Monthly Archives: January 2012

Beware Redevelopment “Reformers” Bearing Gifts

As we noted earlier, no sooner did the ink dry on the California Supreme Court’s opinion upholding recent legislation abolishing redevelopment agencies, that the snakes started crawling out of the woodwork, with proposals to revive this wasteful and widely despised government practice. The latest comes from a fellow named William Fulton, former Mayor of Ventura, now a senior fellow at the Sol Price School of Public Policy at USC, and a “planning consultant.” Fulton took to the pages of the LA Times to instruct the Great Unwashed on the virtues of redevelopment so it can be restored more or less to its status quo ante, only more so. William Fulton, Getting Real About Redevelopment in California, L.A. Times, January 12, 2012 — click here  How does he propose to do that?

Fulton proposes a revival of redevelopment, subject to three “key reforms.”

First, that redevelopment be used only for “true” revitalization — like elimination of brownfields, construction of affordable housing, transit-oriented development, and “inner-city retail” where there are few stores (and never mind why there are few stores in those areas). And who would get to say what requires “true” revitalizatiion? Fulton tells us not.  Second, that tax-increment money should be capped “perhaps at 5% of property tax.” And third — ta-da! — “we should eliminate the requirement that to be redeveloped, an area must be officially deemed ‘blighted'” because “the truth is that the blight-finding is usually a fiction, a vestige of urban renewal days that cities regard as a procedural step they must take in order to gain access to the tax-increment [money] flow.” Golly. And here we thought that a finding of “blight” is the sine qua non of redevelopment, without which the prefix “re” in “redevelopment” would be missing, and it would be just plain old private development.

In other words, what Fulton saves as the bottom line of his proposal, is the conclusion that the use of “blight” as justification for redvelopment has been a fraudulent fiction. But instead of restoring it to the status of an honest safeguard, an enforceable legal reality, Fulton would just get rid of it and leave the often unelected city hall boys in any one-horse burg to take whatever private property they want for any reason or no reason other than it seems like a good idea at the moment, so they can turn it over below cost (or even gratis) to their redeveloper-buddies who presumably will do wonders with it by way of “affordable housing” and urban revitalization that — in spite a half-century of redevelopment efforts — never materialized. American cities have steadily lost population and declined, and continue doing so now.

What is most significant about Fulton’s argument and what tips his hand is that in spite of his vague and by now ritualistic criticisms of redevelopment, he never mentions specific abuses of the eminent domain power which over the years has become an integral part of redevelopment, nor the gazillions in in public funds wasted or just frittered away for nothing, a phenomenon that of late has been part and parcel of California redevelopment, and the subject of Los Angeles Times exposes. Not a peep about that, nor any mention of how Fulton proposes to bell the cat — how he means to insure that this does not happen again.

All of this is only another illustration, if any were needed, that as practiced in America for the past half century or so, urban redevelopment — the taking of land from A in order to give it to B, in spite of constitutional prohibition — is immoral in concept, a corrupting influence on municipal governance that is ineffective in execution, and a prime candidate for being done away with root and branch. California has just achieved that very thing. So let’s leave well enough alone and  let the no-redevelopment system operate for a while and see how it works. Maybe it will improve things. But if not, it can’t be worse than the wasteful and often corrupt method of syphoning off public tax revenues into the pockets of crony redevelopers and holders of tax-free redevelopment bonds, while American cities continue decaying. Certainly, converting redevelopment into a private, money-making free-for-all in which elimination of blight or any other discernible “public use” would not be required in order to seize privately owned land from its rightful owners so it can be given to the likes of Costco stinks. If the past system was bad, Fulton’s proposal would make it worse.

Finally, never let it be said that our attitude is all negative. If Fulton is honest about his proposal, we could see our way clear to support him, subject to three modest safeguards:

First, that the taken land not be used for another purpose than the one specified in the resolution of necessity, and if it is sold, the money paid for it go to the taxing authorities whose funds were ripped off to acquire it.

Second, that the “just compensation” payable to condemnees displaced by urban redevelopment include  full compensation for all their demonstrable economic losses, including business losses, like they do in in Louisiana whose state constitution provides that condemnees be compensated “to the full extent of [their] loss,” including attorneys’ fees which are also recoverable by condemnees in Florida.

