Monthly Archives: April 2010

Can Boston Do a Better Job Building an Office Tower than a Private Developer?

There is an eminent domain flavored brouhaha brewing in Boston. It seems that Vornado Realty Trust, the big time New York developer, bought the Filene’s building in Boston in order to redevelop its site. So far, so good – no eminent domain was involved.

So Vornado set out to do the job, when – whammo! – the recession hit and progress on the new building came to a halt. There matters might have rested, at least for a while, except that Steven Roth, Vornado’s CEO, made a speech in New York, in which he bragged about how his company once stopped work on one of his buildings in New York in the hope that the city would be displeased with the resulting blight and come up with some cash. It didn’t happen, but as the poet put it, “the moving finger writes, and having writ moves on” and you can’t rewrite history. The story about that speech was picked up by Boston’s mayor who flew into a high dudgeon, and demanded that Vornado resume work post haste, or else the city would use its power of eminent domain to take the building, and to. . . What? 

Just exactly what the city would do with a partially built, multi-story structure wrapped in plastic, nobody explained. Evidently, all concerned have been so impressed with Kelo v. New London’s carte blanche issued to private-to-private takings, that no one, it would seem, has reflected that even under the loosey-goosey Kelo standards of what constitutes “public use,” there has to be some semblance of a public benefit of some sort. And what might that be here?  Blight removal? Maybe, but as far as we know there have been no findings of blight by the Boston city council, and let’s be serious – if every building venture that comes a cropper were said to be a sufficient basis for exercising the power of eminent domain, the courts might not buy it. Remember that state courts are not bound by the Kelo decision; the U.S. Supreme Court was explicit that states are free to set more stringent standards of review of decisions to condemn than the minimal federal constitutional standards. Several states have taken the Supreme Court up on its invitation and have disapproved private-to-private takings.  

Besides, we wonder if Hizzoner is mindful that you can’t just take property by eminent domain – you have to pay “just compensation” for it. So it may not be full or truly just compensation, but condemnors do have to pay it, and neither the mayoral outburst nor any press reports that we have seen, had anything to say about funding such an acquisition.

So selling the Massachusetts Supreme Court on the idea that a city may go into the real estate business by taking the unfinished structure of an unsuccessful private developer, without any municipal plans to do so may be an uphill fight. 

And even if the city were to take the unfinished structure, what would it do with it? Are we to take it that where a truly top-notch developer like Vornado finds its construction efforts stymied by the recession, the city would just waltz in and do the job that Vornado couldn’t? Not likely. Among other things that would require further expenditures of large sums of scarce public funds, and then what? Vornado obviously stopped work because it figures that in the current economic climate completing the building and renting it out would not pencil out. So how would a city do it? 

So we’ll just have to wait and see how it all plays out. In the meantime, like St. Louis, Detroit, Minneapolis, and Los Angeles before it, Boston now has the makings for its very own “hole in the ground,” i.e., an unfinished major construction project that is just sitting there, and gives every indication of continuing to do so for some time into the future.

For a writeup of this story, see Christina S.N. Lewis, Mayor Battles Vornado in Boston, Wall Street Journal, April 14, 2010, at p. B1.

A Tiff Over TIF In Northern California

Proponents of urban redevelopment are forever touting the wonders of what their plans will bring about by way of city revival, even if reality is often a lot more modest than their projections. But whichever way the proposed projects turn out, they have to be paid for, and as we well know there is no such thing as a free lunch. The money for redevelopment projects comes from the sale of municipal bonds whose proceeds become the grubstake for a particular redevelopment project. But bonded indebtedness has to be paid back with interest, and here where the fun begins.

What drives redevelopment, are tax increment financing (TIF) bonds. The idea behind them is that the subject area will produce higher taxes in its redeveloped condition, and their increment over and above the amount they produced before the project was initiated, is diverted from the usual city or county taxing authorities — the folks who run schools, police and fire departments, collect the trash, etc. — and is channeled into the redevelopment agency treasury. Since these are revenue bonds that do not pledge the city’s credit, they need not be approved by the electorate, so that in most cases the people don’t even know what debts the redevelopment agency is incurring. To give you some idea of the dollar amounts involved, in California, redevelopment bonded indebtedness has gone from $5 billion in 1985 to $81 billion in 2006.

