Georgia high court to hear arguments on HOST Tax

DeKalb County officials hope Tuesday will be the last time they argue in court against having to pay four cities a disputed $12 million in revenue collected from the Homestead Option Sales Tax (HOST).

That’s when attorneys for both sides are scheduled to appear before the Georgia Supreme Court.

At issue is a 49-year contract signed in 1999 by the county and the cities within its borders to split HOST revenue. County voters approved the penny-per-dollar tax hike in a 1996 referendum to help offset property taxes. It was implemented two years later. The cities - Decatur, Chamblee, Stone Mountain and Doraville - maintain they were shortchanged by the county and in 2000, filed a lawsuit that disputed the way in which the county disbursed the funds. The county argues the cities have consistently miscalculated the funding formula to determine how much revenue they are entitled to. DeKalb’s HOST has been in effect for more than a decade.

The county also maintains that the original contracts violate the Georgia Constitution, which bars local governments from giving  taxpayer revenue to other jurisdictions to spend as they choose.

If the high court disagrees, DeKalb County will likely be forced to pay $12 million to the cities, plus court costs, from existing HOST revenues. That could endanger most if not all of the HOST-funded infrastructure projects contained in the county proposed 2011 budget.

That list currently includes $750,000 in sidewalk improvements across the county, another $350,000 in bridge repairs and replacements, $1 million for school corridor sidewalks, $800,000 to upgrade the LaVista Road/Oak Grove Road intersection in northeast Atlanta, $200,000 for sidewalks at Northlake, phase four of the Peachtree South Fork Path project in north Decatur; and, $330,000 for a Livable Cities Initiative project on Moreland Avenue in East Atlanta.

The HOST funds set aside for these projects are attached to matching federal and state grants.

“If we lose the case, I’m not sure what we’ll do,” said DeKalb Commissioner Jeff Rader during an interview after a recent public hearing on the county’s proposed 2011 budget.

The high court is scheduled only to hear oral arguments from both sides. The justices aren’t likely to rule on the case for several months.

The primary purpose of a HOST is to reduce homeowner property taxes. Under the law, 80 percent of the sales tax proceeds must be used to cut taxes by raising homestead exemptions. The remaining 20 percent of the sales tax collected from a HOST can be used for government construction projects and other infrastructure improvements.

The cities sued the county in 2000 claiming that they weren’t getting all of the HOST money they were entitled to under the contracts. In response, the county discontinued HOST payments to all DeKalb municipalities including those not involved in the lawsuit, until the suit was resolved.

Since then, the case has bounced from DeKalb Superior Court, the Georgia Court of Appeals and the state Supreme Court several times. Likewise, the total amount of revenue withheld from the cities has grown to more than $12 million, according to the plaintiffs.  Most of that sum belongs to Decatur, the city argues.

In April 2010, Superior Court Judge Mark A. Scott ruled that the contracts were unconstitutional. The Georgia Court of Appeals reached the same conclusion in a 2007 ruling. The state Supreme Court has yet to rule on the constitutionality of the contracts.

Under the Georgia Constitution, a local government can only give money to another to provide a specific service. They cannot simply share revenue. The plaintiffs argue that their contracts with the county are not revenue-sharing agreements because the cities can only spend the money on infrastructure improvements.

 “If the constitutional question gets resolved, I hope that would end the litigation,” said Michael J. Bell, DeKalb County’s former finance director.

Bell is now a professor of public finance at the Andrew Young School of Policy Studies at Georgia State University.

Plaintiffs’ attorney Bob Wilson agrees.

“I hope it is (over soon),” said Wilson. “Unless the Supreme Court twists us in another direction. They could kill the case. We could win. They could send it back to the trial court with directions.”