City's affordable housing strategy slowed by Fulton development authority

It’s hard to develop Atlanta’s parking lots and vacant spaces into soaring high-rises where students, young professionals, and families can live. The process is rife with red tape, expensive, and risky. If you’re a smart developer, you’ll try to have a safety net to minimize the financial risks.

Lucky for developers, two local government agencies are willing to help them avoid paying some property taxes. Sometimes you’ll get financial assistance just to build your project.

For years, the Development Authority of Fulton County and Invest Atlanta, the city’s economic development arm, co-existed in relative harmony. The latter primarily focused on residential while Fulton catered mostly to commercial and industries.

But as one muscles in on the other’s territory, they’ve started to butt heads. The fight is more than inter-agency squabbling or another dispute between Atlanta and the county. The latest standoff between the city and county could determine whether some teachers, police officers, and other people who want to live in the city but might not afford the rent. And as Invest Atlanta embarks on a comprehensive look at how to increase affordable housing in the city, Mayor Kasim Reed says the city might make business difficult for developers who try to make an end-run around the agency.

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For more than a decade, DAFC has predominantly lured commercial and industries into the county with financial incentives. In recent years, it’s helped lure projects in fast-growing Midtown and affluent Buckhead. That's included some residential developments. DAFC has reportedly helped provide incentives to the Atlanta-based Novare Group’s Buckhead SkyHouse project, St. Regis, and a condominium project along West Paces Ferry Road, Buckhead View <a href’=”http://buckheadview.com/2013/12/07/skyhouse-buckhead-development-bonds-validated/”>reports.

The residential realm has traditionally belonged to Invest Atlanta, and its precursor, the Atlanta Development Authority. The agency has, until recently, put much of its focus on residential projects. Overseen by a board chaired by Mayor Kasim Reed, Invest Atlanta has ventured into other areas, including paying more attention to startups and wooing businesses such as German luxury car manufacturer Porsche and children’s apparel company Carter’s from Connecticut.

The two authorities offer, among other incentives, property tax breaks, or tax abatements, via lease-purchase deals. The authority typically issues bonds to purchase a newly built building, which the developer then leases from Invest Atlanta or DAFC. The first year the developer only pays 50 percent of the property tax bill, which escalates over time, until the title is returned to the developer. Some critics view the practice, particularly when used for residential developments, as giveaways. Developers wouldn’t be thinking about moving dirt if they didn’t already sense demand.

The deals also help both DAFC and Invest Atlanta keep their lights on. Authorities charge a fee for each bond deal, which helps them pay staff and promote their missions.

Last year, Invest Atlanta’s board decided to require developers who wanted tax incentives for residential projects to include workforce housing units in their projects. According to one board member, the policy was created because the board wanted the incentive deals to help the community more than just expanding the tax base and sparking construction jobs. At least 10 percent of the units in each housing development had to be set aside for people making less than 60 percent of the area median income.

Affordable housing advocates have argued that the units don’t stay affordable forever — the units revert to market rates after 10 years or so — and officials don’t focus enough on people living on much lower incomes. In a city that lacks a policy stipulating affordable units for residential projects, what’s known as inclusionary zoning, it’s a step in the right direction — but it’s not enough.

Some private developers have been apprehensive about workforce housing requirements. The inclusion of low-cost units means that fewer people can buy an expensive condo or pay higher rent. To some developers, the incentives received from the city could be considered additional red tape and therefore less attractive. And sometimes there’s an unfair — and unrealistic — stigma associated with it. So they choose the path of least resistance.

According to sources and meeting minutes, that path appears to lead to the county, which doesn’t have workforce housing requirements.

“I am told by many of those who come to us that we are more congenial, easy to work with, and get things done much more quicker than maybe the city does,” says Robert Shaw, DAFC’s board chairman who’s currently serving as interim executive director. “They might have more hoops to jump through there.”

According to DAFC's website, the authority, which was founded in the early 1970s, has issued more than $16 billion in bonds to help businesses relocate and expand in Fulton. Shaw says he was unable to break down how the authority has funded “schools, non-profits, hospitals, manufacturing facilities, data centers, mixed use facilities, hotels and other types of projects as permitted under the Development Authorities Law.”

