Can the Georgia Department of Transportation sign construction contracts for highway projects today, where the funding will come from the State Road and Tollway Authority's promise to borrow and provide the money later?

Plain-English summary

The Commissioner of Transportation wanted to accelerate the Governor's Road Improvement Program (GRIP). To do that, DOT needed to sign construction contracts now even though some of the money would not be in DOT's hands until SRTA borrowed it later. Georgia ordinarily forbids state agencies from contracting against funds that are not yet on hand. The AG explained the path through that bar. Under the Georgia Constitution's Intergovernmental Contracts Clause (Art. IX, Sec. III, Para. I(a)), DOT and SRTA can enter into a long-term intergovernmental contract for jointly authorized activities, and such contracts are exempt from the constitutional debt limits. O.C.G.A. § 32-2-61 specifically authorizes DOT to enter into intergovernmental contracts and exempts those contracts from the present-funds requirement. Once DOT has SRTA's binding contractual promise to borrow and provide funds for construction, that promise counts as money "on hand at the time of the contract," so DOT can use it as the financial backing for its construction contracts with private contractors. The AG concluded that the financing structure was legally workable.

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context

The Governor's Road Improvement Program was the state's expedited build-out of the Developmental Highway System under O.C.G.A. § 32-4-22, a network of corridors connecting Georgia's smaller cities to the interstate system. The State Road and Tollway Authority (SRTA) had been created with broad project-finance authority including the power to issue revenue bonds and a new flavor of grant-anticipation bonds called GARVEEs (O.C.G.A. §§ 32-10-90 and 32-10-90.1). The Commissioner wanted to use SRTA's borrowing capacity to finance acceleration of GRIP construction.

The legal problem was the cash-now requirement. O.C.G.A. § 32-2-61(a) generally prohibits DOT from "entering into any contract for which it does not have sufficient funds appropriated." A 1974 AG opinion (1974 Op. Att'y Gen. 74-115) had reaffirmed that "[n]o agency of the state may execute a contract with a private party for the purchase of goods or services which purports to obligate appropriations or state funds from any other source not on hand at the time of the contract." If DOT had to sign a $100M road construction contract today but funding wouldn't be available until SRTA borrowed it next year, the contract on its face seemed to violate this bar.

The escape valve was the Intergovernmental Contracts Clause. Georgia's Constitution, Art. IX, Sec. III, Para. I(a), authorizes the state, its institutions, departments, agencies, and political subdivisions to "contract for any period not exceeding 50 years with each other or with any other public agency, public corporation, or public authority for joint services, for the provision of services, or for the joint or separate use of facilities or equipment," provided the contract deals with activities both parties are authorized by law to undertake. The Georgia Supreme Court in Building Authority of Fulton County v. Georgia, 253 Ga. 242, 249 (1984), held that intergovernmental contracts under this clause are not subject to the constitutional debt limitations. O.C.G.A. § 32-2-61 expressly opens the cash-now requirement to intergovernmental contracts.

The remaining question was whether SRTA actually had the authority to enter the proposed intergovernmental contract. The AG worked through the SRTA statutes. SRTA's project definition (O.C.G.A. § 32-10-60(5)) covers the kinds of road, bridge, tunnel, and mass transportation systems contemplated. SRTA had the power to make contracts including for construction of projects (§ 32-10-63(5)) and to issue bonds (§ 32-10-60(7)). DOT had its highway-system authority under O.C.G.A. § 32-2-2(a)(1). § 32-4-22 specifically authorized SRTA to construct all or part of the Developmental Highway System and to enter into agreements with DOT under § 32-2-61. Both parties had the authority. The intergovernmental contract was valid.

Once SRTA had a binding contractual obligation to DOT to provide funds, the AG concluded that obligation constituted a source of money "on hand at the time of the contract" for the purposes of DOT's contracting authority with private parties. SRTA's promise was legally enforceable. DOT could rely on it as if the cash were already in DOT's account. The construction contracts with private contractors were therefore valid.

For DOT and SRTA at the time

The opinion gave the green light for accelerated GRIP construction. DOT and SRTA could sign an intergovernmental contract under which SRTA would borrow funds (potentially through GARVEEs) and provide them to DOT as needed to pay construction draws. DOT could then sign the underlying construction contracts with private contractors against the SRTA promise.

For private construction contractors at the time

The contractors had a clean legal pathway. DOT's contracts were backed by SRTA's binding intergovernmental promise, which was itself enforceable in equity if SRTA failed to perform.

