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Official Opinion 2004-8

Official Opinion 2004-8

September 27, 2004
To: 

Executive Director
Georgia Environmental Facilities Authority

Re: 

The Georgia Environmental Facilities Authority is statutorily empowered to make the administrative and policy determinations requiring the City of Atlanta to pledge its full faith and credit as security for a loan from the Authority, there are no constitutional prohibitions upon the City of Atlanta pledging its full faith and credit as security for such a loan, and a referendum is not required prior to the City making the pledge.

The City of Atlanta (“City”) has applied to the Georgia Environmental Facilities Authority (“GEFA”) for several loans the proceeds of which are to be used to improve the City’s sewer system. In that context, the City has expressed concern regarding the constitutionality of GEFA’s requirement that local governments pledge the full faith and credit of their taxing power as security for loans made by GEFA and the necessity for local governments to hold a referendum prior to making the pledge.

The Attorney General has previously opined that, pursuant to the intergovernmental contract clause of the Georgia Constitution, GEFA loans to a local government are not constitutionally recognized debt. 1994 Op. Att’y Gen. 94-6; 1990 Op. Att’y Gen. U90-7; 1988 Op. Att’y Gen. 88-26.

The intergovernmental contracts clause states that

a mutual undertaking by a local government entity to borrow and an undertaking by the state or a state authority to lend funds from and to one another for water or sewerage facilities or systems or for regional or multijurisdictional solid waste recycling or solid waste facilities or systems pursuant to law shall be a provision for services and an activity within the meaning of this Paragraph.

Ga. Const., Art. IX, § III, I(a). By approving this provision of the Georgia Constitution, the electorate designated loans made for environmental facilities as services. Thus, such loans are not subject to the constitutional requirements generally applicable to local government municipal debt.

If GEFA loans were constitutionally recognized debt, local governments could not “incur [such] debt without the assent of a majority of the qualified voters.” Ga. Const. 1983, Art. IX, § V, I(a). However, I find no support for the proposition that a referendum be held for a loan otherwise exempted from the referendum requirement simply because GEFA requires the recipient to pledge its full faith and credit as security for the loan. To the contrary, the Georgia Supreme Court has held that “[a]n intergovernmental contract pursuant to the intergovernmental contracts clause of the Georgia Constitution pledging tax revenues . . . does not require a local referendum.” Youngblood v. State, 259 Ga. 864 (1990), citing Nations v. Downtown Dev. Auth., 256 Ga. 158 (1986).

There also seems to be some concern regarding GEFA’s authority to require local governments to pledge their full faith and credit as security for GEFA loans. The Georgia General Assembly has authorized GEFA to require local governments, as a condition of any loan, to take “other actions as may be deemed necessary . . . to secure the payment of the principal of and interest on such . . . notes[] or other obligations and to provide for the remedies of the authority in the event of any default by such local government in such payment.” O.C.G.A. § 50 23 6(b)(6). Pursuant to that Code section, GEFA consistently requires its loan recipients to pledge their full faith and credit as security for GEFA loans.

Finally, the City expressed concern that the proposed intergovernmental arrangement by and between GEFA and the City in essence required the City to pledge its full faith and credit for the benefit of other governments. GEFA could not require and the City could not pledge its full faith and credit as security for the obligations of other governments. However, the Georgia Supreme Court has previously considered an intergovernmental arrangement similar to the one currently being negotiated between GEFA and the City and found that, although a governmental entity cannot pledge its full faith and credit to secure the obligations of another governmental entity, under the intergovernmental contracts clause a governmental entity could enter into contracts with other governmental entities, pledge its full faith and credit, and levy taxes to meet its own contractual obligations. Thompson v. Municipal Elec. Auth. of Ga., 238 Ga. 19, 21 (1976); see generally 1988 Op. Att’y Gen. 88-26. The City’s pledge to GEFA will be security for the City’s contractual obligations. The City may want to consider requiring those governments that will be utilizing the sewer system via an interjurisdictional agreement to pledge their full faith and credit to the City as security for those governments’ contractual obligations.

Therefore, it is my official opinion that the Georgia Environmental Facilities Authority is statutorily empowered to make the administrative and policy determinations requiring the City of Atlanta to pledge its full faith and credit as security for a loan from the Authority, there are no constitutional prohibitions upon the City of Atlanta pledging its full faith and credit as security for such a loan, and a referendum is not required prior to the City making the pledge.

Prepared by:

DENISE E. WHITING-PACK
Senior Assistant Attorney General