How the PTC Council Solved the Dev Auth Crisis

As a lawyer in the field of corporate finance, I have observed with interest the history of the Peachtree City Development Authority failure and the subsequent modifications and personnel changes by the City Council. The legal question that interests many of us is “How do we avoid this from happening again?” The issues have, of course, been the focus of the upcoming city elections. One issue is the extent to which those earlier trusted with certain functions should be restored to power.

What happened? (1) The Development Authority (DAPC) lost significant sums of money; (2) DAPC had chronic operating losses; (3) DAPC retained substantial unpaid trade payables and (4) DAPC had to cope with significant unresolved warranty issues involving defects in the real property improvements.

What caused these problems? (1) no system of accounting (2) no sophisticated budgeting commensurate with the operations (3) haphazard compliance with the Georgia Open Meetings laws (4) use of an unlawful source of funding and (5) no construction management to prevent or remedy gross error in construction of the tennis facility.

What did the current Council do to prevent this crisis in the future? (1) Adopt a lawful method of funding (2) Cause an eradication of the personnel and management that permitted or caused (for whatever reason) the problems.

A note as to funding is in order. Much discussion has been had about this very complex area of municipal finance. Suffice to say that Mr. Earle Taylor, who has served as the city’s bond counsel for decades, correctly opined that the DAPC funding was patently unlawful. This the municipal finance community of Atlanta takes as a given. Mr. Taylor’s credentials are impeccable, having served in one of Atlanta’s finest firms. And, he has no political motivations either way. Any city (such as Peachtree City) is greatly constrained as to how it can tax its citizens and businesses and how it can spend the tax revenues. Hearings are required for annual budgets, for tax rate adoptions and for tax increases (among others). Extraordinary measures require an affirmative popular vote (“referendum”) such as for a local option sales tax or a special purpose option sales tax. The Georgia General Assembly created Authorities (special units of government) that were exempt from most of these rules. Authorities have much more freedom than a commission or committee. Authorities have control over their own budgets and don’t have to undertake referenda in order to borrow money. The legal concession, however, is that under no circumstances can the city or its sources of tax revenue be responsible for the debt. This is the key area where DAPC clearly went astray. The result is over $2,000,000 in unpaid debt which has resulted in litigation yet for which the city has no liability. The City disengaged the improper channelling of hotel/motel tax revenue to the DAPC supplanting with a legally sufficient scheme.

As to personnel, it is incumbent in areas of corporate failure that those responsible be fully removed from corporate decision making. Council benefitted from the mass exodus of former DAPC members who resigned at the height of the crisis. Replacement appointees did not hold interlocking directorates with subject creditors and thus the pernicious source of conflict was gone. Positions of fiduciary responsibility (like the DAPC)are particularly sensitive. Bank officers, for example, take compelled vacations. Likewise with the DAPC, once a regime is found to be incapable or unwilling to properly manage the finances of a venture, complete change is recommended and normally on a permanent basis. A cry of “I didn’t mean it” is irrelevant. The tender hearted drunken driver who collides with a school bus full of children still goes to jail. Thus, the pleas of the old participants of the DAPC to be restored to earlier positions of authority is unwarranted. In this writer’s view, the current council has acted properly and court rulings will affirm those decisions.

Jay Taylor

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Submitted by Mayor Steve Brown on Sun, 11/06/2005 - 8:00am.

All of the challengers in the mayor’s race insist on taking $1.5 million out of our budget and giving it to Peachtree National Bank to repay some illegal loans from the Development Authority. The only person to say that he would obey the law and would not sacrifice taxpayer dollars for the illegal loans was the incumbent, Mayor Steve Brown. In fact, at the October 18 Rotary Forum Mayor Brown’s challengers went as far as saying they are willing to “look past the legal issues” and pay the bank back.

We live in an era when both corporate and political corruption is rampant. “Fixing the books” is almost commonplace and the interests of the shareholders or the citizens means very little. In an age that celebrates compromise and deems concession the better part of valor, the pressure is on to hold up a finger to the prevailing breeze and acquiesce to government dishonesty and rapidly declining standards. The theme of the day is, “Don’t let the law get in the way.” Is this what we want to teach our children in Peachtree City?

