Another Big Redevelopment Project Down in Flames?

As we have had occasion to observe repeatedly (see Gideon Kanner, We Don’t Have to Follow Any Stinkin’ Planning — Sorry About that, Justice Stevens, 39 Urban Lawyer 529 (2007)), grandiose prognostications of redevelopment projects can be so much hot air. The Kelo case, to take the most recent egregious example, was sold to the Supreme Court on the basis of city “planning” that was supposedly so thorough and reliable as to justify the court’s loosy-goosy interpretation of the Constitution’s “public use” Clause, so as to allow the taking of lower middle class homes for an upscale project that so far – almost a decade after it was proposed – hasn’t built anything, and hasn’t even been able to secure financing for the construction. See our blog, The Perils of Pauline – Take Two, March 14, 2008, as well as The Perils of Pauline, December 11, 2007. 

Now, it appears that another high profile redevelopment project may be going down in flames. Close on the heels of Goldstein v. Pataki, 2008 Lexis 254 (2008), that approved the giant Atlantic Yards redevelopment project in Brooklyn, comes the dispatch from the New York Times that Slowdown Is Likely to Delay $4 Billion Project in Brooklyn, N.Y. Times, Mar. 21, 2008, at p. A1. Surprise, surprise. After all the huffing and puffing and promises to revitalize Brooklyn, it turns out that there is no financing for the project solemnly approved in the Goldstein case, and no anchor tenant has been secured for “Miss Brooklyn” – the flagship high rise building for the project, without which the project isn’t going ahead. As The Times sums it up: 

“[The redeveloper] faces the same stiff challenges that are suddenly hobbling other developers after a 10-year boom: an economy teetering on the edge of a recession, a credit market that has all but closed for large-scale real estate projects and lack of tax-exempt financing for housing.”

 

The state of New York and the city have agreed to provide $300 million in subsidies and tens of millions in tax breaks for this project, of which some $58 million has already been spent, though the Times does not indicate exactly what this money was spent for.

 

The Times article also reminds us that this is no isolated incident when it notes the collapse of the $3.9 billion Cosmopolitan Resort

Casino project in Las Vegas, and observes that: 

 

“The once high-flying developer Cameron Kuhn has defaulted on loans related to its projects in Orlando and Jacksonville, Fla. And in Los Angeles, a number of residential projects have been delayed or abandoned.”

And so it goes.

The bottom line of it all is that redevelopment is nothing more than private development with the prefix “re-“ attached to its name. It is a private venture that is subject to the usual market risks of failure. It is no more ”public” than any other private, profit-seeking construction project, and judges should be ashamed of themselves for pretending otherwise. As California’s Court of Appeal Justice Macklin Fleming once put it in an all too rare display of judicial intellectual integrity:

 “By misemploying the extraordinary powers of urban renewal a redevelopment agency captures pending tax revenues which it can then use as a grubstake to subsidize commercial development within the project area in the hope of striking it rich. Such schemes contemplate borrowing money by issuing bonds on the strength of assured future tax revenues, money which is then used to acquire, improve, and resell property within the project area at a loss as an inducement to business enterprises . . . to locate within the project area rather than in neighboring communities. In essence, tax revenues are used as subsidies to attract new business. The immediate gainers are the subsidized businesses. The immediate losers are the taxpayers and government entities outside the project area, who are required to pay the normal running expenses of government operation without the assistance of new tax revenues from the project area.

                              * * *

“The promoters of such projects promise that in time everyone will benefit, taxpayers, government entities, other property owners, bondholders; all will profit from increased development of property and increased future assessments on the tax rolls, for with the baking of a bigger pie bigger shares will come to all. But the landscape is littered with speculative real estate developments whose profits turned into pie in the sky; particularly where a number of communities have competed with one another to attract the same regional businesses. . . . “

“At bench, City’s projected redevelopment plan possesses a particularly speculative cast in that the businesses it hopes to attract through redevelopment are primarily those of consumption rather than production, businesses such as hotels and shopping centers whose acquisition does not increase the total wealth of a region as a whole but merely redistributes the existing supply by capturing business from rival communities. The success of such strategy assumes the absence of effective counter-measures by rival communities targeted for displacement. Private enterprises may embark on such speculative competitive enterprises. Under present laws, public entities may not.Regus v . City of Baldwin Park, 139 Cal.Rptr. 196 (Cal.App. 1977) Emphasis added. 

So there it is in a nutshell: if the redevelopers want to make millions building major urban projects, let them do it on their own nickel and at their own risk, not the taxpayers’ and certainly not on the backs of condemness who are displaced by eminent domain for these “public” projects and paid “just” compensation that in reality is not just and avowedly does

not fully compensate them for the losses inflicted on them.

Even if eminent domain is to be used to get the land that is necessary for redevelopment, the redevelopers should be required to reimburse the public for the full cost of its acquisition and not gorge on “land write downs” and TIF proceeds. It’s an old maxim of jurisprudence that he who gets the benefit, should bear the burden, and this situation fits it like the proverbial glove.

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