In the first half of 2014, according to Invest Atlanta Board Member Julian Bene, citing Invest Atlanta staff data, DAFC has worked on seven apartment deals in the city that provided developers with more than $24 million in tax savings.

The move by developers to take their business from Invest Atlanta to DAFC to sidestep the policy has not won points with Reed and other members of Invest Atlanta’s board. They argue that DAFC’s policy hurts the supply of workforce housing in Atlanta and circumvents a well-intentioned policy.

DAFC is an independent entity created by the General Assembly and, according to Shaw, is entirely self-sustaining. But it answers to Fulton County commissioners, much like Invest Atlanta answers to the mayor and, to a lesser extent, the Atlanta City Council. And at least one observer has pointed out that, as Fulton commissioners are raise the millage rate throughout the county, including Atlanta, DAFC is giving tax breaks to developers.

Shaw argues that critics of the tax abatement deals fail to understand how they truly work. Were it not for the incentives, the county might have lost out on economic development that would have gone elsewhere in the metro area, southeast region, or country. In essence, it’s revenue that would never have been collected, so “half a loaf is better than no loaf,” he says.

Fulton Chairman John Eaves did not comment on the authority's lack of an affordable housing policy. He did say in an email, however, that “potentially, the authority could re-examine the policy it needs to close some of the gaps where revenue could be lost to the county. Still, it’s a very delicate balance between efforts to attract businesses to Fulton County without unnecessarily giving away revenue.”

In early August, Reed told CL the city was looking at ways to discourage developers from doing business with DAFC. The city could exercise some of that power through permitting projects.

“We are examining right now what we can do that’s legal and ethical to not be cooperative with that process,” Reed said. “What you’re going to see in the future is businesses that make the decision to run their financing through Fulton County are going to have significant challenges related to moving through the city’s approval process for anything.”

Reached yesterday, his view hadn't changed much. In a statement he said:

Despite our city’s legacy of diversity and inclusion, the Development Authority of Fulton County (DAFC) continues to allow some developers to intentionally disregard the need for affordable housing in our community. Businesses that choose to overlook our city’s most vulnerable residents will not be welcome. To allow DAFC to continue on a path of exclusion and reward public money to businesses that are deliberately avoiding our clearly stated policy is not the Atlanta way.

Bene applauds Reed’s concern about the issue. But he thinks a policy needs to be on the books to ensure that happens once the mayor leaves office in early 2018. That kind of legislative safeguard would most likely require an agreement between the city and county — or action from the General Assembly.

“What we need is legislation that essentially says there’s only one development authority in the City of Atlanta who can do this,” Bene says. “And it’s not Fulton, it’s us. We can take a holistic view of what’s good for the city and community.”

A bill that would have prohibited county development authorities from doing business in cities within its jurisdiction — sounds like Fulton giving breaks in Atlanta, doesn’t it? — was introduced during the most recent legislative session by state Sen. Brandon Beach, R-Alpharetta, but stalled in the Georgia Senate.

Shaw says DAFC would comply if the county enacts legislation requiring workforce housing. The authority would do the same if the city followed suit. But DAFC is not a legislative body, he says, and is merely focused on expanding the county’s tax base and creating jobs.

“If our commissioners get together and say, ‘We want this and we want this restriction we will utilize it,’” Shaw says. “We do not create legislation within our ranks or impose them on our people.”

Commissioner Liz Hausmann, who represents North Fulton on the commission, was lukewarm on such a proposal.

“We’ve got 14 cities in Fulton County,” she says. “They’re all very unique and have different zoning requirements, interests, and needs. I don’t think the county should implement something like that that’s broad and have different impacts on the county… I’d have to take a hard look at such a policy and make sure that all 14 cities were comfortable with it.”

Atlanta might move ahead with its own policy, however. Invest Atlanta recently announced, after conducting a study on affordability in the city, that it was considering various ways to ensure more affordable units get built. That could potentially include an inclusionary zoning policy. Here's a copy of the agency's recent presentation to a City Council committee.

Invest Atlanta affordable housing presentation to Atlanta City Council, 2014 by thomaswheatley