A DDA FOR BLUE RIDGE: TWO ISSUES ANALYZED

There is controversy in the City of Blue Ridge over whether the city council should create a Down­town Development Authority (DDA).

Council Member Angie Arp opposes a DDA saying it would create another layer of govern­ment. Some council members and voters may fear a DDA would take away some of the council’s control over the future development of downtown Blue Ridge. Proponents of the DDA poo-poo these ideas. They reject Arp’s concerns and say that the city council would retain control of the actions of the DDA because the council appoints the DDA’s board of directors. 

Whatever the merits of having a DDA, these issues should be examined and understood before a decision is made whether to have a DDA in Blue Ridge. 

Another layer of government?

Will the DDA be a separate layer of government for those within the DDA district? The answer is yes.

The Downtown Development Authorities Law (DDA Law) is contained in Sections 36-42-1 through 36-42-16 of the Georgia Code. It defines a DDA as “a public body corporate and politic.” (O.C.G.A. § 36-42-4.) According to Daniel McRae, a lawyer with the Seyfarth Shaw law firm in Atlanta, a DDA is a type of public corporation and a separate legal entity from the city creating it.

The Downtown Development Authority Training Manual published by the University of Georgia and the Georgia Cities Foundation says that a DDA “is a corporate body recognized by State law” and that from an Internal Revenue perspective the DDA is considered to be governmental tax-exempt entity. According to the manual, a DDA “is primarily a policy-making and major decision-making entity that plans and manages the downtown area.”

Legally, then, a DDA is a separate entity rather than an agency or division of the city that created it. 

Purpose and powers of a DDA

According to the DDA Law, the purpose of a DDA is to finance projects in order to:

• Revitalize and redevelop the central business districts of cities;

• Develop and promote trade, commerce, industry, and employment opportunities and promote the general welfare of this state; and

• Create a climate favorable to the location of new industry, trade, and commerce and the development of existing industry, trade, and commerce within the cities. (O.C.G.A. §36-42-2.)

A DDA has a host of statutory powers which are consistent with it being a separate and independent layer of government. The DDA law grants a DDA “all of the powers necessary or convenient to carry out and effectuate the purposes and provisions” of the law. Among those powers are the following:

• To bring and defend lawsuits;

• To make and execute contracts and agreements, including contracts for construction of projects, leases of projects, contracts for sale of projects, agreements for loans to finance projects, contracts with respect to the use of projects, and agreements to join or cooperate with an urban residential finance authority;

• To acquire, hold and dispose by purchase, lease, or otherwise any type of interest in real and personal property of every kind and character in furtherance of the public purpose of the authority;

• To finance (by loan, grant, lease, or otherwise), refinance, construct, erect, assemble, purchase, acquire, own, repair, remodel, renovate, rehabilitate, modify, maintain, extend, improve, install, sell, equip, expand, add to, operate, or manage projects and to pay the cost of any project from the proceeds of revenue bonds, notes, or other obligations of the authority or any other funds of the authority;To borrow money;

• To issue revenue bonds, notes, or other obligations;

• To apply to federal, state, county, or municipal agencies or other sources, whether public or private, for loans, grants, guarantees, or other financial assistance;

• To enter into agreements with the federal government to use the facilities or services of the federal government or any agency to carry out the public purposes of the authority;

• To contract for any period up to 50 years with the State of Georgia, state institutions, or any Georgia city or county for the use of any facilities or services;

• To extend credit or make loans to any person, corporation, partnership or other entity for the costs of any project or any part of the costs of any project;

• To pledge, mortgage, convey, assign, hypothecate, or otherwise encumber any property of the authority (including, but not limited to, real property, fixtures, personal property, and revenues or other funds) as security for repayment of any revenue bonds, notes, or other obligations of the authority;

• To receive and use the proceeds of any tax levied by a municipal corporation to pay the costs of any project or for any other purpose for which the authority may use its own funds pursuant to the DDA Law;

• To appoint, select, and employ engineers, surveyors, architects, urban or city planners, fiscal agents, attorneys, and others and to fix their compensation and pay their expenses; and

• To adopt bylaws governing the election and duties of officers of the authority (this implies that a DDA can have a paid staff).

With few limitations, a DDA board of directors exercise these powers without the approval or consent of the city that created it. This supports the contention that a DDA operates as a separate layer of government.

DDA will need a source of funding

As Daniel McRae has pointed out, “community development and redevelop­ment, and economic development, require funding.” If a DDA is going to finance projects, make loans, borrow money, issue revenue bonds or notes, execute contracts and agree­ments, acquire property, and doing all of the things that DDA’s are authorized to do in the interest of downtown revitalization and development, it will need money. 

