Lots of Money to Waste – No Money to Pay Just Compensation

There they go again. Here is another story of gross ineptitude and waste of scarce government financial resources. Today’s Los Angeles Times brings us a dispatch of gross waste by the Los Angeles Community College District in its construction program. Michael Finnegan and Gale Holland, Waste Throws Wrench Into Los Angeles Community Colleges’ Massive Project, L.A. Times, Feb. 26, 2011. For the full article go to http://www.latimes.com/news/local/la-me-build1-20110227,0,4097709,print.story

This is how the District is spending some $5,700,000,000  (that’s $5.7 billion, in case you have lost count of the zeros) authorized by a 2001 bond issue. All that money was supposed to overhaul the decrepit physical facilities of the local community college system. Instead, what’s happening is captured in this quote from that L.A. Times article:

“At East Los Angeles College, construction of a grand entry plaza with a clock tower degenerated into a comedy of errors. Heating and cooling units were installed upside down, inspectors found. Concrete steps were uneven. Cracked and wet lumber had to be torn out. A ramp for the disabled was too steep for wheelchairs, and the landmark clock tower listed to one side.

“Fixing the problems helped drive construction costs from $28 million to $43 million.”

“A new health and science center at Valley College was marred by defective plumbing, cracked floors, leaky windows and loosely attached ceiling panels that threatened to crash down in an earthquake.

“The district paid a contractor $48 million to build the complex, but had to hire others to correct the problems and finish the project — for an additional $3.5 million.

“At least those buildings were finished, eventually. At West Los Angeles College, officials spent $39 million to design and begin construction of four major buildings, only to discover that they didn’t have the money to complete them.

“Just as crews were starting work last summer, the projects, including a $92-million athletics center, were abandoned.”

And that’s the way it goes in the once Golden State. There is plenty of money to blow on this sort of stuff, but — Heavens to Betsy! – we just plumb can’t afford to pay full compensation for demonstrable economic losses inflicted on folks whose property is taken by eminent domain. If we were to do that, said the California Supreme Court, an “embargo” would have to be declared on new public projects. Yessirree Bob! An “embargo.”

And so it goes. Your tax money at work.

For a follow up story go to http://www.latimes.com/news/local/la-me-build2-20110301,0,1960046.story

Follow up. For the next chapter of this saga of waste and ineptitude, see today’s Los Angeles Times. Gale Holland and Michael Finnegan, Sports Facility Tripped Up By One Misstep After the Other, March 4, 2011, p. A1.

“It was the spring of 2009, and construction crews at Los Angeles City College appeared to have accomplished the neat trick of building a track and athletic field on the roof of a new parking structure. Field boundaries had been marked in white on the artificial turf. Bleachers had been installed, and workers were laying the track.

“It was easy to imagine that students would soon be playing soccer or running sprints against a backdrop of pencil-thin palms, chocolate-colored hills and the Hollywood sign.

“It was not to be. In June of that year, work again came to a stop, with the project in a sorry state: The artificial turf was covered with ridges, and the track had cracked and curled away from its base.

“Nearly two years later, the facilities are still unfinished. College officials say they hope to complete repairs by the fall. The cost of the garage and rooftop sports deck, meanwhile, has climbed from $42 million to more than $51 million, records show.

“The project is a sharp illustration of the costly missteps in the Los Angeles Community College District’s $5.7-billion rebuilding program, financed by bonds that taxpayers will be repaying, with interest, for the next 40 years.”

For the L.A. Times article, go to: http://www.latimes.com/news/local/la-me-build4-20110304,0,3467379.story

For the latest installment of this saga of ineptitute and waste of scarce public resources, see Michael Finnegan and Gale Holland, Grand Dream Loses Sheen in Glare of Daylight, L.A. Times, March 6, 2011, describing government misadventures in trying to build “green” by putting up a bunch of solar panels that didn’t work for a variety of reasons. Our favorite: The wind turbine that after costly installation failed to produce enough electricity to light one bulb. And so it goes. Go to http://www.latimes.com/news/local/la-me-build6-20110306,0,4909175.story

Loony Tunes in Detroit

One has come to expect that professors will say silly things, and here is a bit of data to support that thesis. A fellow named John E. Mogk, identified as a law professor  at Wayne State University in Detroit, has favored us with an op-ed in the February 25, 2011 issue of The Detroit News (Change Law to Fight Speculators) in which — ta, da! — he at long last identifies who done it — who brought Detroit to ruin, that is.

