Georgia Supreme Court Mulls Constitutionalilty of HOST Contracts

An 11-year legal fight over disputed sales tax revenue contracts between DeKalb County and four of its cities, including Decatur, arrived at the Georgia Supreme Court this week for what could be its final round.

The justices are to decide whether the 1999 agreements that split proceeds from the Homestead Option Sales Tax (HOST) between DeKalb and the cities are constitutional.  Chamblee, Doraville and Stone Mountain are the other cities involved in the suit.

The cities maintain the contracts are constitutional. The county says they aren’t.

At stake is more than $12 million in revenue the county has withheld from the cities until the suit is resolved.

Georgia Supreme Court Justice Carol Hunstein abstained from Tuesday’s hearing because she is a Decatur resident and a former DeKalb County judge. Justice David Nahmnias also excused himself because his wife works for the law firm representing DeKalb County.

The high court gave lawyers for both sides 20 minutes each on Tuesday to argue their cases. The justices asked few questions during oral arguments.

Decatur attoney Bryan Downs accused the county of shifting legal tactics and even adopting contradictory positions in court cases involving the HOST statute.

“The county will go anywhere they need to to back out of the contract(s),” said Downs.

Downs and law partner and former DeKalb County District Attorney Bob Wilson represent the cities.

Joseph Loveland, a King & Spalding attorney representing the county, warned the court that if the panel decides in favor of the cities,” then the flood gates on intergovernmental agreements in the state will be wide open.”

Loveland was referring to a clause in the Georgia Constitution that bars any government from sharing taxpayer funds with another unless it is for a specific service or the joint use of a facility. For both sides, the case hangs entirely on whether the HOST agreements meet that standard.

Two lower courts have ruled they do not. In 2007, the Georgia Court of Appeals ruled that the HOST agreements are unconstitutional because they violate the “intergovernmental contracts clause” of the Georgia Constitution. In April 2010, DeKalb Superior Court Judge Mark A. Scott reached the same conclusion, thus prompting the cities to appeal the case the state Supreme Court.

DeKalb County’s HOST was approved by voters in a 1996 referendum. Two years later, residents in unincorporated DeKalb as well as the municipalities within its borders began paying a penny on the dollar more in sales tax on all non-exempt purchases within the county.

The primary function of the HOST is to homeowner property taxes. Under the statute, 80 percent of the revenue collected is used to increase homestead exemptions on property tax bills. The remaining 20 percent can be spent on government construction and infrastructure improvements.

However, unincorporated DeKalb homeowners have enjoyed deeper cuts in their property tax bills because the sales tax revenue can only be used to offset property taxes paid for county services. Residents who, for example, live in cities that have their own police departments still have to pay for those services through the property taxes they pay to those municipalities.

The 1999 intergovernmental agreements sought to “equalize” the tax benefit for unincorporated DeKalb and city residents alike. They did so by distributing to the city governments sales tax revenue equal to the amount of property tax savings city residents would have received had they lived in unincorporated DeKalb.

In 2000, he cities filed suit in DeKalb County Superior Court, claiming they were being shortchanged by the county. The suit has bounced several times between the lower court, the state Court of Appeals and the Supreme Court since then.

In court Tuesday, Loveland made note of the case’s long legal history when he noted that his son and daughter were, respectively, 7 and 9 years old when the dispute began.

“Those two are now at the University of North Carolina,” Loveland said.