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Unofficial Opinion 2002-2

Unofficial Opinion 2002-2

February 18, 2002
To: 

City Attorney

Re: 

O.C.G.A. § 20-2-506(b)(4) is not applicable to that certain contract dated July 1, 1997, between the City of Dalton and The City of Dalton Building Authority with respect to the currently outstanding $15,000,000 The City of Dalton Building Authority Revenue Bonds (Dalton Public School System Project), Series 1997.

I am writing in response to your request for advice on whether the 7.5% limitation contained in O.C.G.A. § 20-2-506(b)(4) is applicable to that certain contract dated July 1, 1997, between The City of Dalton Building Authority (the “Authority”) and the City of Dalton, Georgia (the “City”). In your request letter, you provided certain background information which, in pertinent part, is summarized below.

Background

The City was chartered in 1874 as a municipality in the State of Georgia. 1874 Ga. Laws 181. The City of Dalton Board of Education (the “Dalton Public Schools”) is a component unit of the City, authorized by the City’s 1874 charter, as amended. The Dalton Public Schools derives its existence from the City’s charter and has no juridical existence separate from the City.

The Authority was created pursuant to a local constitutional amendment (the “Constitutional Amendment”) in 1968. 1968 Ga. Laws 1466. The Constitutional Amendment authorizes the Authority to act as a conduit for debt for the City, which includes the City’s component unit, the Dalton Public Schools. The Constitutional Amendment was continued in force and effect at the time of ratification of the current state constitution. 1986 Ga. Laws 5547.

On July 30, 1997, the Authority issued The City of Dalton Building Authority (Georgia) Revenue Bonds (Dalton Public School System Project), Series 1997, in the principal amount of $15,000,000 (the “Series 1997 Bonds”). The Series 1997 Bonds’ proceeds were used to acquire, construct, and equip certain capital outlay projects for the Dalton Public Schools. By their terms, the Series 1997 Bonds are limited obligations of the Authority, the principal and interest of which are payable from certain payments to be paid by the City to the Authority under the provisions of that certain contract dated July 1, 1997, between the Authority and the City (the “Contract”), a copy of which you attached as part of your request letter.

The Dalton Public Schools has its annual financial audit performed by the Georgia Department of Audits and Accounts. Its financial audit report for fiscal year 1999 included a finding that principal and interest payments made under the Contract exceeded by .5% the 7.5% limitation imposed by O.C.G.A. § 20-2-506.

The City and the Dalton Public Schools disagree with that finding in the 1999 audit report and have requested an unofficial opinion that the 7.5% limitation contained in O.C.G.A. § 20-2-506(b)(4) is not applicable to the Contract.

Discussion

O.C.G.A. § 20-2-506(b)(4) reads as follows:

The total combined annual payments for contracts under this Code section and contracts of such school system under Article IX, Section III, Paragraph I of the Constitution in any calendar year, excluding guaranteed energy savings contracts, shall not exceed an amount equal to 7.5 percent of the total local revenue collected for maintenance and operation of the school system in the most recently completed fiscal year; provided, however, that the foregoing limitation shall not apply to contracts with other public educational entities, including school systems in this state, for the education of students . . . .

O.C.G.A. § 20-2-506(b)(4) (2001). The phrase “such school system” refers to “each county, independent, or area school system in this state.” O.C.G.A. § 20-2-506(b) (2001). On its face, O.C.G.A. § 20-2-506(b) appears to apply to the Contract but, for the reasons explained below, it does not.

"Where there is a variance between an Act of the General Assembly and a Constitutional provision, the Constitutional provision prevails." Bugden v. Bugden, 224 Ga. 517, 518 (1968), quoting Whitman v. State, 96 Ga. App. 730, 732 (1957). The Authority was created pursuant to the Constitutional Amendment. The Constitutional Amendment contains the following various provisions:

The City of Dalton, Georgia, is hereby granted the authority to lease or sell lands, buildings or land and buildings now owned by The City of Dalton, Georgia, to said Authority by appropriate resolution of its governing body and upon such terms and conditions as such governing body shall prescribe . . . .

1968 Ga. Laws 1466, 1467.

The Constitution grants to the Authority the powers

[t]o make contracts and leases and to execute all instruments necessary or convenient, including contracts for construction of projects and leases of projects or contracts with respect to the use of projects which it causes to be erected or acquired, and The City of Dalton and any divisions, departments, institutions, agencies, counties or political subdivisions of the State of Georgia are hereby authorized to enter into contracts, leases or agreements with the Authority upon such terms and for such purposes as they deem advisable; and without limiting the generality of the above authority is specifically granted to the said City and any division, department, institution, agency or political subdivision of the State of Georgia to enter into lease contracts and related agreements for the use of any structure, building or facility or combination of any two or more structures, building or facilities of the Authority for a term not exceeding fifty years and any division, department, institution, agency or political subdivision of the State of Georgia may obligate itself to pay an agreed sum for the use of such property and The City of Dalton may enter into lease contracts and related agreements for the use of any structure, building or facility or a combination of two or more structures, building or facilities of the Authority for a term not exceeding fifty years upon a majority vote of its governing body and may obligate itself to pay an agreed sum for the use of such property so leased and also obligate itself as a part of the undertaking to pay the cost of maintaining, repairing and operating the property furnished by and leased from the Authority.

1968 Ga. Laws 1466, 1471-72.

The Constitution also grants to the Authority the powers

[t]o borrow money for any of its corporate purposes and to issue negotiable revenue bonds payable solely from funds pledged for that purpose, and to provide for the payment of the same and for the rights of the holders thereof.

1968 Ga. Laws 1466, 1472.

The Constitutional Amendment is still in force and effect and clearly authorizes the Authority to act as a conduit for debt for the City, which includes the Dalton Public Schools as a component part of the City. Based upon the judicial authority cited above, this Constitutional Amendment takes precedent over O.C.G.A. § 20-2-506(b) with respect to the Contract.

It is, therefore, my unofficial opinion that O.C.G.A. § 20-2-506(b)(4) is not applicable to that certain contract dated July 1, 1997, between the City of Dalton and The City of Dalton Building Authority with respect to the currently outstanding $15,000,000 The City of Dalton Building Authority Revenue Bonds (Dalton Public School System Project), Series 1997.

Prepared by:

SHIRLEY R. KINSEY
Assistant Attorney General