So this may be a sweet deal for redevelopment agencies, and for buyers of those tax-free bonds, but not for the counties which lose the tax increments to redevelopment agencies, and must make up the shortfall somewhere else — which, of course, is something they do not like one bit.

Case in point, the April 14, 2010, issue of the Mercury News (Ian Bauer, County to Milpitas: Revisit RDA Expansion Plan or Fave Lawsuit) reports that Santa Clara County is bent out of shape over Milpitas’ redevelopment plan. The county contends that the city is not in compliance with California redevelopment laws. The county takes the position is that “the city needs to show on record that ‘evidence of blight’ exists” but the city has not established that. Fancy that! Quoth Santa Clara County deputy county counsel: “They haven’t shown that there’s enough blight in the area they want to redevelop,” noting that by the county’s lights the planned redevelopment area has no more than 10% blight in it.

Bottom line: the county evidently thinks the city is creating an excessively large redevelopment area to get its hands on those tax increment revenues, being as we are in a recession and the city could use the money. “Suing the city is [the county’s] only option if if they don’t halt the amendments [to the redevelopment plan] or scale them back to something that’s reasonable or supported by the evidence.” We can’t wait.

Oh, wait! We were thinking of selling tickets to the trial of this controversy, but then we remembered. These lawsuits are often threatened but rarely filed, and when filed are usually settled because, we suspect, neither side is eager to ventilate all this high-finance in public where the voters might take notice and try to do something about it.

To read the whole Mercury News story, go to http://www.mercurynews.com/milpitas/ci_14883612

Was Justice Stevens a Protector of the “Little Guy”?

Amidst the press encomia being heaped on retitring Justice John Paul Stevens as a protector of the “little guy,” we came across an op-ed in the San Francisco Examiner that remins us of the truth that when it comes to eminent domain, purported defenders of the “little guy” often change sides and pile on .  See Timothy P. Carney, Justice Stevens Was No Champion of the Little Guy, April 14, 2010. 

Carney reminds us that in Kelo v. New London Justice Stevens was firmly on the side of a government/big corporation alliance out to bulldoze a lower middle class neighborhood for the avowed purpose of enhancing the ambiance of the area chosen for redevelopment for the benefit of executives of the Pfizer pharmaceutical company. Carney’s conclusion is worth repeating:

“Legal scholars can debate Stevens’ legal philosophy, his coalition-building skills, and his demeanor. But before journalists parrot the White House’s line that Stevens was a champion of the downtrodden, they should visit New London where the collusion of big business and big government — with a nod of approval from Stevens — flattened a neighborhood where little guys once lived.”

Read more at the San Francisco Examiner: http://www.sfexaminer.com/politics/Justice-Stevens-was-no-champion-of-the-little-guy-90783594.html#ixzz0l58xPgai

Follow up:  For a similar take on Justice Stevens’ handiwork in the Kelo case, by the Economist magazine see Lexington, The Worst Decision of Justice Stevens, The Economist, April 14, 2010. Go to http://www.economist.com/blogs/lexington/2010/04/kelo_stevenss_worst_decision

Interesting Factoid

A friend was doing some research the other day, and came up with the information that since 1978 (that’s the year of Penn Central Transportation Co. v. City of New York) the United States Supreme Court decided 27 takings cases involving land. Of these, 13 were from California and 14 from the rest of the United States combined.

That tells you something about the Golden State, doesn’t it?

By All Means, Professor Tribe, Let’s Provide Access to Justice. But Justice for Whom?

It says right here in the New York Times (Charlie Savage, For an Obama Mentor, a Nebulous Legal Niche, April 8, 2010, at p. A1) that Professor Lawrence H. Tribe, of Harvard Law School, has been appointed “senior counselor for access to justice” at the U.S. Justice Department. Access to Justice. Sounds good to us.