There are very good reasons why ALL FIVE of the current City Council Members unanimously agree that they will not repay the Development Authority loans from Peachtree National Bank. Please know that authority-style governments are completely autonomous bodies. Authorities are self-governing bodies created by the State of Georgia. Authorities were formed as independent governments so that counties and municipalities (and their tax paying citizens) could not be held responsible for their actions. Every Development Authority Member is required by state law to take the Development Authority Board Member Training Course. One of the state’s foremost experts on such authorities, Jim Finch (Dept. of Community Affairs), is also an instructor of the state mandated course. The course work as written by Mr. Finch in the text clearly states that according to Georgia law the debts of local Development Authorities are “not considered to be debt of the local government,” (Training Manual, Chapter “What is a Development Authority” by Jim Finch, p. 11).

City councils and county commissions have no control of the decision making of authorities and the only way that a Development Authority of Peachtree City (DAPC) Member can be removed is if he fails to maintain at least an 80 percent attendance record. Thus, city councils and county commissions are neither accountable nor responsible in any way for the actions of Development Authorities.

Our City Attorney has officially informed the City Council that it would be illegal to pay the loans back. We also have one of the foremost municipal attorneys in the state, Andrew Whalen, to assist us in this matter and his conclusion is also that it would be illegal to pay the loans back. Even the bonding attorney from the previous Lenox administration has officially stated that the authority was acting outside the bounds of state law and that the city is not responsible for the authority’s debt.

In his January 8, 2003 editorial entitled, “Turns out, Mayor Brown was right . . .” newspaper Publisher Cal Beverly said the following:

[begin quote] The new city attorneys and the city's bond attorney [of the past decade] have issued an opinion that in effect says, Steve Brown was right.
Turns out the city's autonomous development authority is operating both the new tennis center and the Fred Brown Amphitheater in violation of state law and a Georgia Supreme Court ruling.
Further, state law prohibits the city from picking up the authority's $1.456 million debt, according to the Jan. 3 opinion from Theodore P. Meeker, III, the city attorney, and Earle R. Taylor, III, the city's attorney for borrowing issues.
In addition to state law against a city assuming debt of an authority, the state's constitution "also prohibits the city from 'assuming' or 'paying' the authority's debts without the assent of a majority of the city's qualified voters," the attorneys wrote.
The attorneys said even an intergovernmental agreement between the two parties can't get around the rules. "In summary, it is doubtful that the development authority is authorized by law to operate or manage either the tennis center or amphitheater on behalf of the city," the city's attorneys wrote.
So, the grand experiment fashioned under the reign of Mayor Bob Lenox in the early 1990s of having an industrial development authority run an entertainment venue and later an exclusive tennis center however successful or unsuccessful that role may be adjudged today is just simply unlawful. [end quote]

Beverly also arrived at the obvious conclusion, “The laws and cases cited in the Jan. 3 memo to the city seem overwhelmingly to shout, ‘You can't do this!’” Beverly next asked the key question that is deeply seeded in Peachtree City’s history, “Were the previous rulers and authorities so insulated from reality outside Peachtree City that they either ignored the laws and rulings or did they suppose regally that they could get away with it just because of who they were?”

The Development Authority was incurring debt for a purpose that was outside their legal authority as granted by state law. Furthermore, there was no public vote nor public disclosure on a vast majority of the debt as state law requires. It was later discovered that several of the Development Authority Members were also on the Board of Directors of Peachtree National Bank who issued the loans. The bank actually issued over one million dollars of collateral-free debt to the Development Authority.

One of the largest falsehoods regarding the Peachtree City Development Authority during the previous Lenox administration is that the authority’s $1.5 million debt was used to make capital improvements to both the city owned amphitheater and the tennis center. Nothing could be further from the truth. In fact, only $300,000 of the entire debt can be connected to enhancing the structure of either facility. It was the city government that paid for the structural improvements to both facilities and not the authority and we have the cancelled checks to prove it. The city government issued $2.5 million in checks to pay for the recent tennis center expansion and we guaranteed that we will use a portion of the hotel/motel tax to repay the city’s Bricks and Mortar loan taken out by the previous council. Unfortunately, the contractor did not construct the expansion to the approved plan specifications and we have experienced consistent, severe flooding problems in the new building. The city is going after the contractor, Group VI, to pay for resolving the problems.

