Atlanta Public School/Beltline dispute – legal letters fly


The AJC reported yesterday that the Atlanta Public School’s outside counsel had sent a demand letter to the City of Atlanta and to Invest Atlanta requesting payment on monies due to APS from the Atlanta Beltline project. The City of Atlanta responded to the APS letter and ramped up the acrimonious dispute. The following are some extracts from each letter and the full text of the letters are at the end of the post.

As you read the excerpts, keep in mind the old adage –

“If you have the facts on your side, pound the facts. If you have the law on your side, pound the law. If you have neither on your side, pound the table.”

My sense is that the City of Atlanta attorney may have suffered some injuries to her fists. And also remember that since May when Mayor Reed took over as the lead negotiator for the City, he has yet to call a single meeting to discuss the matter with APS. The ball has been in his court and remains so today.

Extracts from letter sent from APS counsel on August 12, 214 to the City of Atlanta and to Invest Atlanta:

I write today because the City’s and Invest Atlanta’s actions to date have demonstrated your clients· intention to circumvent and manipulate both the letter and the spirit of the Agreement.  … your clients’ wrongful conduct in connection with the Agreement constitutes breaches not only of their express contractual duties and obligations to APS, but also of their duty of good faith and fair dealing under Georgia law.

… the City and Invest Atlanta have unilaterally decided to place BeltLine development expenses ahead of their contractually required annual payments to APS. This decision is in direct violation of Section 1 of the Agreement, which provides that “in all events.” the PILOTs shall be senior to any other redevelopment costs incurred by the City or ADA for the BeltLine TAD.”… This pattern of disregard for the terms of the Agreement has continued in 2014. Once again, your clients have failed to make this year’s scheduled PILOT, this time in the amount of $6.75 million, in a timely manner (or indeed at all, as of yet). …APS hereby demands that the City and Invest Atlanta immediately submit payment of (l) the unpaid interest attributable to the late payment of 2013’s PILOT, (2) the unpaid 2014 PILOT, and (3) interest on the 2014 PILOT, as provided for by the terms of Section 2 of the Agreement.  

Please let this demand also serve as a reminder that… your clients may not issue any new “tax allocation bonds, notes, or other obligations for which educational tax allocation increment is pledged with respect to the BeltLine TAD, unless all PILOT payments scheduled to have been paid on such date, together with the applicable interest accrued thereon shall have been fully paid to APS.”

…your clients’ refusal to pay APS the bargained-for amounts constitutes breach of the covenant of good faith and fair dealing implicit in every contract governed by Georgia law…Your clients’ conduct to date, by contrast,  has demonstrated utter disregard for not only the letter of the Agreement, but also its very purpose.

While your clients have received the benefit of their bargain, in the form of tens of millions of dollars in revenue attributable to the positive tax increment, APS, as a result of your clients’ actions, most certainly has not. Although the City and Invest Atlanta have made the PILOTs to Fulton County and the TAD annual bond payments, they have ignored their promises to APS, despite the fact that the tax increment has yielded sufficient funds to honor all of these obligations. …Even if, counterfactually, the City and Invest Atlanta were unable to make full PILOTs to both Fulton County and APS, there is no justification for paying the former in full and the latter not at all. Your clients’ actions in this regard can only be seen as an effort to strong-arm APS into renegotiating the Agreement against its will.  

… it is not APS’s intention to hinder or disrupt the development of the BeltLine project.  Rather, APS desires merely to enforce the terms of the Agreement  – terms which the City and Invest Atlanta are demonstrably able to live up to but, out of a calculated intransigence, have chosen to disregard.

Extracts from response letter sent by City of Atlanta attorney on August 19, 2014:

…Candidly, we are disappointed in the manner, tone and content of your communication.

Your letter… fails to focus on the contents of the signed agreement. As such, your legal and factual assertions are erroneous and misleading. Most notably, the contract terms make clear that the City is not in material breach.

As a result, a court would not entertain contractual claims raised by Atlanta Public Schools (“APS”) because the claims cannot meet the basic legal threshold of being “ripe” for judicial consideration.

You overlook the City’s thwarted attempt to comply with its land donation obligation in December 2009…that donation did not occur because APS refused to close on the transaction.

