(Bloomberg Businessweek) -- As Vikki Consiglio tells it, a new Georgia law that has alarmed Wall Street had its genesis two years ago, with a birthday dinner for her husband in Atlanta’s Buckhead neighborhood, at a steakhouse in a graceful, brick-paved complex of high-end furniture stores and designer boutiques. “A light just went off,” she says.
Her own neighborhood in the suburbs—a cluster of gated communities surrounding a country club—lacked the same exclusive feel along its main drag. “I want those things, those amenities,” Consiglio says. “I wanted to be part of a gated community in a high-end area. Instead, when I come out of the gate, I see a Waffle House and dollar stores.”
Consiglio’s home is part of Stockbridge, a predominantly black city in Henry County, some 20 miles south of Atlanta. She says her section can’t attract businesses like Buckhead’s because of the lower income of the rest of Stockbridge. Her idea: The whole neighborhood could break away. Consiglio is the spokeswoman for the movement that pushed for and won a state law to allow a “de-annexation.”
For more than a decade, the Atlanta area has been dividing into ever smaller pieces segregated by race and class as cities are carved out from unincorporated county land. But the law signed in May could take the balkanization one step further: It will allow the wealthiest residents of Stockbridge to vote to form their own town, taking with them the most important commercial corridors and about half of its tax revenue. The new city would also be able to leave Stockbridge’s $15.5 million of debt with the smaller, poorer remnant of the city. Residents of the rest of Stockbridge will have no say in the outcome of the November ballot proposal. And that doesn’t worry only them; it has investors and credit rating agencies up in arms, too.
The law applies only to the proposed division of the suburb of 29,000. But it raises the specter that residents of other well-heeled Georgia neighborhoods could ask the state for the same thing. It was all attendees were buzzing about at a recent municipal finance conference in Detroit, according to Tracy Gordon of the Urban Institute, a think tank. Citigroup Inc. says investors are concerned it could create a “destabilizing precedent.”
Both Moody’s Investors Service Inc. and S&P Global Ratings have issued warnings about potential impacts. On May 30, S&P said the credit ratings of Georgia cities could be jeopardized if such crackups proliferate. The state effectively changed what investors bought into, says Randy Layman, an S&P analyst. “It’s going to raise borrowing costs for municipalities all across Georgia once you know the state is in the business of allowing rich communities to carve themselves off,” says Yale Law School professor David Schleicher.
City finance experts say the Stockbridge de-annexation is the most aggressive move against a city they’ve seen. Only a handful of cases come close. Kentucky once allowed cities to steal land from each other during an annexation war between Covington and its suburbs that lasted 30 years starting in 1950. Mobile, Ala., tried and failed to form a shadow government a century ago to get off the hook from debt. Staten Island in New York City and the San Fernando Valley in Los Angeles tried to secede. They failed because all city residents had a vote. The Georgia model puts the decision in the hands of those who might leave. “It’s like a shotgun divorce by the state legislature,” says William Fischel, a Dartmouth College economist. “It really puzzles me.”
Stockbridge politicians say it’s about more than some residents wanting a standalone city rich enough to attract a Whole Foods. They say it’s also about control of land development deals and a battle between black Democrats—who won all city offices for the first time last year—and the white Republicans who control politics in the surrounding county and state. “It was Democrats vs. Republicans. That was the way it was presented to us,” says Renee Unterman, a Republican state senator not from Stockbridge who opposed the measure.
Supporters of the proposed city, called Eagles Landing, say race isn’t the issue. It would be 39 percent white and 47 percent black, with most of the rest Asian. Stockbridge as a whole was 29 percent white in 2010, down from 72 percent in 2000.
People in the Atlanta area began creating cities out of unincorporated land in 2005, when legislators passed a law allowing some residents of Fulton County’s richer, whiter north to form the city of Sandy Springs and provide their own services, rather than rely on the majority-black county government. Over the next decade, 10 other areas followed, eight majority white followed by two majority black. The legislature passed laws allowing each new city, in what became known as the cityhood movement. Even some original supporters of that movement, such as Unterman, now say it’s been taken too far. The Stockbridge legislation would allow a new city to take an existing city’s land for the first time. Brian Strickland, the Republican state senator who carried the bill this year, didn’t return calls for comment.
Unterman says de-annexation could spread, fed by culture wars in diversifying areas such as some northern suburbs she represents. “You could get people saying, ‘I don’t like Koreatown or Chinatown, so I’m going to de-annex,’ ” she says. “Maybe people don’t want to pay for police in the Hispanic part, so ‘we’re going to leave.’ This whole issue of de-annexation, it’s just a brand-new animal.”
State Senator Emanuel Jones, a Democrat who represents most of Stockbridge, and the city’s new mayor, Anthony Ford, dismiss the idea that changing city lines will make shops and businesses appear. “Just because you draw different boundaries, the demographics are not going to change,” says Jones. Both say the real issue was a fight between the city government and a majority-white old guard in surrounding Henry County over a planned $300 million mixed-use development near the proposed city. Stockbridge annexed the land for it in 2016, at the developer’s request and despite the county’s opposition. Breaking up the town would put the land back in the county’s hands. “How can I put this?” Jones says. “This is economic.”
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