In case you haven’t noticed, in this blog we favor justice for all, even for  American property owners. It’s not that these folks are underserved like the poor who lack the understanding and the resources to secure justice from the courts. It’s that the federal courts have proclaimed it to be “the law” that property owners, unlike any other species of Americans, are forbidden to seek justice in federal courts when they claim that their federal constitutional rights have been violated when their property has been taken by state or local officials, or that they have been deprived of their property by state action without due process of law in violation of the 14th Amendment.

How American property owners got to be such legal pariahs is a bit of a long story, and if you are new to it, you can start with the recent article by J. David Breemer, Ripeness Madness: The Expansion of Williamson County’s Baseless “State Procedures” Takings Ripeness Requirement to Non-Takings Claims, 41 Urban Lawyer 615 (2009). Breemer tells the tale, and provides his readers with a convenient collection of legal commentaries dealing — or more accurately, trying to deal with — this intellectual and moral mess; see p. 615, footnote 3. For our own take, see 36 Urban Lawyer 671 (2004). 

If you don’t feel like tackling any legal prose — and if you don’t, who can blame you? — here is a brief summary. In the 1985 case of Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172, the U.S. Supreme Court announced out of the blue a new ripeness rule: an inverse condemnation case, though constitutional in nature, is not ripe for federal court litigation until two things happen. First, unlike all other plaintiffs claiming a violation of their constitutional rights, the aggrieved owners must obtain a final administrative decision concerning the permitted use of their land, and beyond that, must seek a variance when reasonable use is denied. Second, the owners must then sue in state courts in an effort to obtain just compensation for the taking of their property. Only after both these steps have been taken unsuccessfully, is the owner’s cause of action for taking ripe for litigation in federal courts. So far, so bad — this is obviously a contrived legal regime that is designed not so much to exhaust potential remedies, as it is to exhaust the aggrieved plaintiff-owners economically and emotionally. But that isn’t the worst of it.

After property owners jump through these hoops and at long last present themselves in federal court with a ripe federal case, seeking long-delayed justice, they are informed that the judgment in the state court proceedings into which they were forced in order to ripen their federal case, is preclusive, which means that federal courts must give full faith and credit to the state court decision. Therefore, goes the reasoning, the owner may not litigate the federal constitutional taking claim, not even where the state court decision is made on purely state-law grounds.

What that means is that — as noted by four concurring U.S. Supreme Court justices in San Remo Hotel v. San Francisco, 545 U.S. 323, 351-352, n. 2 (2005) — the constitutionally aggrieved property owners cannot have their federal constitutional claim heard on the merits in any court. The effect of this rule is that when a state court disposes of their claim on state law grounds, it thereby emasculates the federal courts which are now said to be unable to provide a remedy for even conceded federal constitutional rights violation. You don’t believe it? Try Rainey Bros. Constr. Co. v. Memphis & Shelby County Board etc., 967 F.Supp. 998 (W.D.Tenn. 1997, aff’d. by unpublished opinion, 1999 U.S.App. LEXIS 6396.

So it seems to us that if anybody is in need of help to obtain “access to justice,” it’s those screwed property owners. So here is our modest suggestion to Professor Tribe. Perhaps he can devote his considerable talents to influencing the law to eliminate this absurdly discriminatory legal regime. Do you think he might give it a shot? No? We aren’t holding our breath either, but, hey man, “access to justice” is a good thing, and if a fellow — whoever he may be — can’t get his federal constitutional claim heard on the merits in federal courts, which, lest we forget, were set up precisely for the purpose of applying and enforcing the provisions of the federal constitution and federal laws, then something is very wrong with the court system that countenances it.

We don’t expect Professor Tribe to get upset over the plight of these folks, but we harbor a forlorn hope that he might get concerned over the denial of access to justice that this “law” represents.  After all, it says “Equal Justice Under Law” over the entrance to the U.S. Supreme Court, and it doesn’t seem to us to ask for too much to provide justice to American property owners the same as to convicted murderers, child rapists, dope dealers, porn producers and terrorists.

If That Indian Land in Narrangasett Is So Important, Why Doesn’t Rhode Island Just Buy It?

The case of Downing/Salt Pond Partners v. State of Rhode Island, 2010 U.S.Dist. LEXIS 29644, has made it into the New York Times; see Elizabeth Abbott, N.Y. Times. April 7, 2010, at p. B6.