You make no mention of the 2009 Georgia constitutional amendment which authorized use of TAD educational funds for redevelopment purposes. Once permitted by law, the City worked proactively to facilitate APS’ immediate receipt of the BeltLine TAD educational funds collected prior to the amendment’s passage, totaling approximately $26 million.

You also ignore APS’ four-year failure to provide the City with its Quality Basic Education calculation and supporting documentation for payments to be paid by the City. The calculation and supporting documentation are material contractual obligations of APS.

Despite these facts, you falsely portray the City as intending “to circumvent and manipulate” the spirit of its agreement with APS.

The agreement dates back to 2005, prior to the collapse of the real estate market, and includes terms that are not viable in today’s economy. The City, Invest Atlanta and Atlanta BeltLine have attempted to work with APS on necessary amendments to no avail since 2009.

Your letter’s characterization of our commitment to Atlanta’s youth is contradicted by numerous publicized examples. The educational portion of the BeltLine TAD funds, which is the focus of your letter, helps finance a public amenity that provides children with a safe place to play, offers free recreational and cultural programming throughout Atlanta’s neighborhoods, encourages healthy living, benefits the environment and fosters a sense of community.

Atlanta demonstrated its commitment when it dedicated resources to opening every one of its recreation centers at a time when municipal budgets across the nation were under severe strain from the Great Recession….The City also partnered with the Everybody Wins! third grade reading initiative, which encouraged reading and literacy at four local elementary schools….To further enhance the education and safety of students, the City offered a free fiber optic network and police services in APS schools.

Further, Mayor Reed has personally committed to the success of APS. He and his administration took leadership roles in the recruitment of two best-in-class superintendents, Erroll Davis and Meria Carstarphen. At the request of APS, Mayor Reed raised funds to enable APS to recruit top talent for the superintendent position and to support a successful APS leadership transition.

It is with this backdrop that you characterize the City, Invest Atlanta and Atlanta BeltLine as lacking “good faith and fair dealing” in its conduct with APS. Nothing is further from the truth.

Your combative approach encourages expensive and time-consuming litigation, which diverts APS money, employee time and energy from pressing educational needs. As the new superintendent begins her transition, she faces daunting challenges that will require laser focus to address.

Students would benefit from renewed concentration on a more effective use of a budget that exceeds $600 million, funded in part by 49 cents of every property tax dollar within the City. Despite boasting the highest per pupil spending rate in the metropolitan area, APS only produces a 59 percent graduation rate. APS is attempting to resolve the worst school cheating scandal in the history of Georgia and perhaps the United States. The APS pension has been critically underfunded for decades and currently cannot cover 82 percent of its obligation to its pension participants. It will take many years of hard work and proven success for APS to gain the public’s trust and erase the stigma of institutionalized deception.

Threatening our clients with litigation does nothing to advance these goals. Please note though that the City always stands ready and willing to litigate.

The City, Invest Atlanta and Atlanta BeltLine are prepared to discuss what is owed and when it is owed according to the contract, but only in an environment that is conducive to productive deliberation and resolution….We support our clients’ current plan to meet with APS and work toward resolution….

We believe that the City, its residents and its children deserve better than the threats set forth in your Letter.

Full Text of Letter sent by APS outside counsel to the City of Atlanta and Invest Atlanta:

Cathy D. Hampton. Esq. – City Attorney City of Atlanta

Rosalind Rubens Newell, Esq. General Counsel – Invest Atlanta

Re:      Payments Owed lo Atlanta Independent School System Under the Intergovernmental Agreement Concerning the Beltline TAD

Dear Ms. Hampton and Ms.Newell:

This law firm has been retained to represent the Atlanta Independent School System (hereinafter referred to as “Atlanta Public Schools” or APS”) in connection with the above­ referenced matter. As you are no doubt aware, APS is a party to that certain Intergovernmental Agreement By and Between the City of Atlanta, Georgia, the Atlanta Development Authority (now Invest Atlanta), and the Atlanta Independent School System, initially entered into December 31, 2005, and amended on August 17, 2009, and November 9, 2009 (collectively, the “Agreement”). Please consider this letter as a formal demand by APS for any and all amounts owed to it by the City of Atlanta (the “City”) and/or Invest Atlanta pursuant to the Agreement.

