Monthly Archives: June 2013

. . . About those Taxes Generated by New Construction . . .

The essence of redevelopment (when we still had it in California) was the idea that the new improvements built on land taken from the original owners of the redevelopment area would generate new taxes, and those would flow into public coffers for the betterment of the community. Right? Not really.

First, that money has to be used to service and eventually pay off the bonds the city issues in order to raise funds with which to acquire the land. Second, in the real world, cities and redevelopers make deals whereby that new tax revenue is diverted into the redevelopers’ pockets. Thus, in the wretched Kelo case the deal was that Pfizer would get a large tax abatement (it wouldn’t have to pay taxes for 10 years, as we recall), and the redeveloper chosen by the city would get the subject 90+ acre parcel for 99 years at $1 per year.

In California, redevelopment is gone,  but these cozy deals go on. The headline and subheading of a news story in today’s Los Angeles Times tells it all, so let us just quote it:

L.A. City Council Votes to let Mall Developer Keep Tax Revenue.

“Council Votes 10 to 0 to let Westfield keep up to $59 million in tax revenue produced by a shopping mall and hotel in Warner Center over 25 years.”

You can take it from there on your own, but if you want to see the article, telling how the developer will get 42% of the net new tax revenue produced by a planned shopping mall and hotel in Warner Center over 25 years, which is expected to generate $140 million in taxes during that period, click here.

Have a Nice Future, Kids

Quote without comment:

“Moody’s Investment Service, dissatisfied  with the way states measure what they owe their retirees, released its own numbers . . . showing that the 50 states have, in aggregate, just 48 cents for every dollar in pensions they have promised.”

“That is much less than the 74 cents on the dollar that the states now report, suggesting that the states are short by about $380 billion, with many local governments, like school districts, being on the hook for additional billions that they have not disclosed at all.” Mary Williams Walsh, Rating Service Finds Pension Shortfall, N.Y. Times, June 28, 2013, at p. B1.

The Return of the Bubble — It’s Official

Today’s Los Angeles Times has made it official: the new bubble in housing is upon us. See Alejandro Lazo and Andrew Khouri, Soaring Home Prices Raise Fear of Bubble, L.A. Times, June 26, 2013, at p. B1. We could go into the details of it, but suffice it to say for now that this article confirms the concerns we have been voicing on this blog recently. Quoth the Times:

“Home prices in large U.S. cities rose sharply in April posting the biggest one-month gain in the history of a leading U.S. home price index.”

*     *     *     *

“Prices have risen so quickly in some markets — including Los Angeles, San Diego and San Francisco — that some economists are warning of another housing bubble.

*     *     *     *

“Home prices can’t continue at this breakneck pace without accompanying growth in jobs and wages, economists said.”

The problem is that many of those eager homebuyers are speculators who buy for cash and who may able to “flip” their purchases just as soon as rising home prices start slowing slow down or worse, start heading down in response to rising interest rates. If — or should we say, when — that happens it won’t be pretty for ordinary home buyers who may again be stuck with “underwater” homes as they were in 2008. And while the hard-bitten pros who make up much of this market may shrug off selling below the peak (as long as they realize a profit in the “flip”), ordinary homebuyers may not be able to follow suit quickly enough, and . . . As we said, it won’t be pretty.

So stay tuned and keep alert.

More on Koontz: Government Extortion, Unrelated to the Public Burdens Created by Private Development Is Illegitimate As Well as Unconstitutional.

Predictably, government types and their groupies are in a tizzy. They have picked up on Justice Kagan’s dissenting lamentation in the Koontz case, that the cost of government will go up. But the problem with that lamentation is that it is an argument that proves too much. Liability under Koontz can only ensue where the government demands money or property from an individual, where the thing demanded has no rational connection with the public detriment brought about by the proposed private development. In other words, Koontz was asked to perform work on a public project located miles from the subject property and having nothing to do with it.

What evidently happened here was that the District folks decided to take advantage of some lower courts’ case law suggesting that monetary exactions were outside the scope of the Nollan/Dolan rule, and thereupon decided to drive the proverbial truck through it. It didn’t work, and it shouldn’t have worked. If that reasoning had merit, what would prevent the local government, were it so inclined, to condition the issuance of a building permit on the applicant foregoing his right to vote in the next election? Hyperbole, you think? Actually, that was attempted by a California municipality which tried to condition the issuance of a permit on the permit-seeking applicant giving up his right to vote in future bond validation elections. We understand the case was settled and never went to judgment, but this should  give you an idea of how far these people are willing to go.

Anyway, Justice Kagan, who appears to be a smart lady, stepped into it big time when in her dissent, she chose to defend extortion as desirable in order to save government extortionists money. That’a a legal and moral no-no that is forbidden by the Fifth Amendment and the Eighth Commandment (look it up). More important, with the government at all levels in the midst of an orgy of wasteful spending that is on the verge of bankrupting the country, and has already bankrupted several cities,  how can a rational person demand that instead of promoting  government economies, the government be unleashed to engage in out-and-out extortion, as the court put it in Nollan?