After all, redevelopment inherently involves the taking of private land for private gain (that will presumably trickle down to the community, but private nonetheless), so we see nothing wrong with the urban-redevelopment complex paying the full, true cost of doing business and not dumping some of it on people whose “sin” is that their land happens to wind up fortuitously in the path of a private “project” like a shopping center, a car dealership, or the like. If redevelopers need to be encouraged financially to do what they do, let the city pay them out of its own revenues, not by sticking its grasping hand into the condemnees’ pockets.

Third, if the “public”project for which private land was taken does not materialize as proposed for, say 10 years, the former property owners should be able to regain title to it should they choose to do so.

That way Fulton and his buddies would still get their goodies but at government expense — not the expense of the governments’ victims. After all, as Justice Holmes once put it, the public — the same as everyone lese —  is entitled only to that for which it has paid.

Afterthought. Old age must be creeping up on us because it took a while for the light to go on. The Sol Price School of Public Policy at USC, where Fulton is doing his scholar thing, is named after Sol Price who gave it $50 million, and who was a pioneer of “Big Box” retailing. His outfit merged with Costco that just happens to be the big-time beneficiary of old-style redevelopment, whereby other people’s property is taken by eminent domain and turned over to it. Some “public use,” eh? See 99 Cents Only v. Lancaster Redevelopment Authority, 237 F.Supp.2d 1123 (C.D.Cal. 2001).

Your faithful servant is not a fan of the late Justice William O. Douglas who did a lot of harm to the law of eminent domain in his infamous Berman v. Parker opinion. But, as they say, even a broken clock is right twice a day, and we think Douglas was on the money when he observed in one of his law review articles that legal commentators should disclose their point of view so their readers can tell through what spectacles their advisor views the problem at hand.  It would have been better if the Times had disclosed the Fulton-Price-Costco connetion, instead of presenting Fulton as a former mayor and scholar.

 

Lowball Watch – Massachusetts

Station 95.9 WATD-FM reports the following facts that emerge from a recent eminent domain case in Marshfield, Massachusetts. Town offer: $11,000. The court award: $121,000, or eleven times the offer.

The report is sketchy when it comes to facts, so we are unable to report what was it about the valuation problems that divided the parties. Click here.

Redevelopment? They Can’t Give It Away

Back in the olden days proponents of redevelopment used to argue that the funds expended on it were “free money.” They came from incremental tax financing and in the really old days from federal block grants, so — went the argument — the cities running redevelopment agencies would suffer no net expenditures. And since redevelopment would increase tax revenues, it would be all gain. This, of course was nonsense because in order to get that incremental tax cash flow going, redevelopment agencies first had to acquire the to-be-redeveloped land. And to do that they had to pay for it, even if the the constitutionally promised “just compensation” payable to comdemnees displaced by eminent domain actions, fell short of compensating them for all economic losses inflicted on them. See generally, Sonya Bekoff Molho and Gideon Kanner, Urban Renewal: Laissez-Faire for the Poor, Welfare for the Rich, 8 Pac. L. Jour. 627 (1977).

So it follows that when those incremental tax revenues start coming in, they have to be diverted to payment of interest on redevelopment agency bonds, and eventually to repayment of the principal. In the meantime, while the redevelopment projects are being created, the taken land just sits there, producing no revenue and building up  public bonded indebtedness which in California soared from $5 billion in 1985 to over $80 billion in 2006 — and counting.

As Marc Mihaly, a former otspoken pro-government California lawyer and now a professor of law in New England, put it in a law review article, cities rarely make money from redevelopment because they have to divert incoming funds to servicing those bonds. Just so.

Still, all that did not deter redevelopment enthusiasts from touting their nostrums as net revenue-generating, city-reviving and job-creating machines that would bring prosperity to all. As Justice Macklin Fleming put it in one of his opinions, redevelopment agencies argued that they would bake a bigger economc pie that would produce more generous shares to all, but in reality they frequently produced pie in ths sky. The proof of the pudding is that if all that “free money” stuff were there, cash-strapped cities would now fight over the chance to take over redevelopment projects and get their hands on it. Right? Wrong. Why wrong? Because there is no net cash flow. We learn from the aftermath of the legislature’s elimination of redevelopment in California, that all those redevelopment projects in various stages of completion are generating bobkes and cities want no part of them.