As you know, the Agreement concerns, among other things, the City’s use, for BeltLine development purposes, of a portion of the positive tax allocation increments generated within the BeltLine Tax Allocation District (the “District” or “TAD”) derived from the educational ad valorem property tax millage rate established by the Atlanta Board of Education and levied by the City. In exchange for agreeing to such an arrangement, APS negotiated to receive a sum of $162,436,302, payable over twenty years (beginning in 2011 and ending in 2030) from tax allocation increments collected within the District. as a Payment in Lieu of Taxes (the ..PILOT”). Under the terms of the Agreement, the PILOTs are due to APS on January I of each year, with the first payment scheduled for January 1, 2013.

I write today because the City’s and Invest Atlanta’s actions to date have demonstrated your clients· intention to circumvent and manipulate both the letter and the spirit of the Agreement.  Indeed, as discussed in detail below, your clients’ wrongful conduct in connection with the Agreement constitutes breaches not only of their express contractual duties and obligations to APS, but also of their duty of good faith and fair dealing under Georgia law.

First, as evidenced by your clients’ own financial statements, the City and Invest Atlanta have unilaterally decided to place BeltLine development expenses ahead of their contractually required annual payments to APS. This decision is in direct violation of Section 1 of the Agreement, which provides that “in all events.” the PILOTs ·shall be senior to any other redevelopment costs incurred by the City or ADA for the BeltLine TAD.” Or to state this provision another way, after making the annual bond payments, the City and Invest Atlanta are obligated to make the PILOTs to APS and Fulton County before paying for any redevelopment costs. regardless of the amount of the increment.  Instead of honoring this provision, your clients made the Year 3 PILOT over eleven months late and lacking $117,534.25 in contractually mandated interest.  This pattern of disregard for the terms of the Agreement has continued in 2014. Once again, your clients have failed to make this year’s scheduled PILOT, this time in the amount of $6.75 million, in a timely manner (or indeed at all, as of yet).  Accordingly , APS hereby demands that the City and Invest Atlanta immediately submit payment of (l) the unpaid interest attributable to the late payment of 2013’s PILOT, (2) the unpaid 2014 PILOT, and (3) interest on the 2014 PILOT, as provided for by the terms of Section 2 of the Agreement.  Please let this demand also serve as a reminder that, pursuant to Section 2 of the Agreement, your clients may not issue any new “tax allocation bonds. notes, or other obligations for which educational tax allocation increment is pledged with respect to the BeltLine TAD, unless all PILOT payments scheduled to have been paid on such date, together with the applicable interest accrued thereon shall have been fully paid to APS.”

In addition to their breach of the Agreement’s explicit terms, your clients’ refusal to pay APS the bargained-for amounts constitutes breach of the covenant of good faith and fair dealing implicit in every contract governed by Georgia law. See, e.g., Brack v. Brownlee , 246 Ga. 818, 820 ( 1980). At its core, the duty of good faith requires substantial compliance with the spirit of a contract.  Bowman v. Walnut Mountain Property Owners Ass’n. Inc., 251 Ga. App. 91, 95 (2001) (“Good faith is a shorthand way of saying substantial compliance with the spirit, and not merely the letter, of a contract.”); see also 0.C.G.A. § 13-4-20 (mandating that performance “must be substantially in compliance with the spirit and the letter of the contract”).  Your clients’ conduct to date, by contrast. has demonstrated utter disregard for not only the letter of the Agreement, but also its very purpose.

There can be no serious doubt that, at bottom, the parties’ intention in entering the Agreement was to provide a mechanism by which APS could contribute to the development of the Belt Line without assuming an unreasonable amount of risk.  While your clients have received the benefit of their bargain, in the form of tens of millions of dollars in revenue attributable to the positive tax increment. APS, as a result of your clients’ actions, most certainly has not. Although the City and Invest Atlanta have made the PILOTs to Fulton County and the TAD annual bond payments, they have ignored their promises to APS, despite the fact that the tax increment has yielded sufficient funds to honor all of these obligations.  While your clients’ inequitable treatment of the Fulton County and APS PILOTs likely constitutes an independent breach of the Agreement. it is also, at a minimum, evidence of their breach of the covenant of good faith and fair dealing. See Capital Health MKml. Group. inc. v. Hartley, 301 Ga. App. 812, 817 (2009) (holding that a decision is not made in good faith ”if it was made for arbitrary or capricious reasons [or] was based on an improper pecuniary motive”).  Even if, counterfactually, the City and Invest Atlanta were unable to make full PILOTs to both Fulton County and APS, there is no justification for paying the former in full and the latter not at all. Your clients’ actions in this regard can only be seen as an effort to strong-arm APS into renegotiating the Agreement against its will.  See also, e.g .Katie Leslie, Dispute with APS Threatens Beltline, Atlanta Journal-Constitution, July 6, 2014, at l A. This is improper.