Can you guess? Was it the departure of the city’s population fleeing to better housing in the suburbs? The riots? The “white flight”? The deindustrialization of the city as manufacturers moved out? The collapse in the safety and quality of public schools?Student bussing?  No, no, no, no and no. According to Professor Mogk, it was those “speculators,” that’s who. You see, the city of Detroit “has always faced excessive price demands” in eminent domain cases, says he, and that’s why it’s in the sad shape it is. Boo hoo. Evidently, Professor Mogk has never heard about courts — you know, those folks who try eminent domain cases, hear and pass on appraisal testimony, determine rules of compensability, and in the end award “just” compensation which all knowledgeable commentators — to say nothing of the courts themselves — concede to be inadequate, merely partial compensation that at best leaves the displaced condemnees undercompensated, while subsidizng the redevelopers with public funds.

Professor Mogk sounds like he never heard of abuses of redevelopment takings  for which Detroit became notorious, like the Foster litigation, or the Poletown taking that  displaced a whole community for the benefit of General Motors, an effort that not only failed to provide anything near the promised 6000 jobs, but in the long run didn’t keep General Motors from going bankrupt. Ditto in the case of Chrysler.  

Just how he would drive out those “speculators” from the Temple of Justice, the professor tells us not. Small wonder. What he has in mind has been tried and it failed. Big time. The country has undergone a major change as populations of older Eastern American cities took advantage of government housing policies and financing guarantees, picked themselves up and moved to the suburbs, leaving behind the deteriorating cities where over the past half century fewer and fewer people want to live. And it’s not only Detroit, even if it is the worst-case scenario. There is also Flint, Gary, Cleveland, Newark, Camden, Kansas City, St, Louis, Philadelphia, Hartford, Bridgeport, etc. etc. 

So is there a solution to Detroit’s predicament? Maybe. Then again, maybe not. Either way, it took us a half century of pursuit of wrong-headed government policies to get into the current predicament, and it will take decades to get out of it — assuming we have the determination to do it. The fact is that suburban living is more agreeable than city living, suburban schools are better and safer than their urban counterparts, and over the long run home ownership — even today — has been a good investment and tax shelter  for most families.

So assuming we have the determination to bear the social and economic burdens involved in restoration of American cities — a dubious proposition — it will take decades of effort  to reverse the unfortunate trend of the past half-century. If Professor Mogk knows of a shortcut, he should share it. Denouncing “speculators” won’t do it. Certainly not in a city where the government can’t even give away houses it acquired in tax sales.

For our views on this subject, stated in more detail, see our article in 4 Albany Journal of Government Law 101, 129-135 (2010)

Lowball Watch – Texas – World Class

As far as we know, this is the world-class runner up in the lowball derby. The thus far reigning champion is a case from California, where in a partial taking of an existing, operating high-voltage transmission corridor, the State D.O.T. (known around here as CalTrans) deposited $200,000, whereas the jury verdict, upheld later by the state supreme court came to $49,500,000. People ex rel. Dept. of Transp. v. Southern Cal. Edison Co., 94 Cal.Rptr.2d 609 (2000). Still, this one that comes to us from Texas is a worthy contender.

The Enbridge Pipeline sought to condemn a right of way and first offered $35,685.00, which it later increased to $47,580. The Commissioners awarded $47,580, but when the case was tried to a jury, the award came to $20,955,000, which was affirmed on appeal.