It concerns a developer who owns 25 acres of unimproved land, on which the state issued a permit in 1992. The owner has already built a shopping plaza and and 26 single-family homes on his original ownership of 100 acres. But in 2007 the State Historical Preservation and Heritage Commission asked that the permit be revoked, because more recently, when he tried to build 53 single-family homes on the remaining land, they discovered the remnants of an old Indian village which the Commission wants to preserve.

That sounds commendable. We are all for historical preservation, except what we don’t understand is why private owners of historically significant land can be just conscripted as keepers of a historical site at their expense. You’ll note that nobody has offered to reduce (or eliminate) property taxes on that land that the state wants to preserve. What these something-for-nothing artists want is for the owner to pay ad valorem taxes based on the property’s highest and best use, and bear all other burdens and responsibilities of property ownership, while at the same time they deny him the right to put it to any use.

Ah, but the excuse is that, as the Times puts it, “the state has been unable to find the money with which to compensate [the owner of that land].” Quoth the executive director of the historical commission,  “There is no fund to acquire sites like this.” That may be true. We ourselves have noted with dismay that we haven’t been able to “find the money” with which to buy a Ferrari or some other spiffy piece of automotive chick bait, but it never occurred to us to stroll down to the friendly local Ferrari dealer and demand that he hand over the keys to that nice, red roadster that goes “Vrooom!”

One other interesting thing about that case. The caption says Downing/etc. v. State of Rhode Island. Haven’t these folks heard about the 11th Amendment?

And so it goes.

Lowball Watch – Missouri

The St. Louis Post-Dispatch reports that a St. Louis jury awarded the owner of a junkyared being taken by eminent domain, five times what the city’s offered. The City originally offered $200,000, but the Commissioners increased it to $300,000. The jury awarded $1,009,000. Robert Patrick, Jury Awards $1 Million toOwner of Junk Yard Taken by Eminrent Domain, April 8, 2010. See http://www.stltoday.com/stltoday/news/stories.nsf/laworder/story/2B4CC18B01B60FDA862576FF000E7922?OpenDocument

The “Undivided Fee Rule” Goes to Washington

The illogical and economically absurd — particularly in this case — “undivided fee rule” has been submitted for SCOTUS review in a case out of Wisconsin, City of Milwaukee Post No. 2874 Veterans of Foreign Wars v. Redevelopment Agency, 768 N.W.2d 749 (Wis. 2009). The Petition for certiorari has just been filed, and a response from the city is due by May 5, 2010. The docket number is 09-1204.

The undivided fee rule has it that in a condemnation case of a property in which several parties have interests (e.g., landlord and tenant) the court and the appraisers must indulge in the fiction that the building is owned by one person, and must value it as such even though that is contrary to undisputed fact. That means that the appraisers cannot consider and capitalize existing rents, but must instead ask what would the building rent for on the date of value — which, of course, values another, fictitous building, not the one sitting on the subject property. Why inherently speculative fiction should be preferred to demonsttrable reality, no one, to the best of our knowledge has explained.

This case presents a particularly vicious application of the rule, because here a divided Wisconsin Supreme Court held 4 to 3 that notwithstanding that a tenant has a valuable, long-term lease, with a conceded six or seven figure value, the tenant’s award is zero where the building’s condition, brought about by the landlord’s neglect, is zero because the cost of demolition and remediation is higher than the fair market value.

The petition for certiorari presents the question of the constitutionality of this “rule,” noting that there is a three-way split of authority. Some courts apply it, some don’t, and still others apply it but depart from it where its application would deprive a party with an interest of the subject property, of just compensation.

For a detailed analysis of the case and the petition, see our fellow blogger, Robert Thomas’ take at www.inversecondemnation.com

There is a special wrinkle to this case. The Milwaukee Journal Sentinel reports (Tom Daykin, Former Hotel Site Remains a Vacant Lot, Oct. 27, 2009) that after spending some $856,000 on acquisitions in 2001, and after blowing another $970,000 on remediation in 2003 – a half-dozen years ago – the city has done nothing with all that land that, being now publicly owned, has presumably been removed from public tax rolls, and is just sitting there. The debt of $3.69 million that is “tied to” the now-vacant site (as the Milwaukee Journal Sentinel puts is), now has to be paid off by city funds diverted from tax revenues while the subject site just sits there, doing no one any good.