And so, the Los Angeles City Council said “Thanks, but no thanks,” to the former L.A. Redevelopment Agency when it was offered those ongoing projects. The L.A. City Council voted 9 to 3 against it, noting that the city simply could not afford to employ the 192 employees of the L.A. redevelopment agency (being paid on average over $120,000 a year, as opposed to $72,000 per year paid to other city employees). Ditto for Los Angeles County which promptly decided that it didn’t want to take over local redevelopment either, being as a city official warned that that the city could face $109 million in costs if it took on redevelopment activities.

“The liabilities associated with redevelopment in the city of Los Angeles are just too big for the county to absorb,” said [County] Supervisor Mark Ridley-Thomas, a former L.A. city councilman.”  Julie Cart, L.A. Won’t Absorb Redevelopment, L.A. Times, January 12, 2012, at p. AA1.

So it turns out that during all those years during which redvelopment bulldozers ravaged American cities, our glorious leaders have been careless with the truth. Redevelopment, it turns out, is not a municipal cornucopia, and it does not revive cities as human habitats, even if it perks up occasional neighborhoods that are of interest primarily to empty-nester boomers, and yuppies in search of a “hip” neighborhood to live in. Rather, redevelopment is pipeline that diverts public funds from the usual taxing agencies  into the pockets of redevelopers and holders of tax-free redevelopment bonds, even as cities continue losing population and are struggling with budget shortfalls — not exactly what one would call a “public benefit.”

Bottom line: Los Angeles County Supervisor Zev Yaroslavsky who is quoted in the Los Angeles Times, said it all when he said in a speech to lawyers representing redevelopment agencies: “You had a good thing going for a long time,  and you got greedy.” Click here.

Follow up. For a pungent comment on the unraveling of the Los Angeles Redevelopment Agency, check out Reason On Line – click here.

“Essential Nexus” — A Legal Term, or “Novel Legalese”?

We see ourselves as a humble servant of the Lord and their Lordships, who imbibes wisdom from their opinions, none being more authoritative than the times when SCOTUS lays down the law of the land. And so, we always thought — at least since 1987 when their Lordships spoke — that to pass constitutional muster in inverse condemnation/exaction cases it is necessary for the government to establish an essential nexus between a private development activity and its impact on public resources. Right? Like it says in Justice Scalia’s opinion in Nollan v. California Coastal Commission, 483 U.S. 825 (1987). That means that there must be a nexus, or connection, between the private land owner’s development activity and its impact on public resources, sufficient to justify a demand by the government that the owner give up something (typically land) in exchange for being permitted to proceed with his private activity that produces that negative impact.

We thought that by now this was a “well settled” point of law, as lawyers like to put it.

So imagine our surprise when we came across a sentence in a more recent SCOTUS opinion in which — who else? — Justice Scalia delivered himself of the following line: “‘Substantial nexus’ is novel legalese with no established meaning in the present  context.” Pacific Operations. Offshore Operations v. Valladolid, 2012, U.S. Lexis 577.

So it turns out that the word “nexus” may or may not have any meaning, depending on the context. We hope it retains meaning in the exaction/taking context. But then again, who can tell?

Go figure.

 

Sackett Oral Argument

News reaches us from Washington, via a percipient witness to today’s U.S. Supreme Court oral argument in the Sackett case (having to do with the issue of when may a property owner seek judicial review of an EPA enforcement order) that things are looking up.

All the Justices who spoke out appeared to be sympathetic to the Sacketts’ position, although Justice Kennedy was not very active and Justice Thomas, as is his wont, was silent.

The Sacketts present a very sympathetic case. They are not developers. They tried to build a home for themselves on a small, evidently dry lot (less than an acre) and did some filling on a small part of it.  Then they got hit with an EPA order requiring them to restore the property (expensive!) back to its asserted “wetland” status and risk incurring a $3000 per day penalty before they could obtain judicial review of the overreaching EPA order.