The bone of contention was the pipeline’s argument that the subject property, that had several gas company leases on it, plus 15 pipelines entering it, as well as a fully permitted gas processing plant, should be valued as “a bare and undeveloped tract of rural real estate.” Nothing doing, said the court. The “scope of the project” rule did not apply because all these gas facilities on the subject property may have been of a kind contemplated by the condemnor gas company, but they were installed by others, long before this condemnation, so the influence of this particular project did not contribute to the value of the subject land in its before condition. In other words, a condemnor is entitled to value the subject property uninfluenced by the project it intends to build on it (and even that subject to an exception), but it has no right to disregard an increment of value generated by a project (or projects) that someone else has created on  the subject land.

You can find the opinion of the Texas Court of Appeals telling this story in Enbridge Pipeline (East Texas) L.P. v. Avinger Timber, L.L.C., 326 S.W.3d 390 (Tex.App. 2010).

Lowball Watch – California

The Humboldt Beacon reports that a Humboldt County Superior Court jury returned a verdict of $2,500,000 for the taking of Hansen’s Truck Stop for the construction of a highway interchange. Mary Bulwinkel, Hansen’s Truck Stop Prevails In Eminent Domain Lawsuit, The Humboldt Beacon, Feb. 17, 2011.

The California Department of Transportation (known as CalTrans) took 1.7 acres out of Hansen’s 13.5-acre parcel that had been used as a truck stop. Before the trial, CalTrans offered $800,000, which makes the jury award over three times the state’s offer. The size of the verdict evidently was due to the fact that the taking impaired access to the remainder of the 13.5-acre property — not a good thing for a truck stop.

The article also notes that 17 employees of Hansen’s Truck Stop lost their jobs when the taking caused a shut-down of the truck stop.

Given the large discrepancy between CalTrans’ offer and the verdict, the Hansens also have a good claim for an award of attorneys’ and appraiser’s fees. Whether the judge will award them remains to be seen — after all, it’s California.

For the whole Humboldt Beacon story go to http://www.humboldtbeacon.com/ci_17415485?source=most_viewed

The High Speed Rail Boondoggle (Cont’d.)

Don’t miss Robert J. Samuelson’s column in today’s Washington Post,  High-Speed Rail Is a Fast Track to Government Waste, Feb. 14, 20100. Go to http://www.washingtonpost.com/wp-dyn/content/article/2011/02/13/AR2011021302203.html?wpisrc=nl_pmopinions

Samuelson’s point is that the case in favor of high speed rail rests on “fashionable platitudes.” But the facts, history and economics tell another story. He also reminds us how in 1970 the feds told us that Amtrack “would become profitable and self-sustaining after an initial infusion of federal money.” But it’s now 40 years later and it still hasn’t happened.

Samuelson stresses that the present scheme whereby the feds would give states seed money with which to build the new railroads, will result, upon those railroads’ completion, in an ongoing financial obligation of states to the new railroads. But taking on new long-term financial obligations is the last thing states need. Our own state, California, needs another financial monkey on its taxpayers’ back like the proverbial hole in the head.

The historical record is crystal-clear. Public transportation systems have always relied on public subsidies to operate. In modern America the rosy ridership projections of public transportation builders have never materialized. The new would-be railroad builders have not explained how their pet projects of today are different from those others, and why.

Follow up. What the ongoing discussion of high-speed rail generally omits is the high cost of track maintenance. We are told that In Japan and China the “bullet train” tracks are continuously patrolled to make sure that there is no trash of any kind on the rails. Also, small self-propelled little cars drive on those tracks continuously and perform precision measurement of the rails, to make sure that they are perfectly smooth and horizontal, and that there are no deviations in their dimensions and elevation. This work has to be performed continuously, regardless of the ridership figures.

Abolish Redevelopment in California! Take Two

The nonpartisan California Legislative Analyst’s Office has issued its report endorsing Governor Jerry Brown’s call for abolition of redevelopment in California. This is a well-reasoned, thorough piece of work, that explains how modern redevelopment works. So we recommend that our readers check it out for themselves. Go to http://lao.ca.gov/analysis/2011/realignment/redevelopment_020911.aspx

For now, suffice it for us to repeat that report’s conclusion: 

“Given the significant policy shortcomings of California’s redevelopment program, we agree with the Governor’s proposal to end it and to offer local governments alternative tools to finance economic development. Under this approach, cities and counties would have incentives to consider the full range of costs and benefits of economic development proposals.

