Georgia Supreme Court Hears Legal Challenge to New Braves Stadium

When the Atlanta Braves announced 15 months ago that the team would be moving to a new stadium in nearby Cobb County in 2017, the news surprised a number of people. The announcement was unexpected in part because the Braves’ current stadium, Turner Field, is less than 20 years old.

The news was also surprising, though, because it largely seemed to come out of the blue. There had been relatively little speculation that the Braves would be building a new stadium – let alone moving out of the Atlanta city limits – ahead of the formal announcement in November 2013. This was due in no small part to the fact Cobb County and the Braves negotiated the $397 million in public funding for SunTrust Park largely behind closed doors, without public input.

The lack of a public referendum for the stadium project is the basis of three legal challenges the Georgia Supreme Court heard earlier this week. If successful, these appeals could not only delay construction of the Braves’ new stadium, but could potentially disrupt the project’s financing.

The legal challenges to the stadium project are based on obscure provisions in the Georgia Constitution governing the issuance of public debt. Under Georgia law, counties generally must hold a public referendum before issuing any “new debt.” Rather than hold such a vote, though, Cobb County hoped to get around this requirement by creatively structuring the debt it would take on for the construction of SunTrust Park.

In order to avoid the need for a public referendum, the county contracted with the Cobb-Marietta Coliseum and Exhibit Hall Authority – a public corporation tasked with promoting cultural growth and education in the county – to issue $397 million in “revenue bonds” for the project. (A revenue bond is one that will be repaid through revenue earned from the project itself – in this case, for instance, through the stadium rental fee the Braves will be paying to the Authority.)

Under terms of the final agreement, the Braves will pay just over $6 million per year in rent to the Authority for use of the stadium. Cobb County will then pay the Authority roughly an additional $18 million per year to cover the remainder of the annual debt payments for the construction bonds. Because the Authority, rather than the county, was issuing the bonds, Cobb County did not think it was technically incurring any new debt, and thus did not have to put the plan up for a public vote.

The pending lawsuits attack this arrangement on several grounds, the general gist of which is the funding for SunTrust Park violates the spirit of the Georgia Constitution. The challengers assert that because Cobb County has committed itself to annually providing $18 million in taxpayer money to help pay off the stadium bonds, it has in effect taken on new debt, even if the Authority is the one actually issuing the bonds. As a result, the challengers contend the county should be required to hold a public vote on the matter, as required under the state constitution.

In response, Cobb County has argued this same arrangement – a county entering a so-called “intergovernmental agreement” with a public authority to issue revenue bonds for a taxpayer-funded project – does not violate the Georgia Constitution. As the county notes, over the past 50 years the Georgia Supreme Court has regularly approved bond offerings relying on a similar structure, even if the arrangement may appear to circumvent the original intent of the state constitution.

The challengers contest the applicability of these precedents, however, contending the funding for the Braves’ new stadium – with Cobb County taxpayers on the hook for three-fourths of the annual debt payments – goes well beyond the debt structures approved by the Georgia Supreme Court in prior cases.

Based on initial reports from the oral argument earlier this week, it appears that some of the justices on the Georgia Supreme Court expressed some skepticism about the SunTrust Park funding arrangement. In particular, several justices reportedly focused on the source of the funds being used to pay back the bonds. The fact Cobb County taxpayers will be responsible for a significant share of the debt service on the bonds does seem to indicate they are not truly “revenue bonds” (which would normally be repaid solely through funds generated from the project, such as the Braves’ stadium rental fees). Whether that concern is enough for the court to strike down the arrangement, though, is uncertain, especially since the court has upheld similar debt structures in prior cases.

For their part, the Braves appear to be banking on the Georgia Supreme Court approving the debt issuance. The team has already started construction on SunTrust Park, and continues to press ahead with the project even though the public bonds cannot be issued until the pending legal challenges are resolved. Considering that the Braves are currently relying on the challenged bonds for roughly 45% of the total cost of construction for the stadium, a decision by the Court rejecting the bond issuance could have significant ramifications for the SunTrust Park project.

If the Court were to rule that the current plan is unconstitutional, Cobb County and the Braves would have to come up with a different means for funding the stadium construction. For instance, depending on the rationale adopted by the Georgia Supreme Court, one potential option would be for Cobb County to ask the Braves to fund a larger share of the annual debt payments for the project, strengthening the case that the debt offering is a legitimate use of revenue bonds.

Alternatively, the county could put the current plan — or something similar — up for a public vote. If Cobb County voters approve the plan, then the funding would go through as intended. But if voters reject the proposal, the county would be unable to issue the bonds as currently planned.

In the worst-case scenario, then, the Braves could potentially be forced to fund the entire cost of construction itself. At a minimum, a decision by the Georgia Supreme Court striking down the bond offering would likely delay the team’s target completion date for the new stadium.

Ultimately, though, considering the Georgia Supreme Court has approved similar debt structures in the past, the odds seem to favor Cobb County prevailing in this case. But even if the court were to issue an adverse decision, it is unlikely to completely derail the stadium project. So the Braves will still almost certainly be moving to Cobb County, just perhaps not in time for the start of the 2017 season.

Nathaniel Grow is an Associate Professor of Business Law and Ethics and the Yormark Family Director of the Sports Industry Workshop at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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7 years ago

Keep fighting the good fight, guys, but you’re gonna lose.