Okay, then where did all of the debt go? We know that some of the debt was used to float the overhead expenses of the bloated tennis center. Unfortunately, both the Georgia Bureau of Investigation and our auditors pointed out that the authority’s accounting records were extremely poor. To this day, we do not know where a lot of the debt went. We know that in addition to the $1.5 million illegal debt, the authority received over $3 million in hotel/motel taxes and collected fees from amphitheater and tennis center sponsors and patrons. They were in receipt of a significant amount of money that cannot be traced. Do we really want to engage in repaying loans that were illegal and used for purposes that we cannot identify?

The City Council Retreat Minutes, Friday, March 23, 2001, show that the previous Lenox administration proposed to place the Development Authority debt ($600,000 at the time) on a voter referendum for November of 2001. However, the referendum item was later taken off of the ballot by then-Mayor Lenox because the city’s bonding attorney was unwilling to participate in bonding the debt that was used for “ultra vires” purposes.

Candidates Logsdon, Boswell, Tennant and Thompson want to get around our state law on this matter. Do we really want our local government promoting lawlessness? Mayor Steve Brown will not violate state law and raise our taxes or severely cut our city services in order to repay illegal debt for which the city is in no way responsible. We need to show our children that obeying the law is the right thing to do.

JWM's picture
Submitted by JWM on Thu, 11/03/2005 - 10:47pm.

This article written above is about how the good old boy leadership caused these disasters with the Development Authority. Harold Logsdon talks about leadership and financial accountability skills but he is simply a return to the past. How can you expect us to believe a word you say when you continually violate something as simple as the city's sign ordinance? I'm sure there has to be a reason why. Is it: (1) you have not taken the time to read the sign ordinance, (2) you have read the sign ordinance and choose to ignore the rules, or (3) your leadership skills are so profound that you can't even lead your own people well enough to obey these simple rules. The city code enforcement is spending much of their time monitoring your sign infractions instead of focusing on their job, which creates more work, ultimately meaning additional cost to the taxpayers. You do not respond to emails on your website. And your political manipulation of the airshow with the good old boys was blatant. Is this what you really mean when you say you are going to bring new leadership and financial accountability to the office? No, that’s the type of leadership (or lack thereof) that led to the Dev Auth Crisis. Sorry, Harold. Please try another endeavor.

Submitted by Investq on Thu, 11/03/2005 - 7:44pm.

Good article here. I agree with Indirectpac. These guys got away with murder and their "I'm sorry" is a day late and a whole lot of dollars short.

Submitted by Annie-Caroline Fritz on Thu, 11/03/2005 - 3:18pm.

Oh, my word...Did I cause all that ?

Submitted by secretindirectpac on Thu, 11/03/2005 - 8:09am.

You sir are correct. Saying I'm sorry isn't enough.

Submitted by Joe Swanson on Sat, 11/05/2005 - 1:35pm.

Everyone agrees--- the city has no legal requirement at all to pay the illegal Development Authority debts. Many of the lap-dog candidates are saying to pay it anyway because its a "Moral Obligation". Huh? Whose morality? Your? Not mine. How about a referendum. Oh yeah that's why Lenox did it this way in the first place--- to avoid giving us a vote in a referendum.

The big problem with "moral" is that other people will step up and ask for city money (even though they don't have a real reason) just because they think it's the "moral" thing to do. Bad idea; bad precedent.

Submitted by ptcwebdecoder on Sat, 11/05/2005 - 12:18am.

I think Indirectpac is right. Saying "sorry" was not enough. The solution to this is big. Everyone had their head in the sand.

Submitted by Investq on Fri, 11/04/2005 - 6:04pm.

Here's the clean up, Nuk. We're going to be all set. Read this post.

Submitted by jtayloratty on Wed, 11/02/2005 - 10:46pm.

Thank you for the forum.

Submitted by SandySue on Thu, 11/03/2005 - 12:04am.

Great summary and statement of facts. It is nice to see facts rather than opinions and half truths. We the average citizens of PTC are tired of the hidden agendas and "what is best for my buddies and me attitudes"!

