Short Takes

Buckhead cityhood: Poison pill in $409 million bond package

November 27, 2022

By David Pendered

Nov. 27 – The Buckhead cityhood movement is challenged by a poison pill provision Atlanta included in a $409 million bond offerings that closed Nov. 3.

Terms of the bonds state that if Buckhead leaves the city, its property taxpayers would have less than two years to pay off Buckhead’s projected share of the $409 million in bonds, interest and other costs. The rest of Atlanta would have until at least 2042 to retire the remaining debt.

The Blue Heron Nature Preserve, in Buckhead, is to receive $1 million from a bond offering that includes poison pill provisions if Buckhead becomes a city. (Credit: David Pendered. 2020)

This is the second poison pill provision Atlanta has inserted into a bond package. Atlanta applied similar provisions in a $188 million bond package sold in December 2021.

As a consequence of these two measures, taxpayers in a newly established Buckhead city would be faced with a demand for fairly swift payment of Buckhead’s estimated portion of $588 million in debt.

The money would be due by the date of the first interest payment that’s due 12 months after the official deannexation of Buckhead, as enabled by the Legislature and approved by referendum, according to the bond’s official statement. A second provision relates to the enactment of a special tax district.

The amount of each property tax bill in Buckhead would be calculated with a formula that’s to include a property value that’s to be set by an “valuation expert” chosen by Atlanta. In addition, the amount of the bond to be repaid by Buckhead is to be 103 percent of principal sum, plus an unamortized premium and any accrued and unpaid interest to the date agreed upon the redemption date.

The public fervor over a Buckhead city may have waned in the past year. However, the posture of the movement at the state Capitol may also have changed.

At the state Capitol, two opponents of the Buckhead city effort in 2022 did not seek reelection to their leadership posts – Lt. Gov. Geoff Duncan (left) and House Speaker David Ralston. (Credit: wikimedia.org, David Pendered)

The leading opponent of a bill allowing for Buckhead cityhood did not seek reelection, Lt. Geoff Duncan. House Speaker David Ralston, who had cited Duncan’s opposition as reason for the House to waylay House Bill 854, stepped down as House speaker and has since died. A new bill would have to be introduced in 2023 to renew the debate.

Lawmakers have not publicly discussed their appetite for a Buckhead cityhood effort in the legislative session that begins Jan. 9, 2023. The only pre-filed bill in either chamber is House Bill 1, which relates to Georgia’s abortion law.

This bond package is comprised of three issuances of debt backed by the city’s full faith and credit, essentially its property tax collections.

The first two bonds are for debt Atlanta voters approved on May 24 in order to pay for various construction projects and equipment – $369,380,000 and $36,620,000. The money is to fund city buildings, recreation and public safety facilities, and arts projects. The third bond is a routine annual borrowing of $3.7 million to finance an array of small projects.

The bond sale benefited from the relative scarcity of municipal bonds and the ensuing healthy investor appetite for city-backed debt. Atlanta reported more than $1.2 billion in total orders “among a diverse investor base of institutional buyers.” The all-in true interest cost was reported at 4.246%, according to a report by Atlanta.

The poison pill does not target only Buckhead. The language refers to any area that is deannexed from Atlanta by the Legislature and voted on positively in a referendum.

The language used to describe the procedure is “extraordinary optional redemption.” The ordinance approved by the Atlanta City Council and included in the official statement of the bond package provides this specific language on Atlanta’s ability to call on a deannexed area to make early payment on the applicable bonds. The first two provisions observe:

“Extraordinary Optional Redemption.

“(1) If at any time while Series 2022A Bonds are outstanding (i) an Act to reduce the municipal boundaries of the City shall have been enacted by the General Assembly of the State of Georgia and (ii) provision is not made for the apportionment of debt service on the outstanding Series 2022A Bonds between the City and the Removed Territory in such Act or pursuant to a final determination by a court of competent jurisdiction (which is not or cannot be appealed), the City may, at its option, pursuant to a two-thirds vote of the City Council, and subject to the conditions of subparagraphs (3) and (4) below, (i) appoint a Valuation Expert to calculate the taxable value of all property subject to ad valorem taxation in the Removed Territory, and (ii) declare that a portion of the Series 2022A Bonds shall then be subject to extraordinary optional redemption at the Extraordinary Optional Redemption Price pursuant to the provisions set forth herein.
“(2) The Extraordinary Optional Redemption Price shall be payable on the Interest Payment Date immediately following the twelve-month anniversary of the later to occur of (i) the effective date of the deannexation as specified in the Act and (ii) the City Council’s creation of the Special District and imposition of the Special District Levy as specified in subparagraphs (3) and (4) below (the “Extraordinary Optional Redemption Date”).”