Unfortunately, such judicial lamentations are not unprecedented, even if history has demonstrated their absurdity. Our all-time favorite is People v. Symons in which the California Supreme Court absurdly asserted that if condemnees were to receive compensation for all their conceded losses in land value caused by partial condemnation of their property, “an embargo” would have to be declared on the construction of public works. In fact, in 1976 the California legislature repealed the Symons rule, but no “embargo” ensued. We could go on like that, but this would be like sticking a harpoon into a whale which we have done elsewhere — see our article Making Laws and Sausages: A Quarter Century Retrospective on Penn Central Transportation Co. v. City of New York, 13 William & Mary Bill of Rights Journal 679 (2005), a comprehensive commentary on the “taking issue,” including a discussion of the absurdity whereby courts hand out gazillions to litigants  they deem deserving, and allow them to recover more than once (think collateral source rule in tort law), while lamenting that the end of the civilized world would descend upon us if condemnees were to be paid for all conceded losses that are inflicted on them by eminent domain takings of their property. Also see our more recent piece in 4 Albany Gov’t. Law Rev. 38 (2011) entitled “Fairness and Equity” or Judicial Bait and Switch.

Finally, we also urge you to read the latest and admirably concise analysis of the Koontz case by our colleague Robert Thomas in his blog www.inverseondemnation.com . Go for it.

About that Apostrophe

Our first response to the preceding post’s inquiry whether it’s “St. Johns” or “St. John’s” River, comes from no less a scholar and maven than Jim Burling, who plumps for “St. Johns” because, as he explains with considerable merit, that’s how the District spells its own name. Our response: so what?

As Justice Frankfurter asked in a private letter (discussing the varying spellings of the caption to the M’Naughten case): to what extent is a madman authority for the spelling of his own name? In like vein, given how egregiously wrong the District turned out to be in the Koontz case, why should we rely on anything it says, including its spelling of its own name?

With all our high regard for Mr. Burling’s prowess as a geologist and a takings maven, we still await word from a legal language/orthography maven.

Also, Mr. Burling calls our attention to the ongoing campaign to eliminate the apostrophe altogether — click on http://online.wsj.com/article/SB10001424127887324244304578471252974458308.html, but going there would take us beyond the pale. Let others fight that battle.

Follow up. No, we do not intend to fight the apostrophe battle; we only note that the Los Angeles Times has come down on the side of the embattled apostrophe by referring to the Koontz case as  “Koontz v. St. John’s Water Management District;” Jim Puzzanghera, Private Property Rights Bolstered by High Court, L.A. Times, June 26, 2013, at p. A8 (emphasis added).

We also note that the Washington Post does mention the Koontz case, in a manner of speaking, in the form of one of those itty-bitty Associated Press squibs, but in a tour de force of evasion, never mentions the defendant St John’s [or St. Johns] District, and in the most imaginably perfunctory way mentions that Mr. Koonts won; Supreme Court Says Government Sometimes Must Pay Would-Be Developers Over Denied Permit, June 25, 2013.

[This post was edited on 6/26/13 at 11:34 AM].

So Which Is It: “St. Johns” or “St.John’s”?

As befits the always-controversial field of eminent domain, we note that there is a schism among the cognoscenti, following the release of the opinion in Koontz v. St. Johns Water Management District this morning. See preceding post.

The official version, as reflected in the SCOTUS opinion, says “St. Johns” whereas the Volokh Conspiracy (no mean mavens) say “St. John’s,” with an apostrophe.  So which is it? “St. Johns” (as in Johns Hopkins) or the possessive, as in “St. John’s”? We take no sides, although our instinct suggests that “St. John’s” sounds better and we propose to so spell it, unless and until a real language maven tells us otherwise.

So consider this post a call to all language mavens: What say you? “St. Johns” or “St. John’s”?

We await your verdict.

[This post was edited on June 26, 2013, at 11:32 AM].

Koontz Wins in a Clean Sweep for Property Owners

The decision in the Koontz case (Koontz v. St. John’s River Management Dist., No. 11-1447, June 15, 2013)  came down this morning. That’s the Florida exaction case everybody has been waiting for. It’s a 5 to 4 decision with the majority opinion written by Justice Alito who explains that property rights are constitutionally protected from government extortion, the same as other constitutionally protected rights, and that “property” includes not just land but also money and the cost of construction of offsite public improvements. The dissent was written by Justice Kagan who foreshadows the end of the civilized municipal government as a result of this opinion.

Our favorite passage from the majority opinion:

“Extortionate demands for property in the land use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation.” Slip opinion, p. 10.

Well said.