Cass Poolman

KraftyFla's picture
Submitted by KraftyFla on Thu, 11/03/2005 - 6:43am.

I understand this but the whole thing is so complicated that I wonder if the average voter has taken the time to try to understand what the DAPC really did. I really wondered myself too how this looked to the other towns, too. It sounded too chummy the way they were saying “Oh, its ok”. Some of the good ole boys are definitely trying to get back in. Of course this has always been about an agenda. With the exception of one of our former mayors, all of the previous mayors got some kind or a job or investment with the developers after leaving city hall. Our first mayor was the developer. Fred Brown took a staff job with the developer after leaving office. That probably isn’t illegal but it is too close. I never liked it. That’s why we need a break from that whole past connection.

Submitted by G-bug on Thu, 11/03/2005 - 8:53am.

Is selling the Tennis Center as has been mentioned a good idea ?

Just curios.

tiger tale's picture
Submitted by tiger tale on Thu, 11/03/2005 - 9:08am.

I feel that selling the Tennis Center is worth looking into.
This is a facility that is very expensive to run and serves only
a small fraction of our citizens.

From what I understand, Mr. Tennant is suggesting this as a POSSIBLITY. He has suggested that it be appraised and see what
happens from there. Another possiblity he has suggested is to incorporate other things into the current Tennis Center so that it becomes more of a multi-use facility to draw more people and more revenue.

I applaud him for thinking outside the box.

mudcat's picture
Submitted by mudcat on Thu, 11/03/2005 - 9:32am.

No question it should be looked into, but by city staff and attorney - not just one mayor or council member. Having a good idea is one thing; following up properly is quite another. Remember the current mayor getting way out on front with Wieland on the annexation? Sort of a good idea, but not getting help from city staff and legally lifting the moratorium first was very poor form.

On the tennis center, one thing to look at is the user fees - what they are now vs. what they will have to be if the facility were in private hands. Oddly enough, Dar would probably know that. If someone pays $1 millon or so for that facility they are going to have to charge users enough to recoup that investment or retire the debt plus meet operating expenses.

I believe the city should consider selling the tennis center, but I think they also have an obligation to project what the higher fees will be and if that is in the best interest of all the citizens of PTC - not just the 600.

Dan may not be my choice for mayor - with or without this idea, but it is nice that he is thinking about real issues and proposing solutions instead of just complaining and criticizing as some people and even candidates are prone to do.

Submitted by dkinser on Thu, 11/03/2005 - 9:04am.

It could be. I would prefer that since we, the taxpayers; have already pushed millions of dollars into it, that we could help it out by brining back tennis tournaments.

The tournaments would bring in revenue from other locals, help the restaurants, and hotels/motels. The revenue would also help offset the operating losses to be more commensurate to those of the other recreational facilities that the city operates.

There used to be tournaments there and it can happen again. Maybe this is what the Tourism Authority should be investigating and promoting???

Dana Kinser

KraftyFla's picture
Submitted by KraftyFla on Thu, 11/03/2005 - 1:09pm.

What is the current status of this matter? Is the Center up for sale? Is it in the courts ?

Submitted by Greg T. Madison on Thu, 11/03/2005 - 1:17pm.

No it is not for sale, Dan Tennant has proposed a plan to LOOK at selling the tennis center to pay the debt it owes....Brown says we don't owe that money which is ridiculouse.

KraftyFla's picture
Submitted by KraftyFla on Thu, 11/03/2005 - 1:22pm.

Haven't all of the city lawyers said that the city is not liable? Mr. Taylor apparently said for a long time (according to this blog) that the city doesn't owe the money. Who is right ? Maybe the city should sell either way.

Submitted by Greg T. Madison on Thu, 11/03/2005 - 1:33pm.

The lawyers say we are not liable. But all the candidates except Brown say we morally owe that money. We need to improve relations with the surrounding community, and not to mention our citizens benifited from that borrowed money. So morally we do owe the money back. Now I don't play tennis but I have heard the way the tennis center is being run has really dropped in quality. Therefore I feel the city should not run a tennis center. AND you are right, even if we don't pay the tennis center debts we can still LOOK at selling it.

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