For bond counsel structuring SRTA debt at the time

The intergovernmental contract structure allowed SRTA to issue debt secured by its obligations to DOT under the intergovernmental contract. The constitutional debt-limit exception for intergovernmental contracts was central to the financing strategy.

Common questions

Q: What is the Intergovernmental Contracts Clause?
A: Georgia Constitution, Art. IX, Sec. III, Para. I(a). It authorizes state agencies, counties, municipalities, school districts, and other political subdivisions to enter into long-term contracts (up to 50 years) with each other for joint services, provision of services, or use of facilities or equipment. It is one of the most flexible state-finance tools in Georgia constitutional law.

Q: Why are intergovernmental contracts exempt from the constitutional debt limits?
A: Because they are treated as a form of contracting for services rather than as state debt. The Georgia Supreme Court in Building Authority of Fulton County (1984) confirmed this exemption. The structure has long been used to finance public buildings, water systems, prisons, and other large public projects.

Q: What is a GARVEE bond?
A: Grant Anticipation Revenue Vehicle bonds, authorized for SRTA under O.C.G.A. § 32-10-90.1. They are bonds backed by anticipated future federal highway grant revenue. A common tool for accelerating highway construction by spending future grant money up front.

Q: Could SRTA's promise become unenforceable?
A: SRTA's contractual obligation under an intergovernmental contract is enforceable like any other contract, with equity remedies available. The AG treated the promise as solid enough to count as money "on hand."

Background and statutory framework

The Intergovernmental Contracts Clause is a workhorse of Georgia public finance. It allows public bodies to contract among themselves for periods up to 50 years and exempts those contracts from the strict debt-limit rules in the Constitution. The 1984 Building Authority of Fulton County decision confirmed this exemption.

Georgia's general rule against contracting on credit appears in O.C.G.A. § 32-2-61(a) for DOT specifically, but the principle is broader. State agencies cannot generally bind future appropriations except through specifically authorized financing structures. The intergovernmental contract is one such structure, and the GARVEE bond authority is another (essentially using anticipated federal grant revenue).

The Developmental Highway System under O.C.G.A. § 32-4-22 is the substantive backbone of GRIP. The statute specifically authorizes SRTA to construct all or part of the system and to enter into agreements with DOT under § 32-2-61 for that purpose. Any project paid for with GARVEE bond proceeds is to be planned, designed, and constructed by DOT or by a contractor under contract with DOT, pursuant to a contract or agreement between SRTA and DOT.

Citations and references

Constitutional and statutory:
- Ga. Const., Art. IX, Sec. III, Para. I(a) (Intergovernmental Contracts Clause)
- Ga. Const., Art. VII, Sec. IV, Para. IV (guaranteed revenue debt)
- O.C.G.A. § 32-2-2(a)(1) (DOT highway-system authority)
- O.C.G.A. § 32-2-61 (DOT contracting; intergovernmental exception)
- O.C.G.A. § 32-4-22 (Developmental Highway System / GRIP)
- O.C.G.A. §§ 32-10-60, -63, -90, -90.1 (SRTA powers, projects, GARVEE bonds)

Cases:
- Building Authority of Fulton County v. Georgia, 253 Ga. 242 (1984) (intergovernmental contracts not subject to debt limits)

Prior AG opinions:
- 1994 Op. Att'y Gen. 94-6
- 1974 Op. Att'y Gen. 74-115 (no contracting against funds not on hand)

