. It is my understanding that some bonuses were given to employees during the nine years the Authority has operated these facilities. However, those bonuses were given to retain employees and to boost employee morale. As you are aware, it is much more expensive to have high employee turnover than to maintain the same employee in their positions. Providing bonuses assisted in ensuring that employees remained with the Authority so that significant expenditures would not be incurred to find replacements.

Additionally, at the Tennis Center, some employees received cash which was designated as a bonus which came from the Peachtree Trading Post, Inc. This cash contribution came from the income of Mr. Christian's private company and did not result in any debt to the Authority. This was a gift by Mr. Christian which he used to ensure that key employees would remain with the Tennis Center. This is a generous gesture by Mr. Christian to assist in ensuring that the Tennis Center achieved its high level of success.

8. The facilities have been altered by the Authority as is permitted under the law.

The mayor claims that the Development Authority illegally altered the City's facilities without City permission or review. As indicated in Sections 1 and 2 above, subparagraph (12) of O.C.G.A. §36-62-6 gives the Development Authority the power to "construct, acquire, own, repair, remodel, maintain, extend, improve and equip projects located on land owned or leased by the Authority or land owned or leased by other." This is exactly what the Authority has done with the Tennis Center and the Amphitheater. Additionally, as is contemplated under the agreements with the City, the Authority appropriately modified both facilities so that they would be properly operated and provide the highest quality services to the patrons and be the economic development vehicle for the City. Further, at each City Council retreat, the Authority provided a report as to its activities and these reports have generally been met with enthusiasm and full and complete support by the City Council. In no event could the changes made to the facilities by the Authority be deemed to be illegal.

9. The overages on the budget for the expansion of the Tennis Center are not illegal.

As indicated in Sections 1, 2 and 8 above, the Authority has the power to construct, repair, remodel and improve the facility, the budget overages were amounts that were required to complete the expansion of the Tennis Center. No money was improperly diverted to other sources or used for anything other than the Tennis Center expansion. This expenditure is not illegal.

If you have any questions or concerns regarding this matter, please feel free to contact me at your convenience.

Mark D. Oldenburg

Attorney for Peachtree City Development Authority