Decline of the Malls – Chickens Coming Home to Roost

A while back we posted an item about cities putting up shopping malls, using public funds (in the form of proceeds of municipal revenue bonds), and we expressed our doubts about the soundness of this practice, being as malls are inherently private commercial enterprises, dressed up as “public use” in order to meet the limitation of the Fifth Amendment to the Constitution. We thought, and still do, that this practice is ridiculous — an anchor department store and its usual gaggle of satellite chain shops is no more of a public use of land than any other privately-owned merchandizing effort.

But the courts have been consistently swallowing such municipal mummery, and rubber-stamping takings private property for such projects as being for “public uses. But in fact, they are — private, not public merchandizing operations misusing the power of government to wrest desired property from its rightful owners for transfer to private developers. But to their credit, not all judges went along with this charade. The highest courts of several states said “No!” California was not among them, but Justice Macklin Fleming, then on the California Court of Appeal delivered a needed lecture about the hazards of such activities in Regus v. City of Baldwin Park, 139 Cal.Rptr. 196, (1977), pointing out the obvious — these were private merchandising operations, not public uses. Quoth Justice Fleming:

“[U]nrestricted use of redevelopment powers fosters speculative competition between municipalities in their attempts to attract private enterprise, speculation which they can finance in part with other people’s money. When the extraordinary powers of legislation designed to combat blight and renew decayed urban areas are used as a fiscal device to promote industrial, commercial, and business development in a project area that is merely underdeveloped rather than blighted, competitive speculation may be turned loose. 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.”

Now, Fleming’s warning has come about. The landscape is now littered with declining and failed malls. Today’s Los Angeles Times, June 4, 2017, at p. B1, carries an article by Steve Lopez, entitled Reimagining the Mall, reporting that while a few malls are still prospering, many others are circling the drain and, faced with growing vacancies, are shutting down. Just as Justice Fleming foresaw, they are falling victim to competition, although the competition is taking the unforeseen form of on-line sales. Who wants to endure the hassle of schlepping to a far-away mall, parking and then, laden with packages like a camel, staggering back to the car for a trip home, when without leaving the comfort of one’s easy chair, one can hit a few computer keys and have one’s purchases delivered to the front door?

So when you get a chance raise a glass and toast the memory of Mack Fleming who saw the future and shared it with us.

One more loose end: will the courts now come to their senses and join the supreme courts of Michigan and Illinois, and say “No!” to further abuses of the power of eminent domain, and sensibly note that the conjectured “public benefits” of building private malls with public funds, to generate private profits, are no more a “public benefit” — and certainly no “public use” — than other ways of transferring public funds into the pockets of well connected types. And who is now going to pay off the outstanding bonds issued in the past by cities to finance all those belly-up malls?