“In contrast with the administration’s proposal, however, we think revenues freed up from the dissolution of redevelopment should be treated as what they are: property taxes. Doing so avoids further complicating the state’s K–14 financing system or providing disproportionate benefits to K–14 districts in those counties where redevelopment was used extensively. Treating the revenues as property taxes also phases out the state’s ongoing costs for this program and provides an ongoing budget solution for the state.

“Ordinarily, we would recommend that the state phase out this program over several years or longer to minimize the disruption an abrupt ending likely would engender. Given the state’s extraordinary fiscal difficulties, however, the Legislature will need to weigh the effect of this disruption in comparison with other major and urgent changes that the state would need to make if this budget solution were not adopted.”

In other words, ideas and public policies have consequences, and when those consequences become destructive or unaffordable, it’s time for reform.

Strange Bedfellows

If there is anybody who, one would think, should be at the forefront of the fight against uncompensated, regulatory takings, it’s the building industry. Sometimes it appears that this is the case. Just hit Lexis and see how many cases you come up with that have the phrase “Building Industry Association” in their captions. It is a familiar scenario to see the building industry types appear as parties or amici curiae in regulatory inverse condemnation cases, fighting regulatory takings and advancing the cause of costitutionally protected property rights, only to be opposed by cities, which around here often means the League of California Cities.

So imagine our surprise whwn we came across the CBIA Reports of February 9, 2011, which carries the headline Redevelopment on Chopping Block: CBIA  Expresses Opposition to Wholesale Elimination. It informs us that the “CBIA took official action last week to oppose the elimination of local redevelopment agencies. CBIA’s Governmental Affairs team, along with our allies at the League of California Cities  and the California Redevelopment Association, is actively engaged in a comprehensive effort to oppose the elimination of redevelopment.” (Emphasis added).

“[O]ur allies?” The League of California Cities? That’s what it says. And no, these clowns do not appear to be kidding. They are evidently trying to be serious.

But how the League of California Cities, these self-proclaimed paladins of forces working as hard as they can to undermine constitutionally protected private property rights, got to be the allies of the building industry which is usually on the receiving end of confiscatory land-use regulation, goes without an explanation. Oh sure, we understand that builders make a buck by building, so it figures that they would favor any activity that stimulates construction. Like development, even development with the prefix “re” attached to it. Fair enough. But aren’t there some limits to this mind set? Don’t these guys realize that by embracing the cause co-sponsored by the League of California Cities, they are allying themselves with forces that on ideological grounds threaten their own property rights? Aren’t property rights of condemnees in redevelopment areas just as worthy as property rights of developers? So why did the CBIA take this position?

You will find the answer to that question in the Bible which teaches that men stand ever ready to trade their birthright for a mess of pottage.

How the Zoning Game She Is Played

It is a familiar feature of land-use (as well as of eminent domain) law that the courts exhibit great deference to local regulatory decisions. Of course, as everybody who has had any contact with the process knows, local land-use decisions can be a farce that is riddled with politics, favoritism, NIMBYism and (in the redevelopment context) crony capitalism. Still, judges dutifully rubber-stamp the local land-use proceedings, and do so with an unseemly indifference or even hostility to the legitimate interests of the aggrieved landowners. But not all judges and not always.

Here is a gem from the Supreme Court of Vermont, or more accutrately from its two dissenting Justices (Skoglund and Burgess) in Rhodes Salvage/ABC Metals v. Town of Milton Selectboard, 9A.3d 685 (Vt. 2010).  It was precipitated by an application for a certificate of approved location of a junkyard which has been in operation as a preexisting nonconforming use since 1974, but whose owners inadvertently let the approval lapse and applied for its renewal in a tardy fashion. But the town selectboard said “No.” [For the benefit of flatlanders unacquainted with New England terminology, a selectboard is a town council, whose members are referrred to as "selectmen."]