APS has an obligation to provide a quality world-class public education to Atlanta’s children.  This mission is essential to the future of our community and our city. Thus, in making this demand for payment, it is not APS’s intention to hinder or disrupt the development of the BeltLine project.  Rather, APS desires merely to enforce the terms of the Agreement – terms which the City and Invest Atlanta are demonstrably able to live up to but, out of a calculated intransigence, have chosen to disregard. In order to rectify this situation and spare all parties the trouble and expense of what would inevitably be a protracted legal action, please confirm that your clients will be remitting payment to APS of the amounts described above.

Thank you for your immediate attention to these urgent matters and please direct any and all future  inquiries and communications  concerning  the Agreement to my attention only.

Sincerely,

Daniel S. Reinhardt

cc: Atlanta Board of Education

Erroll 13. Davis

Full Text of Letter sent by City of Atlanta to APS:

Dear Mr.Reinhardt,

The City of Atlanta, Invest Atlanta and Atlanta BeltLine received your letter dated August 12, 2014 regarding the BeltLine Tax Allocation District (“BeltLine TAD”) agreement. Candidly, we are disappointed in the manner, tone and content of your communication.

Your letter references multiple cases and even our local newspaper, but it fails to focus on the contents of the signed agreement. As such, your legal and factual assertions are erroneous and misleading. Most notably, the contract terms make clear that the City is not in material breach. As a result, a court would not entertain contractual claims raised by Atlanta Public Schools (“APS”) because the claims cannot meet the basic legal threshold of being “ripe” for judicial consideration. You overlook the City’s thwarted attempt to comply with its land donation obligation in December 2009 pursuant to Atlanta Ordinance 09-0-2055; that donation did not occur because APS refused to close on the transaction. You make no mention of the 2009 Georgia constitutional amendment which authorized use of TAD educational funds for redevelopment purposes. Once permitted by law, the City worked proactively to facilitate APS’ immediate receipt of the BeltLine TAD educational funds collected prior to the amendment’s passage, totaling approximately $26 million. You also ignore APS’ four-year failure to provide the City with its Quality Basic Education calculation and supporting documentation for payments to be paid by the City. The calculation and supporting documentation are material contractual obligations of APS. Despite these facts, you falsely portray the City as intending “to circumvent and manipulate” the spirit of its agreement with APS.

Imperative to full disclosure of information is the timing of the BeltLine TAD contract negotiations. The agreement dates back to 2005, prior to the collapse of the real estate market, and includes terms that are not viable in today’s economy. The City, Invest Atlanta and Atlanta BeltLine have attempted to work with APS on necessary amendments to no avail since 2009. While this context may have little import in a contract between parties in the private sector, it is essential to a financial matter between governmental partners where the outcome directly affects the public. The City, APS, Invest Atlanta and Atlanta BeltLine are all fiscally committed to enhancing the quality and availability of public school and extramural educational opportunities for Atlanta’s children.

Your letter’s characterization of our commitment to Atlanta’s youth is contradicted by numerous publicized examples. The educational portion of the BeltLine TAD funds, which is the focus of your letter, helps finance a public amenity that provides children with  a safe place to play, offers free recreational and cultural programming throughout Atlanta’s neighborhoods, encourages healthy living, benefits the environment and fosters a sense of community. The Atlanta BeltLine project has already spurred one billion dollars in private development. It also attracts scores of new residents sending their children to APS schools in areas such as Adair Park, Capitol View, Westview and other Atlanta BeltLine neighborhoods. This new lifeblood provides APS with more robust communities with increased family and community engagement.

Atlanta demonstrated its commitment when it dedicated resources to opening every one of its recreation centers at a time when municipal budgets across the nation were under severe strain from the Great Recession. Mayor Reed and the Atlanta City Council established ten Centers of Hope which provide after-school programming and tutoring to underserved APS students across the City. The City also partnered with the Everybody Wins! third grade reading initiative, which encouraged reading and literacy at four local elementary schools. The City bolstered the initiative by encouraging all 8,000 City of Atlanta employees to participate in the program by reading to a child once a week. To further enhance the education and safety of students, the City offered a free fiber optic network and police services in APS schools.