Full disclosure: your faithful servant is one of the lawyers for the VFW.

California “Bullet Train Follies” (Cont’d.)

As we had occasion to observe earlier ( http://gideonstrumpet.info/?p=385 ) the planned California Bullet Train may be one of those ideas whose time has come, sort of, but its detailed planning and eventual execution may be another story.

The Los Angeles Times (Dan Weikel and Rich Connell, Bullet Train Plan Under Fire, L.A. Times, April 5, 2010, at p. AA1) brings the dispatch that there is a serious difference of opinion among the movers and shakers as to how to implement this idea.

On one hand the High-Speed Rail Authority folks want to have a separate right of way for the bullet train, which seems reasonable, being as those trains are expected to hit 200 mph. But on the other hand, the Los Angeles Metropolitan Transportation Authority folks want the new high-speed train tracks to fit into the existing railroad right of way between Anaheim and Los Angles. They note with alarm that laying down new tracks for high-spped trains in the densely populated Anaheim-Los Angeles corridor will require the use of eminent domain to acquire hundreds of homes in the Anaheim area alone. That may gladden the hearts of local condemnation lawyers, but it would double the projected cost of the Anaheim-Los Angeles segment and bring it up to about $4.5 billion, whereas using the existing rights of way would trim that figure by some $2 billion.

Oh, yes. Hidden in this story is the dispatch that to meet projected ridership figures under the proposed plans for the bullet train, those trains would have to run — are you ready? — every five minutes. Wow! Do you suppose they can do it, or is it another one of the familiar ridership projections that are prognosticated for new public transportation projects, that almost never materialize?

Update. The Los Angeles Times (Rich Connell, High-Speed Rail Plan Revived, April 9, 2010, at p. AA%) reports that the plan to use the existing rail right of way corridor between Los Angeles and Anaheim has been revived and is being considered by the California High Speed Rail Suthority. From this article we learn that these folks are not just talking about both kinds of trains running on different tracks within the existing corridor, but the existing tracks would be upgraded and jointly used by regular as well as high-speed trains.

Given the  — shall we say? — less than stellar safety record of trains in California, that gives us pause. A collision at 200 mph? Yikes! That gives a whole new meaning to the old exppression “train wreck.”

Lowball Watch – New York

Remember the Didden case? Of course you do. That was the scandalous case from — where else? — New York in which Bart Didden was about to develop his land, when he was approached by a redeveloper selected by the Village of Port Chester. That worthy, according to Didden’s complaint, demanded a payment of $800,000 and a partnership share in Didden’s project. Barring that, went the “offer,” the Village of Port Chester would take Didden’s land and give it to the redeveloper. When Didden refused to go along with this “offer” the Village filed a condemnation action a couple of days later, and took Didden’s land.

Didden sued in federal court, complaining that this was not a taking for public use, but rather an act of extortion, but their Lordships on the U.S. Court of Appeals for the 2nd Circuit saw nothing wrong with this way of doing business, and denied relief. You can read all about it in Didden v. Village of Port Chester, 173 Fed.Appx. 391, 2006 U.S.App. LEXIS 8653.

Now comes the day of economic reckoning. The Didden case has just gone through a valuation trial before a judge (no juries are allowed in N.Y. eminent domain cases), and the results are, shall we say, interesting.

The bottom line of the state trial court’s decision issued on April 2, 2010, is an award of $3,062,000 as against the Village’s earlier deposit of $975,000. You can read about it in In re the Village of Port Chester, etc. , 2010 N.Y.Misc. LEXIS 641. It’s a lengthy, extremely detailed decision, so we recommend a stiff drink before you plunge into it.

That makes the award over three times the amount of the city’s deposit, not counting the accrued interest going back to 2004. We are not sure, but we seem to recall that in New York interest accrues at the rate of 6%. You do the math.