Source

• Landing page: https://law.georgia.gov/opinions/2001-10

Original opinion text

In the context of accelerating work on the Governor's Road Improvement Program ("GRIP"), you have asked whether it is legally possible under Georgia law for the Department of Transportation (hereinafter "DOT" or "Department") to enter into transportation construction contracts with all or a portion of the financial backing for the contracts coming from a contractual promise from the State Road and Tollway Authority (hereinafter "SRTA" or "Authority") to borrow and provide money to DOT as and when needed to expend on projects that are the subjects of the construction contracts. For the reasons discussed below, I conclude that it is legally possible for DOT to enter into construction contracts on the terms you describe. The basis for DOT's ability to rely upon SRTA's contractual promise rests, first, in the "intergovernmental contracts" provision of the state constitution (the "Intergovernmental Contracts Clause"). The relevant portion of that provision of the constitution reads as follows: The state, or any institution, department, or other agency thereof, and any county, municipality, school district, or other political subdivision of the state may contract for any period not exceeding 50 years with each other or with any other public agency, public corporation, or public authority for joint services, for the provision of services, or for the joint or separate use of facilities or equipment; but such contracts must deal with activities, services, or facilities which the contracting parties are authorized by law to undertake or provide. By way of specific instance and not limitation, 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, Sec. III, Para. I(a). An intergovernmental contract made pursuant to the Intergovernmental Contracts Clause is not subject to the debt limitation provisions of the constitution. 1994 Op. Att'y Gen. 94-6, citing Building Auth. of Fulton County v. Georgia, 253 Ga. 242, 249 (1984). Furthermore, the Code expressly authorizes the Department to exercise the "intergovernmental contracts" power. This occurs in O.C.G.A. § 32-2-61 as an exception to the requirement that the Department contract only on a present funds basis: (a) The department is expressly prohibited from . . . entering into any contract for which it does not have sufficient funds appropriated . . . . However, such prohibition shall not apply to contracts entered into pursuant to Article IX, Section III, Paragraph I [intergovernmental contracts] and Article VII, Section IV, Paragraph IV [guaranteed revenue debt contracts] of the Constitution of Georgia; and the department is expressly authorized to enter into such contracts and to obligate the department in connection therewith. For the purpose of paying obligations imposed by any such contract, such funds as may be appropriated to the department for activities incident to providing and maintaining an adequate system of public roads in the state and the cost incident thereto may be pledged by the department. By its express terms, the Intergovernmental Contract Clause requires both contracting parties to possess the constitutional or statutory power to perform the services that are the subject of the intergovernmental contract. The Department possesses the power to plan, designate, improve, manage, control, construct, and maintain a state highway system and shall have control of and responsibility for all construction, maintenance, or any other work upon the state highway system and all other work which may be designated to be done by the department by this title or any other law. O.C.G.A. §32-2-2(a)(1) (2001). The Authority has the power [t]o make such contracts, leases, or conveyances as the legitimate and necessary purposes of this article shall require, including but not limited to contracts for construction or maintenance of projects . . . . O.C.G.A. §32-10-63(5) (2001). The Authority's "projects" can include land public transportation systems, including: (A) one or more roads or bridges or a system of roads, bridges, and tunnels or improvements thereto included on an approved state-wide transportation improvement program on the Developmental Highway System as set forth in Code Section 32-4-22, as now or hereafter amended, or a comprehensive transportation plan pursuant to Code Section 32-2-3 or which are toll access roads, bridges, or tunnels, with access limited or unlimited as determined by the authority, and such buildings, structures, parking areas, appurtenances, and facilities related thereto, including but not limited to approaches, cross streets, roads, bridges, tunnels, and avenues of access for such system; and (B) any program for mass transportation or mass transportation facilities as approved by the authority and the department and such buildings, structures, parking areas, appurtenances, and facilities related thereto, including, but not limited to, approaches, cross streets, roads, bridges, tunnels, and avenues of access for such facilities. O.C.G.A. §32-10-60(5) (2001). Additionally, SRTA has the power to participate in the construction of the "Developmental Highway System," of which GRIP is a part. O.C.G.A. § 32-4-22(a) (2001). The Developmental Highway System shall be under the control and supervision of the board [of transportation], subject to the provisions of this Code section or any other Act of the General Assembly; provided, however, that the State Road and Tollway Authority is authorized to construct all or any part of such system and to enter into agreements with the department, pursuant to Code Section 32-2-61, for such purpose. Any project the cost of which is paid from the proceeds of garvee bonds as defined in Code Section 32-10-90.1 shall be, pursuant to a contract or agreement between the authority and the department, planned, designed, and constructed by the Department of Transportation or a contractor contracting with the Department of Transportation. O.C.G.A. §32-4-22(c) (2001). Moreover, SRTA possesses the power to issue bonds. O.C.G.A. §§ 32-10-60(7), 32-10-90, and 32-10-90.1 (2001). Thus, it appears that an intergovernmental contract between SRTA and DOT covering the subject matter described above would be legally valid. In light of that validity, the next question is whether SRTA's contractual obligation to DOT would be one against which DOT could contract with private parties. "No agency of the state may execute a contract with a private party for the purchase of goods or services which purports to obligate appropriations or state funds from any other source not on hand at the time of the contract. . . ." 1974 Op. Att'y Gen. 74-115. In this context, because of the effect of the Intergovernmental Contracts Clause, SRTA's contractual obligation to DOT constitutes a source of money "on hand at the time of the contract." Therefore, it is my official opinion that the Department of Transportation may enter into transportation construction contracts with all or a portion of the financial backing for the contracts coming from a contractual promise from the State Road and Tollway Authority to borrow and provide money to DOT as and when needed to expend on projects that are the subjects of the construction contracts. Prepared by: SHIRLEY R. KINSEY Assistant Attorney General