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Downtown Development Authority
 
Entity Determination in Accordance with GASB Statement 14
 
Prepared by Georgia Department of Audits and Accounts

 

Entity:  Downtown Development Authority

A Downtown Development Authority should be reported as a discretely presented component unit in the municipality's financial statements because the Authority is legally separate, the municipality appoints a voting majority of the Authority's board and is able to impose its will on the Authority, and the Authority provides services and benefits which are not limited to the municipality.

Basis for Conclusion

1. Is the entity legally separate?
 
An organization has separate legal standing if it is created as a body corporate or a body corporate and politic, or if it otherwise possesses the corporate powers that would distinguish it as being legally separate from the primary government.  Generally, corporate powers give an organization the capacity to have a name; the right to sue and be sued in its own name without recourse to a state or local governmental unit; and the right to buy, sell, lease, and mortgage property in its own name.
 
The Official Code of Georgia Annotated (OCGA), Section 36-42-4 states that there is created in and for each municipal corporation in this state a public body corporate and politic to be known as the downtown development authority of such municipal corporation, which shall consist of a board of seven directors.  Furthermore, OCGA Section 36-42-8 outlines the powers of the downtown development authorities, including the power to bring and defend actions, to adopt and amend a corporate seal and to acquire by purchase, lease, or otherwise and to hold, lease, and dispose of real and personal property of every kind and character, or any interest therein, in furtherance of the public purpose of the authority.  OCGA 36-42-12 states that no bonds, notes, or other obligations of, and no indebtedness incurred by, an authority shall constitute an indebtedness or obligation of the State of Georgia or any county, municipal corporation, or political subdivision thereof, nor shall any act of any authority in any manner constitute or result in the creation of an indebtedness of this state or any county, municipal corporation, or political subdivision thereof.

CONCLUSION:

 Downtown Development Authority is legally separate.
 
2. Does the primary government appoint a voting majority of the entity's board?
 
If a primary government appoints a simple majority of the organization's governing board, it usually has a voting majority unless financial decisions require the approval of more than a simple majority.  The primary government's appointment authority should be substantive.   In most instances, legal provisions for appointment of an organization's officials also provide for continuing appointment authority.  However, in the absence of continuing appointment authority, the ability of a primary government to unilaterally abolish an organization also provides the basis for ongoing accountability.
 
OCGA 36-42-4 states that the governing body of the municipal corporation shall appoint two members of the first board of directors for a term of two years each, two for a term of four years each, and three for a term of six years each.  OCGA 36-42-6 indicates that the governing body of the municipal corporation may, by proper resolution adopted subsequent to its resolution activating its authority, appoint directors of the authority which the governing body of the municipal corporation is authorized to appoint.  Also, OCGA 36-42-7(b) provides that successors to the directors shall be appointed by the governing body of the municipal corporation.

CONCLUSION:

 Municipality appoints a voting majority of the authority's board.
 
3.  Is the primary government able to impose its will on the entity?
 
A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, activities, or level of services performed or provided by the organization.  The existence of any one of the following conditions clearly indicates that a primary government has the ability to impose its will on an organization:
a.  the ability to remove appointed members of the organization's governing board at will;
b.  the ability to modify or approve the budget of the organization
c.  the ability to modify or approve rate or fee changes affecting revenues;
d.  the ability to veto, overrule, or modify the decisions (other than those in b and c) of the organization's governing body;
e.  the ability to appoint, hire, reassign, or dismiss those persons responsible for the day-to-day operations (management) of the organization.
OCGA 36-42-8a(7) gives the authority the power to issue revenue bonds, notes, or other obligations and use the proceeds thereof for the purpose of paying, or loaning the proceeds thereof to pay, all or any part of the cost of any project and otherwise to further carry out the public purpose of the authority and to pay all costs of the authority incidental to, or necessary and appropriate to, furthering or carrying out such purpose.  OCGA 36-42-6 indicates that the governing body of the municipal corporation may "disapprove any proposed issue of revenue bonds, notes, or other obligations of the authority, in the manner provided in this chapter."  However, the original act passed by the General Assembly to create this law (Georgia Laws, 1981 Session, page 1744) included an additional passage that elaborated on "the manner of disapproval."  A subsequent amendment (Georgia Laws, 1983 Session, page 1346) was passed with the apparent intent to remove the municipal corporation's ability to control the authorities' actions in this manner.  Removal of this reference appears to remove the "manner" that was included, and therefore, removing the authority of the municipal corporation to disapprove of the authority's proposed issue of revenue bonds.
OCGA 36-42-8.1(a) gives a municipality or a downtown development authority the right to acquire, by exercise of the power of eminent domain, any real property which it may deem necessary for its purposes under Chapter 42 after its adoption of a resolution declaring that the acquisition of the real property described therein is necessary for such purposes.  OCGA 36-42-8.1(c) states that a downtown development authority may not acquire real property through the exercise of the power of eminent domain until the governing body of the municipality shall adopt a resolution approving the proposed use of eminent domain power by the downtown development authority.

CONCLUSION:

 Municipal corporations are able to impose their will on the authority based on the eminent domain approval requirement.


 

Based on the above conclusions, a Downtown Development Authority should be considered a component unit of the municipality within which the Authority operates.  According to OCGA 36-42-2, the purpose of creating Downtown Development Authorities is to "revitalize and redevelop the central business districts of the municipal corporations of this state."  Therefore, the Downtown Development Authorities' provision of services is not limited entirely, or almost entirely, to the primary government nor does it only benefit the primary government.  Therefore, in accordance with GASB 14, the Downtown Development Authorities should be included in the financial reporting entity by discrete presentation.