Monthly Archives: July 2017

As Malls Circle the Drain, What About the Outstanding Municipal Revenue Bonds Used to Pay for Them?

“A report issued by Credit Suisse in June predicted that 20 to 25 percent of the more than 1000 existing enclosed malls in America will close in the next five years.”

Big article today in the NY Times on the decline and ongoing fall of malls. The fancy ones that cater to upscale customers are still doing OK, but not “regular” malls. See Steven Kurutz, An Ode to Shopping Malls, NY Times, July 27, 2017, at p. D1. The article’s hard copy is worth taking a look at, for its color photos of abandoned, empty malls.

The article is mostly a personal display of the author’s nostalgia — about the good ol’ days when he and his teen-age buddies took part-time jobs and chilled out at the mall. But that was then — this is now.

What makes this stuff of particular interest to this blog which is mostly concerned with eminent domain and land-use, is a subject that is pertinent to malls, but is not mentioned in this article (or others like it). Many of these malls were constructed as redevelopment projects, which means that in many of these cases somebody’s privately owned land was taken by eminent domain (with just compensation payable from the proceeds of tax-free, revenue, municipal bonds, the idea being that as the mall prospered and generated new property taxes, the increment of those taxes over and above pre-existing property taxes would go to the bondholders and eventually pay off the bonded debt).

But what happens when things go south, and there are no such incremental taxes, so the redevelopment agencies that issued those bonds default on them? Nothing we have read about the mall failures addresses that subject. However we did see the opinions in an Illinois case in which the cash flow from bonds secured by taxes paid on land that was taken for a public project ceased paying the bondholders when the subject land was taken. Too bad, said the Illinois Supreme Court to the bondholders — you invested in bonds and one of the risks you took was that the bond issuers would default. But your bonds were not taken, so you are not entitled to “just compensation.” Your bonds were secured by expectations of a future cash flow, so when that cash flow ended so did your security interest.

The Housing Doo-Doo Hits the Fan in California

The other day we noted a big article in the LA Times, reporting the calamitous and growing housing situation in California. ( http://www.latimes.com/projects/la-pol-ca-housing-supply/ ) Today we follow up with another journalistic heavyweight, to wit, the front page of the New York Times; Adam Nagourney and Conor Daugherty, Housing Costs Put California in Crisis Mode, NY Times, 7/8/17, at p. A1. To get the whole thing, go to https://www.nytimes.com/2017/07/17/us/california-housing-crisis.html?ref=todayspaper&_r=0

The bottom line is that California state law requires that cities follow the housing elements of their general plans which include the requirement that provisions be made for affordable housing. But this law is administered by cities and they have no intention of following it because their populations are the very embodiment of NIMBYism and they take a dim view of their local glorious leaders increasing the local housing stock. Period. One of the transparent gimmicks used by cities to stultify new housing is to approve commercial zoning with room for commercial construction that will employ, say, over 5000 new employees. But at the same time they approve residential zoning that will provide room for maybe 500 new dwellings. The result is right out of classic Econ 101: the demand for housing overwhelms supply, with prices zooming up accordingly. In the last five years, California housing prices have jumped by as much as 75%. And it is no longer posh coastal communities that we are talking about. This madness is spreading to inland communities.

And not much relief is coming from the courts which stand ever-ready to nit-pick housing project environmental reports to death, which — to put it mildly — isn’t helpful at all.

So stand by for the inevitable popping of our housing bubble. To borrow the line of Gretchen Morgenson of the New Yourk Times when a few years she predicted the bursting of the great housing bubble of 2008, by saying “it won’t be pretty.”

Words of Wisdom on the Murr Case

As we do from time to time here we go again, expressing our admiration for the commentary of our colleague and fellow blogger, Robert Thomas, on his blog www.inversecondemnation.com. Here we go:

” . . . Maybe the liberal majority [of the Supreme Court], viewing Murr as the last charge of Wyatt Earp and his Immortals, threw principle to the wind, created a metaphysical, social justice warrior test for property that undercuts a thousand years of common law principles, deprives juries of the opportunity to decide what is and what isn’t reasonable reliance on metes-and-bounds, and takes the power to define property away from both property owners and state and local legislators, and hands it to mostly unelected philosopher-kings in black robes.

“The Murr majority gives lower court judges a chance to play Justice Kennedy for a day and decide what counts as property (for today, but may not be tomorrow, who knows?), all based on what Your Honor believes is fair, or isn’t, or is or isn’t worthy of being compensated, or whether the government can really afford to pay. There will no doubt be a plethora of law review articles which will try and justify these vague . . . factors as based somewhere in our common law property traditions. The authors would have a mighty hard time convincing us, because under Justice Kennedy’s ad hoc-ism, you really don’t know whether you own property until you make a takings claim and some judge decides you deserve to not be compensated when it is impressed into public service.”

We agree, and in fact we have articulated the same sentiments in the past (about property owners not really knowing what they own until after years of costly litigation), but in truth there isn’t all that much that’s new about this view. It was years earlier that the California Supreme Court, speaking in HFH, Ltd. v. Superior Court (1976) admitted that in the end the judicial characterization of a complained of government regulation is a taking or merely the exercise of the regulatory police power is only an act of labeling the results in a particular controversy. Add to that the U.S. Supreme Court’s confession in the Penn Central Transportation Co. case that the intellectually mighty US Supreme Court has been “simply unable” to tell us what is a cause of action in regulatory inverse condemnation law or how to plead it and prove it, and what you have is an intellectual witches’ brew that mocks aggrieved property owners rather than provide them with a discernible path to relief for the violation of their constitutional rights.