We will have more to say after we get the chance to read the majority and dissenting opinions in the detail they deserve.

Summing up: There were three cases this term dealing on the merits with takings (Arkansas Fish & Game, Horne, and Koontz), and property owners won all three.

Follow up. So we were wrong in our pessimistic conclusion to the preceding post, and glad to be wrong. Maybe being pessimistic is not always the way to go, the thermodynamic concept of rising entropy notwithstanding, but in this field that’s how the smart money bets. Of all the takings cases that were dealt with by the U.S. Supreme Court since 1978, in only one — count  ’em, one — did the court affirm the owners’ award of just compensation (Del Monte Dunes). Still, sometimes the good guys win, even if in this case of attempted government extortion  that  hasn’t been easy.

Which brings us to a perplexing question: why are liberal judges who profess a devotion to a “living constitution” that protects people from an overreaching government, so fiercely committed to a kleptocratic mode of governance in which anything that tends to plunder private wealth, including modest wealth of ordinary people, is deemed such a great public good? If you figure that one out, please do let us know.

Why the Delay in Releasing the Koontz Opinion?

So this morning SCOTUS handed down the Fisher reverse discrimination case opinion in which their Lordships chickened out for a change, and sent the case back to the lower courts to start over again. Their Lordships could have saved themselves a lot of trouble had they, instead of writing all those opinions, used the musical notation and simply said da capo. But what do we know? Still, no Koontz decision.

If you want our views on the wretched subject of reverse discrimination, expressed by your faithful servant 34 years ago, but still valid, see 30 Urban Lawyer at 307-308, n. 1. and accompanying text. And if you want to read the absolutely, positively  best commentary on the wretched Bakke case that started this interminable intellectual, doctrinal and moral mess, we highly recommend William Kai-Sheng Wang, The Devil Visits Justice Powell,  Los Angeles Lawyer, July-August 1979, at p.34

But back to Koontz which is what this post is supposed to be about. Given that the factual setting  in  Koontz is straightforward and it  either triggers or fails to trigger the Nollan-Dolan rule, why the long delay? This does not bode well for property rights or for clarity in the law. But presumably, there is only a few days to go, so sit tight everybody.

Unlike some of our colleagues, we refuse to speculate on who is writing the opinion, or otherwise doing what to whom. But we are mindful of what Jesus said: “Blessed are the pessimists for they shall not be disappointed.” Nothing good is likely to come out of this.

Stand by.

The Bubble Is Back

Fascinating front-page article in today’s L.A. Times — Alejandro Lazo, Forget About “For Sale” Signs, at p. A1. Check it out.

We have been mentioning in several recent posts the evident return of the “bubble” in Southern California. If the L.A. Times is to be believed, home prices around here have gone up by some 25% in the past year. Now, we have a new, rapidly spreading phenomenon of homes being rapidly sold via real estate agents but via a private grapewine, without a formal listing. The reason for that is that brokers don’t want word of an imminent listing to get around, because that is likely to precipitate a frenzy of would-be buyers engaging in a bidding war, with several would-be buyers bidding on the same property.

So, brokers canvass desirable neighborhoods themselves, going or writing door to door, trying to talk existing homeowners into selling their homes to the brokers’ clients on an individual basis, with no one in the general market even knowing that the house is for sale at the right price.

The other significant new factor is that more and more buyers require no mortgages, but are instead paying the full price in cash. That indicates that the market is dominated by professionals who are trying to take advantage of the post-2008 bubble and pick up homes at bargain prices in order to “flip” them or rent them out and enjoy the cash flow.

The explanation is two-fold. First, ever since the popping of the 2008 bubble, home construction in California has dropped sharply, lowering the supply, while the normal demand has gone on. Also, there has been an increase in the numbers of foreign buyers who want to grab a bargain when they see one, and invest some of their money in a stable and secure place like the United States. Finally, some brokers seemingly forgo their commissions because they often deal with repeat buyer-customers and expect to make it up on future sales. How? A new custom is developing whereby the buyer pays the broker’s commission outside the sales transaction, so it is not reflected in the nominal sales price.

On a personal, anecdotal level, the Times’ description of the home market seems right. In a townhouse complex near our place, two town houses sold during the past month, both in the low 400s, and both in a matter of days. One (newly renovated) sold for the listing price and the other, described as being in need of “tender loving care,” and priced accordingly, went for $25,000 more than the listing price. But we recall seeing only one “For Sale” sign. This is hardly a scientific survey, but it is consistent with the L.A. Times story.

The real problem is that all this market activity notwithstanding, wages in Southern California have not gone up anywhere near consistently with this trend, and the improved unemployment figures involve modestly paying jobs that are unlikely to support  purchases of $500,000 to $1,000,000 (and up) homes. So stay tuned for a replay of the 2008 bubble, especially when interest rates go up as they inevitably will.