Anyway, the junkyard owners appealed from the town’s decision, but alas, the court upheld it using the “highly deferential” type of review. So far, so bad. But Justice Skoglund’s dissent tells us what really happened. Describing the proceedings before the selectboard, he said:

“It was a shouting match. Apparently there were local scores to settle. Audience members questioned one another, talked over evidence, and interrupted the selectboard members. Doors were slammed and petty grievances were aired. No ‘witness’ was sworn in. There was no real opportunity to challenge the relevance of testimony or the competence or expertise of or bias of any ‘witness.’ This is the proceeding the majority equates  with a formal agency adjudication.

*    *    *

“Indeed, portions of the hearing transcript read more like a schoolyard argument that any sort of respectable deliberative process.”

And so it goes in land-use biz. Reminds us of some of the stories in THE ZONING GAME, a wonderful  1968 book by the late, great Dick Babcock who in his day was a virtuoso of land-use. We could sure use him today to do justice to this one. And others like it.

Anyway, three cheers for Justices Skoglund and Burgess for telling it like it is for once.

Oh yes, we almost forgot. The good news is that the court called a junkyard, a “junkyard,” and not a “recycling facility” or some other silly neologism.

Redevelopment Agencies’ Loss — Public Schools’ Gain

We noted recently that newly elected California Governor Jerry Brown has proposed that redevelopment agencies in California be abolished, so that the tax money they siphon off from municipal tax revenues can be devoted to plugging some holes in the state budget. Naturally, as we noted, this has precipitated a giant kerfuffle as redevelopment agencies and their groupies have rushed into the public forum to inform one and all that should that happen, the sky will surely fall and that would spell the end of civilization as we know it. For our take on this problem, particulary its financial implications, go to http://gideonstrumpet.info/?p=774

But now we can add to that discussion by providing some facts. Today’s (Los Angeles) Daily News (Connie Lianos, Schools May Gain From loss of Redevelopment Agencies, Daily News, Feb. 8, 2011, at p. 1), tells us that if the Guv gets his way and the state’s redevelopment agencies get the boot, that will result in some $1.7 billion in funds that in the past have been siphoned off from local property taxes by redevelopment, becoming available to the state. Of that amount, around $1 billion would go to California schools, where all that money should have gone to begin with. The Los Angeles Unified School District (which is currntly running a $400 million deficit) would get an additional $114 million.

Mind you, we are not entirely enamored with the way our school districts have been spending money, particularly on land acquisition and school construction, but hey man, spending that money on schools is a lot better for society than seeing it go into the pockets of redevelopers and redevelopment tax-free bond holders.

The moral is that there ain’t no such thing as a free lunch, even if all these years redevelopment agencies have been so pretending. Tax money is tax money, and when you divert it to redevelopment, that means that it won’t go to other places. Calling it “incremental tax revenues” and diverting it from schools to redevelopment malls doesn’t make it any less tax money, nor any less of a misallocation of increasingly scarce public funds.

Being an old curmudgeon with a cynical bent, your faithful servant doubts if this gubernatorial proposal with actually see the light of day, but at least somebody is trying to do the right thing. After all the redevelopment scandals reported by the Los Angles Times a few months ago, redirecting that money to schools is surely a better way to spend it.

Lowball Watch – Missouri

The Springfield News-Leader reports an eminent domain acquisition of a natural gas pipeline easement through a cattle ranch, with the following results. Original offer by the pipeline company – $1800, later increased to $18,307. Commissioners’ award – $327,804. Which, according to our calculator, comes to over 182 times the original offer.

Apparently, neither side is satisfied with this result, so a jury trial will probably follow.

Stay tuned.

For the entire News-Leader story, go to: http://www.news-leader.com/article/20110208/NEWS01/102080331/1002/SPORTS/?odyssey=nav%7Chead