Money is not only be necessary for the DDA to accomplish revitalization and development but also to operate and administer the DDA. It will likely need to hire a trained professional manager to oversee the DDA and have one or more paid staff members to keep track of the DDA’s business. According to McRae, the governance of a DDA consists of its officers (to carry our policy and implement resolutions), its staff (to provide support to the DDA staff and board) and its attorney (to advise the DDA officers, staff and board). Depending on the projects it undertakes, it may have to hire professionals like architects, engineers, land use planners, surveyors, real estate lawyers, and bond counsel. It will certainly have to establish and administer procedures, policies, rules and forms. All of this is another layer of bureaucracy and a reason why a DDA is another layer of government.

The DDA Law recog­nizes that a DDA needs funding to be successful. Not only does the law authorize a DDA to borrow money, but it provides funding mechanisms for a DDA. It says that “municipalities may create one or more special districts within the area of operation of a downtown development authority for the purpose of levying and collecting taxes, fees, or assess­ments to pay the cost of any project or to support the exercise of any other powers which the authority m­ay possess.” (O.G.C.A. § 36-42-16.)

Since it is difficult to imagine how a DDA in downtown Blue Ridge will be able to accomplish anything without a revenue stream it seems a foregone conclu­sion that if the city council creates a DDA it will also have to create a special district to levy and collect taxes, fees or assessments. 

If the city council wants the DDA to have the ability to issue revenue bonds or notes, i.e., borrow money against which future DDA revenue is pledged as security, the DDA will need an assured source of revenue. Of the three possible sources of DDA revenue—fees, assessments, and taxes—taxes provide the most secure source of revenue so the probability is that the DDA will be funded through one or more special taxing districts. 

If the City of Blue Ridge decides to fund the DDA through a special taxing district, all citizens or businesses within the taxing district (which must be within the DDA district) will have to pay the tax regardless of whether they support having a DDA or believe they benefit from it. Even though the taxing and enforcing authority will be the city, the tax revenue will go to the DDA. The compulsory exaction of money from citizens and businesses to fund the DDA is another reason why it should be considered another layer of government.

DDA: Who’s In Charge?

There may be a concern on the part of some council members and voters that by creating a DDA the city council and the voters will lose control over the future development of downtown Blue Ridge. It is important to note that A DDA has “perpetual existence.” (O.C.G.A. § 36-42-6(c).) This means that once the city creates the DDA it cannot un-create it.

The fact is that even with a DDA the city council retains significant control over the future development of downtown Blue Ridge through the exercise of its zoning and planning authority. By way of an overly simplistic example, if the city council does not like the idea of having motels, parking garages or buildings over three stories in the downtown area it can simply make these prohibited uses under the zoning code. A DDA will have to operate within the constraints of the city’s building, zoning and land use codes.

Within those constraints the DDA will have considerable autonomy to accomplish its mission of develop­ment and revitalization of the downtown. So the question is what other control will the city council have over the actions of a DDA? The answer is that the city council will have limited control over the DDA.

The DDA Law says that after a DDA is created the governing body of the municipality retains the authority to:

• Change the boundaries of the DDA;

• Appoint the DDA’s directors; and

• Disapprove any proposed issue of revenue bonds, notes, or other obligations of the DDA. (O.C.G.A § 36-42-6.)

 Changing the DDA’s boundaries

It is difficult to see how changing the DDA’s boundaries would give the city council much control over the DDA. Theoretically, the council could change the DDA’s boundaries to effectively put it out of existence or at least limit the area over which it has authority, but that would be problematic at best and create a lot of legal issues particularly if the DDA has incurred any obligations.

Appointing the DDA directors

A DDA is governed by a board of directors. The DDA law says that a DDA must have seven directors. (O.C.G.A. § 36-42-4.) 

All directors are appointed by the city council. (O.C.G.A. § 36-42-4.) Significantly, only one of the directors may be a member of the city council. (O.C.G.A. § 36-42-7(a).) 

When a DDA is first created the six non-council member directors are appointed for staggering terms of office. Two are appointed for a two-year term, two are appointed for a four-year term and three are appointed for a six-year term. (O.C.G.A. § 36-42-4.) When these directors’ terms of office expire, the city council appoints their replacements. (O.C.G.A. § 36-42-7(b).) All succeeding directors serve six-year terms. (O.C.G.A. § 36-42-4.) 

The director who is a member of the city council does not have a term of office as a director of the DDA but his or her term as a director ends when he or she is no longer a member of the city council. (O.C.G.A. § 36-42-4.) 