Naturally, today’s New York Times comes down editorially on the side of the oppressive government. But if the oral argument was indicative of what’s on the Justices’ minds, the Times got it wrong.

So stay tuned but don’t count your chickens until after they hatch.

Follow up. The January 9, 2012, post on www.inversecondemnation.com contains a link to the transcript of the Sackett oral argument, in case you want all the details first hand..

Subsidizing Rolls Royces?

Do you know what this picture is?
R0108 rives rolls 11585567.JPG

It was not intended to mark the symbolic elevation the interest of Rolls Royce to the level of the State of Virginia, and the United States. But whether intended or not, flags are symbols of power and the juxtaposition of these flags is
symbolic, whether the people who put them up intended it or not. Virginians are about to vote on a constitutional amendment that would prohibit takings for “economic development” and require compensation for impairment of access, as well as for lost profits, and this picture was used recently to accompany an article in the Richmond Times-Dispatch, opposing the amendments.

So in a desperate effort to prevent passage, local condemnors are predicting the end of the world as we know it because, don’t you see, it’ll be just too expensive to create any public projects in Virginia and the state will go to
hell in a handbasket, and there will be no more German-owned Rolls Royce plants in the Old Dominion. Or worse, Rolls Royce may have to pay the full cost of doing business. Oh, the horror of it!

We could go on on this subject for a while, but it is sufficient, it seems to us, to ask this question: if taking private property will be too expensive for condemnors under the new system, then why isn’t it too expensive to property
owners under current system, when they have to bear those losses inflicted on them when their land is taken by eminent domain, but without compensation for these losses? After all, the state benefits from such projects, it has more resources, and is better situated to spread the cost of those projects on the population that benefits from them. As Justice Holmes once put it: the public is entitled only to that for which it has paid. So shouldn’t the parties who
benefit from a public project bear the burden fairly, instead of dumping it on the victims who lose their land by eminent domain but are undercompensated? Far be it from us to mouth the “soak the rich” redistributionist twaddle, but even so, it is obscene for the makers of the most expensive car in the world to get subsidized on the backs of people whose land is taken to build their six-figure cars.

Insurance for Inverse Condemnation Liability?

There is news of an interesting case from South Dakota, concerning the problems that can ensue when a government entity insures itself against liability for inverse condemnation. To us, that has always been an interesting topic because in a classic uncompensated taking case, the inverse condemnor is not only required to pay just compemnsation, but also, at least in physical taking cases it also acquires title to and possession of the subject property, or an easement over it. So in a case like that what’s the government entity’s insurable loss? Except for transactional costs, it is ordered by a court to exchange one of its assets (money) for another asset (land at the latter’s judicially determined fair market value). So where is the net loss to the government for which the insuror should have to pay? Wouldn’t payment in a case like that amount to a double-dip by the inverse condemnor?

But that is not what happened in South Dakota. The liabiliy of Aurora County arose from an earlier zoning decision that limited use of the plaintiff’s dairy farm, causing it to go out of business. So the farmers sued and won a large inverse condemnation judgment. But the South Dakota Supreme Court ordered that the case be retried, and it was, resulting in County liability again.

The County thought that this judgment was covered by its insurance, but it turned out that according to the insurance company it did not because the County failed to give timely notice of the pendency or imminence of the farmers’ claim, and thus, argued the insurance company, it never would have insured against an already existing or known claim when it issued the policy to the County.

The County contended that it did give notice but even by its lighs the notice was vague and did not make clear that insurance coverage was sought (for 10 preceding years) against actual, not just potential claims, involving the subject property. Besides, the County Auditor had written to the insurance company that the County was not aware of any incidents that may result in a loss under this coverage.

The jury sided with the insurance company, and found that the County had misrepresented or concealed material facts and that, had the insurance company known about, it would not have issued the insurance policy, at least not in the form it did. You can find the story in Anna Jauhola, Aurora County on Hook for Damages in Lawsuit, The Daily Republic, January 7, 2012, go to http://www.mitchellrepublic.com/event/article/id/60871/group/homepage/

In the meantime, the farmers’ claim, or at least the amount of compensation due them, has been on hold awaiting the disposition of the dispute between the County and its insurance company, so we take it that interest is accruing. And given that the farmers’ claim was for $5 million, this one could easily turn out to be a biggie. Stay tuned.