Further, Mayor Reed has personally committed to the success of APS. He and his administration took leadership roles in the recruitment of two best-in-class superintendents, Erroll Davis and Meria Carstarphen. At the request of APS, Mayor Reed raised funds to enable APS to recruit top talent for the superintendent posit ion and to support a successful APS leadership transition. His efforts resulted in cumulative donations exceeding $200,000 from several of Atlanta’s corporate stakeholders, including Delta Air Lines, The Coca-Cola Company, SunTrust Bank and Bank of America.

It is with this backdrop that you characterize the City, Invest Atlanta and Atlanta BeltLine as lacking “good faith and fair dealing” in its conduct with APS. Nothing is further from the truth. Your combative approach encourages expensive and time-consuming litigation, which diverts APS money, employee time and energy from pressing educational  needs. As the new superintendent begins her transition, she faces daunting challenges that will require laser focus to address. Students would benefit from renewed concentration on a more effective use of a budget that exceeds $600 million, funded in part by 49 cents of every property tax dollar within the City. Despite boasting the highest per pupil spending rate in the metropolitan area, APS only produces a 59 percent graduation rate. APS is attempting to resolve the worst school cheating scandal in the history of Georgia and perhaps the United States. The APS pension has been critically underfunded for decades and currently cannot cover 82 percent of its obligation to its pension participants. It will take many years of hard work and proven success for APS to gain the public’s trust and erase the stigma of institutionalized deception. Threatening our clients with litigation does nothing to advance these goals. Please note though that the City always stands ready and willing to litigate.

Lastly, your decision to issue a threatening demand letter without so much as a courtesy call to Ms. Newell, Ms. Perkins-Hooker or me is unfortunate, especially on matters as consequential to the public as the Atlanta Public Schools and the Atlanta BeltLine. While we appreciate zealous advocacy as much as anyone, we expect the same professional courtesy due any fellow attorney, Jet alone the chief legal officer of the largest city in Georgia, of Atlanta’s redevelopment authority and of its agent Atlanta BeltLine. This omission is particularly noteworthy given your courtesy call to a member of the Atlanta BeltLine Board of Directors. It is our hope that we and our respect ive clients can work toward resolution of our dispute in a product ive and professional manner.

The City, Invest Atlanta and Atlanta BeltLine are prepared to discuss what is owed and when it is owed according to the contract, but only in an environment that is conducive to productive deliberation and resolution. Ms. Newell, Ms. Perkins-Hooker and I request that any further written correspondence or other communication from you be solely for scheduling purposes. We support our clients’ current plan to meet with APS and work toward resolution. Open and robust dialogue among these public officials is critical as they wield the public charge and authority to resolve this matter. We believe that the City, its residents and its children deserve better than the threats set forth in your Letter.

Sincerely,

Cathy Hampton

City Attorney

cc:     Mayor Kasim Reed; Candace L. Byrd, Chief of Staff; Rosalind Rubens Newell, General Counsel, Invest Atlanta; Patrise Perkins-Hooker, General Counsel, Atlanta BeltLine; Atlanta City Council President Ceasar Mitchell; Atlanta City Councilmembers

[Follow me on Twitter @Financial_Decon & Facebook]

3 Responses to Atlanta Public School/Beltline dispute – legal letters fly

  1. tom tidwell says:

    The City attorney writes: “The agreement dates back to 2005, prior to the collapse of the real estate market, and includes terms that are not viable in today’s economy.”

    So? That was a risk the City took. If the opposite had occurred – if the real estate market had sky-rocketed and actual tax receipts were exponentially higher than anyone anticipated, would the City entertain APS’ plea for more money because it made a bad deal?

  2. bob howell says:

    Atlanta Public Schools has a legally enforceable contract. The Mayor is acting in an embarrassing way, dragging this out and harming both Atlanta Public Schools, the Beltline and the CIty of Atlanta all at the same time. The City of Atlanta cannot ignore a contract just because they don’t like it anymore.

  3. […] Financial Deconstruction also has a page dedicated to the topic along with letters sent both from APS and City of Atlanta in response. […]

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