DDA director qualifications

The statute is quite specific regarding the necessary qualifications of the six non-council member directors of the DDA. They must be:

• Taxpayers who reside in the City of Blue Ridge; or

• Owners or operators of businesses located within the DDA and taxpayers who reside in Fannin County; or

• Persons having both qualifications. (O.C.G.A. § 36-42-7(a).) 

One of the non-council member directors may reside outside Fannin County provided that he or she owns a business located within the DDA and is a Georgia resident. (O.C.G.A. § 36-42-7(c.1).)

At least four of the non-council member directors “shall be persons who, in the judgment of the governing body of the municipal corporation, either have or represent a party who has an economic interest in the redevelopment and revitalization of the downtown development area.” (O.C.G.A. § 36-42-7(b).) 

The DDA Law provides that DDA directors may not be compensated for their services “but shall be reimbursed for actual expenses incurred by them in the performance of their duties.” (O.C.G.A. § 36-42-7(c).) 

Does the power to appoint directors give the city council control over the DDA?

The case law is clear that a city council does not have the authority to remove directors without cause. Hernandez v. Downtown Development Authority of St. Mary’s, 256 Ga. 356 (1986). There is one case that may support an argument that directors can be removed for cause but the issue has not been specifically litigated in the context of a statutory DDA. City of College Park v. Wyatt, 282 Ga. 479 (2007). 

Because directors do not serve at the will of the city council they are free to follow their own judgment on what actions are necessary to accomplish the purposes of the DDA. Presumably, the city council will attempt to appoint directors who share the council’s vision of the future of downtown Blue Ridge, but there is no guarantee directors will adhere to that vision they are appointed. 

Moreover, it is inherent that DDA directors will have different constituencies and possibly different agendas than city council members. As Daniel McRae has indicated: “A Downtown Development Authority has its own ‘governmental mission’.” A DDA board’s ideas of what is necessary for downtown development and revitalization may well differ from the city council’s ideas. 

The city council represents all citizens within the city regardless of whether they reside or have a business interest within the DDA, while the DDA represents primarily the business interests within the DDA. It seems inevitable that differences of opinion will arise what actions are necessary for the development and revitalization of the downtown area. There will be city-wide differences between business and nonbusiness interests and between those who favor growth and development and those opposed to it. It is just as inevitable that there will be differences between business interests within the DDA district over what is good for the district. We have already seen some of these differences surface in the debate over whether to have a DDA in Blue Ridge. 

Given the six year terms of the DDA directors and the fact that only two or three directors can be replaced every two years, the city council’s ability to change the direction of the DDA through the appointment of directors is ponderous at best. Thus the power to appoint DDA directors gives the city council little assurance that the actions of the DDA will comport with the council’s vision of Blue Ridge’s future.

The voters’ control over the actions of the DDA is even more tenuous since they do not have a direct role in the appointment of the DDA Board of Directors. The only thing the voters can do is elect like-minded council members and hope they appoint like-minded DDA directors.

Disapprove revenue bonds, notes and obligations

The city council’s power to disapprove the DDA’s issuance of revenue bonds, notes and obligations, if used properly, gives the council real control over major projects proposed by the DDA which require the DDA to pledge revenue in order to borrow money to accomplish the project. The city council will have little or no control over projects and actions by the DDA that do not require the DDA to issue revenue bonds, notes and obligations.

Control over revenue

The DDA Law gives the city council the authority to create special districts within the DDA for the purpose of levying and collecting taxes, fees, or assess­ments to fund the DDA’s activities. As I interpret the statute, control over whether the DDA will be funded by fees, assessment or taxes rest entirely with the city council. Based on the way the statute reads it appears that the city council determines:

• whether one or more special districts are necessary;the size and location special districts; 

• whether a funds will be raised via fees, assessments or taxes or some combination of the three within a district;

• the amount of any fees, assessments or taxes (within statutory limitations) within a district; and 

• the duration of the fees, taxes or assessments.

If the city council can create special funding districts then, presumably, the city council can abolish special funding districts if it does not interfere with previous obligations to third parties incurred by the DDA. 

In theory the ability to control the money gives the city council leverage over the actions of the DDA. It is unclear how much control this will give the city council in reality. 

Conclusion

It is not the purpose of this article to pass judgment on whether a DDA is a good idea or a bad idea for Blue Ridge. That depends on a lot of factors and considerations including a good understanding of what the proponents of a DDA expect it to accomplish. Rather, this article was intended to bring some clarity to the discussion by analyzing whether a DDA will amount to another layer of government and how much control the city will retain over the actions of the DDA. Like most everything in life, it is better to proceed with eyes wide open.