Rent Control — Once More With Feeling

Professor Richard Epstein, formerly of Chicago U and now at NYU, has a piece in today’s Wall Street Journal, in which he expresses the hope that the Supreme Court will grant certiorari in a rent control case from New York. We wish him luck but we are not holding our breath. SCOTUS had an opportunity to deal with this wretched subject in the Pennell and Yee cases, which were up there on the merits, but eventually chickened out. More recently, it had a chance in the Guggenheim case in which the 9th Circuit de facto overruled the Supreme Court, but certiorari was denied.

So while we wish bon chance to the petitioner, and offer our support (which these days carries the weight of a fly turd) to Professor Epstein’s view on this point of law, we are pessimistic about that one. In our admittedly curmudgeonly view, the chances of cert being granted in a rent control case are about the same as the chances of your faithfu servant flying to New York to visit Professor Epstein, by flapping his arms.

For a link to Prof Epstein’s piece, click here http://online.wsj.com/article/SB10001424052970204464404577118912082926658.html

High Speed Rail — (Cont’d.)

As if all the calamities that have befallen the proposed California high speed rail weren’t enough, here comes another one. The California High-Speed Rail Peer Review Group delivered its report yesterday, concluding that the proposed railroad from San Diego to San Francisco is deeply flawed and not financially feasible. It recommended that the State Legislature not appropriate any money to it, not even the initial $2.7 billion in bonds to match $3.5 billion in federal money. For the whole megilla, read Ralph Vartabedian and Dan Weikel, Review Urges Delay in Borrowing Billions for Bullet Train, L.A. Times, January 4, 2012 — click here http://www.latimes.com/news/local/la-me-bullet-train-report-20120104,0,3258448.story.

The bottom line of the report is that apart from the piddly few billion allocated thus far to the initial leg of the $98.5 billion railroad (between Bakersfield and Fresno — down the middle of Central Valley where few likely passengers live, and as most Californians believe, is the middle of nowhere) is unlikely to be followed by additional construction due to lack of funds. The review group supports a high-speed rail line, but feels that starting the project in the middle of Central Valley “maximizes the risk to the state.”

So the line-up against going ahead with the high-speed rail as presently envisioned now includes the State Auditor, the State Inspector General, the Legislative Analyst, The UC Berkeley Institute of Transportation Studies, and the Transportation Committee of the U.S. House of Representatives. But our Governor and his friends in the labor unions are all for it.

So stay tuned and see what happens — we can’t wait, though we fear it will be a long wait.

 

The Empire Strikes Back — Or Tries To

As a follow-up to the discussion of abolition of redevelopment in California, don’t miss a piece by Bill Fulton and  Josh Stephens, Redevelopment Will Be Back — But At What Price? in the California Planning & Development Report of December 29, 2011 – click here: http://www.cp-dr.com/node/3081

It’s an interesting review/forecast of what redevelopment groupies are planning to do (and in Fulton’s opinion are going to do) to get the despised California redevelopment process to rise Lazaruslike from the dead. It’s a good way to gain an insight into the thinking of the political-redevelopment complex that for decades has been looting the public treasury in California for private gain, wasting king’s ransoms in public funds in the process of making inept and at times corrupt deals that often failed to produce the promised redevelopment and at times produced nothing at all in spite of spending gazillions of public dollars, and leaving behind a bonded redevelopment indebtednes running into the high tens of billions of dollars.

What we find fascinating about Fulton’s position is that his discussion fails to address the use and misuse of eminent domain by redevelopment agencies, the waste and misuse of public funds, and — even as he speculates about the nature of the deal to be made to resurrect redevelopment — how to produce safeguards that would protect the rights of individuals who are victimized by the process and prevent a repetition of the looting of public funds for private gain that characterized the old redevelopment system. All these guys seem to care about is money, and the hell with the moral and civic values that were routinely trampled in the old redevelopment process.

Check it out for yourself.