The Georgia Supreme Court ruled unanimously March 22 against DeKalb’s lawsuit to block distribution to Dunwoody of special tax proceeds.
In its 11-page ruling, the high court upheld the constitutionality of an amendment to the Homestead Option Sales and use Tax Act (HOST) that authorizes distribution of funds to newly formed municipalities—such as Dunwoody.
“It was the legislature’s decision to amend the HOST Act so as to bypass the governing authority of DeKalb County and the intergovernmental agreement process in order to give a qualified municipality… HOST capital outlay funds directly,” Chief Justice Carol Hunstein writes for the court.
At issue was the 2007 amendment to the HOST Act that changed the distribution scheme of tax funds when “a qualified municipality” is created after the passage of the act. In 2008, the creation of the city of Dunwoody—as a qualified municipality—triggered the change and led to the lawsuit.
DeKalb argued that county voters passed a referendum question, which stated that the HOST funds would be used “for county purposes.” Therefore, funds cannot be used for city of Dunwoody purposes without passage of another countywide referendum.
But in arriving at its decision, the court noted at the outset that it always assumes that legislative acts are constitutional—thus placing the burden on DeKalb to prove otherwise.
“We need not decide whether a referendum would ever be required should the legislature want to change the purpose for the imposition of a HOST because it is clear that no change in purpose occurred at all as a result of H.B. 264 (the amendment),” the chief justice states.
DeKalb also argued that the amendment creates a gratuity in violation of the state’s constitution. The amendment obligates DeKalb to fund to Dunwoody a mandated “equalization” portion of the HOST, without benefit of an intergovernmental agreement. Since no consideration flows to DeKalb for the equalization payment, the General Assembly is providing Dunwoody with a gratuity.
But the court said that argument “fails to reflect the true nature of the statutory scheme” as amended by the act. Lawmakers intended for HOST proceeds to be distributed equitably to both the county and its cities so that residents of newly incorporated municipalities would continue to receive tax benefits “substantially equal” to the benefits they would have received if the municipality had not incorporated.
However, the court did offer a note of understanding: “Clearly, the residents of DeKalb County, at the time they cast their votes in favor of the HOST, did not anticipate that the legislature would thereafter change the distribution of the tax.”
Furthermore, the legislature did not provide “the opportunity” for DeKalb and Rockdale residents (the only other county that uses HOST) “to reconsider their initial vote” when it allowed the amendment.
Nevertheless, when evaluating constitutional questions, the courts do not “concern themselves with the wisdom of an act,” the ruling concluded.