Remember Eminent Domain Takings for Malls?

Those of us with a few grey hairs may recall when taking land by eminent domain for malls was just the thing. In spite of the fact that these takings were clearly for private use — i.e., for retail shops, movie theaters and restaurants, the people behind them touted their handiwork as “public use.” And judges, pretending that this was for real, rubber-stamped these takings and allowed the use of eminent domain for these private enterprises, in spite of the Constitutional requirement that eminent domain be used only for “public use.”

It’s 20 or 30 years later now, and guess what? Those big malls that were supposed to generate beaucoup money for cities in the form of sales taxes, and increased property taxes, are not doing so well.

We could go on about this subject, and cite our readers to the book of MIT Professor Bernard Frieden and his co-author Lynn Sagalyn, Downtown: How America Rebuilds Cities, describing in detail how cities, working hand in glove with their favored [re]developers would take land by eminent domain, turn it over to those [re]developers at bargain basement prices, usually less than what the cities paid for it; the idea being that as the malls were constructed and filled with commercial tenants, the subject properties would get more valuable, pay more property ¬†taxes, etc., etc. As California Court of Appeal Justice Macklin Fleming once put it in one of his opinions, the promise was that all this would bake a bigger economic pie with bigger slices for all. Except, to continue in Justice Fleming’s metaphor, it often turned out that that instead of enriching everybody, these projects failed, producing only pie in the sky.

Anyway, what is happening now is that the day of malls is over, and many of them are either in a state of decline or have gone bust altogether. Proceeding on the premise that a picture is worth a thousand words, we invite your attention to this internet posting that shows in vivid color the remnants of malls whose “pie” did not bake well. Click on http://www.buzzfeed.com/mjs538/completely-surreal-pictures-of-americas-abandoned-malls and you’ll get the picture.

What is left unsaid however, is that often some of these malls were built with public funds, and to get that money and use it to cover the cost of land acquisition and mall construction, cities¬†sold municipal bonds in the hope that the increased taxes generated by those malls would take care of servicing and eventually paying off those bonds, so as the promoters of these projects sometimes bragged, this would be “free money.” But alas, in reality the cash flow from those projects had to be used to pay the interest on those bonds, some of the touted the tax revenues had to be diverted into the pockets of bond holders as tax-free interest, or forgiven altogether as part of the deal that cities often made with the redevelopers.

Unfortunately, the internet post cited above does not tell us how many of those failing malls were built with money raised through the sale of such municipal bonds, and whether,in spite of their failure, the cities that sponsored them and issued those bonds, remain on the hook for the outstanding balances.

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