They’re Singin’ Our Song at the Times — Sort Of

No sooner has the ink dried on our last post, that The New York Times, no less, has chimed in with the same tune — sort of. See Californians Brave Fires, but Flee Cost of Living, NY Times, Dec. 13, 2017, front page. The times, sure enough, dwells on the outward flow of Californians (of which more presently) but it keeps mum on the causes of this huge out-migration.

Says the Times:
“[S]ince 2000 the state has lost more than two million residents 25 and older, including 220,000 who moved to Texas, according to census data. Arizona and Nevada have each welcomed about 180,000 California expatriates since the start of the decade.” Which is like writing about a drought by informing the readers that water won’t come out the wall when you turn on the spigot. In other words, the Times describes the phenomenon but tells us nothing about the causes.

And as we explained in our previous post, the causes include an obdurate California government policy preventing the construction of badly needed dwellings in numbers that are capable of meeting the prevailing housing needs of the state’s population. The Times studiously ignores the cold fact that if a municipality zones land for commercial uses that will accommodate, say, 20,000 workers, and then zones land as residential for only 5000 people, all you do is guarantee a housing shortage and its economic Siamese twin, a steep and rapid rise in home prices and rents.

But why are the California land-use regulators doing that? We see two answers to that question. First, it’s the NIMBY phenomenon — existing homeowners have got theirs and they now mean to keep things that way, as home prices and rents keep soaring, transforming too many existing homeowners into paper millionaires. Second, cities yield to NIMBY demands because they can. California courts, instead of serving their traditional role as a restraining force that keeps regulations and government conduct reasonable, or even constitutional, rubber-stamp whatever comes out of city planning and zoning departments. As Richard Babcock, the late dean of the American land-use bar put it in one of his books, “In California, the courts have elevated government arrogance to an art form.” And so they have.

So it’s hardly surprising that more and more Californians are selling their suburban homes for a half a mil or so (now the median price of a Golden State home) and head out to where the grass is greener and the living more lucrative.

What happens now? We can’t really say because we follow the wisdom of Yogi Berra who said, “Prediction is very difficult. Especially about the future.” So there is nothing to do but to wait and see how it all turns out. But to quote the phrase of Gretchen Morgenson, our favorite New York Times financial reporter, predicting the 2008 bursting of the real estate bubble, “It won’t be pretty.”

Remember Justice Clark, the Prophet

The good book tells us that a prophet is without honor in his own country, but he is still a prophet. A prime example of that verity can be found in the aftermath of the California Supreme Court’s decision in Agins v. City of Tiburon, 24 Cal.3d 266 (1979). There, the court’s majority held that (notwithstanding the U.S. Supreme Court’s earlier decisions to the contrary), there would now be no such thing as a regulatory taking of property in California. An aggrieved owner’s remedy for confiscatory regulations would no longer be the just compensation specified in the Fifth Amendment. The only remedy would now be a petition for a writ of mandate invalidating the offending regulation, or perhaps declaratory relief where the unconstitutionality of the regulation appeared on its face. But no compensation. Needless to say, that message of extremism in land regulation was received in city halls across the state: would-be builders were now fair game.

The Agins holding was at first upheld by the U.S. Supreme Court on other grounds (lack of ripeness), but in 1978 it was expressly overruled in First English etc. Church v. County of Los Angeles, 482 U.S. 304 (1987) which held that the California Supreme Court had decided Agins incorrectly. That much is no news for takings law mavens. But in addition to the Agins majority opinion, there was a dissent by Justice William P. Clark, Jr.. In addition to disagreeing with the majority’s substantive holding on remedies, he also gave us a glimpse of the future. He predicted that if judicially tolerated, the kind of extreme land-use regulations exemplified by Agins would lead to a housing disaster in California.

As Clark put it, “Perhaps of greater concern is the consequence that Tiburon — and many other governmental agencies enacting similar land use plans — will price properties within their control out of reach of most people. Only the most wealthy will be able to afford purchase of and construction on lands in such areas. The environment which Tiburon seeks to preserve will disproportionately benefit that wealthy landowner, whose home will be surrounded by open space, unobstructed view and unpolluted atmosphere.” 24 Cal. 3d 283-284.

Justice Clark wrote in 1979, and the passage of time has proven him right – the California Agins majority holding was expressly overruled by the U.S. Supreme Court in 1987 – and Clark’s economic prediction has come true as well. According to Zillow, during the elapsed time, even with the 2008 recession, the median price of a California home soared to $585,000. And housing prices in disfavored inland areas are also moving up dramatically – as I write, the Los Angeles Times reports that in Stockton, home prices have risen by 92% in the past five years. Median homes in San Francisco have gone over the top — literally and figuratively — and now go for over $1,000,000. And remember, “median” means that half the homes in “Baghdad-by-the Bay” now go for more than a million dollars apiece.

Two Presidential Commissions on Housing studied the problem and concluded that excessive cost of regulation and selfish demands of NIMBY suburbanites, in which local regulators acquiesce, lie at the root of California’s dizzying housing costs. Things have come to such a state that even the proposed construction of as few as three small, single-family houses in a residential area can become a protracted litigational nightmare; Conor Dougherty, Getting to Yes on Nimby Street, N.Y. Times, Dec. 1, 2017, Sunday Business Sec. p.1. And it took 30 years and hundreds of thousands of dollars in municipal fees for the unfortunate Bonnie Agins to get permission to build three homes on her 5-acre parcel.

But what about the legislature? Oh, it passes seemingly pertinent laws said to address the problem, but actually do not accomplish much. Land-use and housing regulations are administrated locally, and as a practical matter state legislation does not carry much weight there. The latest batch of legislation is advertised as a solution to our housing crisis; it imposes new taxes on real estate transactions, which will inevitably increase overall housing costs. In other words, the legislature cannot repeal the law of supply and demand. Michael M. Berger said it all in one of his columns in this newspaper when he characterized such legislative efforts as All Yak, No Shack. Daily Journal, March 2, 2005.

What is unfolding in California are the harsh effects of the laws of economics, and of an unspoken policy choice by local governments and courts to limit population growth by using harshly restrictive land-use regulations that drive housing prices above most people’s ability to buy. One result is a growing homeless population. All this fattens the home equities of existing home owners (read, local voters), and increasingly drives ordinary folks to migrate to other states. In North Carolina, for example, to which members of my family have migrated, you can buy a 3000 square foot, four-bedroom suburban home on a sizable plot of land, for about $250,000. So you can sell your half-million dollar California shack, move to a nice Charlotte suburb, buy a home free and clear, and still stash a quarter million dollars as a kitty for your retirement. Sounds like an economic no-brainer, and many departing Californians agree.

But be careful. For if you like living in the California foreshadowed by Justice Clark almost 40 years ago, where home price trends are set by appetites of conspicuously consuming, big-buck techies and movie folks, you may get what you wish for. Actually, you are in the process of getting it, ready or not, so enjoy it if you can.

This post appeared as a column in the Los Angeles Daily Journal on 12/6/17

Enjoy Your Thanksgiving and be Grateful — That’s What Thanksgiving is All About

The Thanksgiving holiday is upon us, and it’s time to give thanks for all that we have, that the rest of the world is envious about. It’s not about fixing and eating turkey etc. It’s to take time out to reflect on how fortunate we are to live here, in the United States of America. To give thanks.

If you don’t embrace that view, name one country in the world where you would rather live. You can’t. And if you think you can, explain to us why you haven’t moved there to enjoy whatever it is about personal, economic and civic life you contend is better over there. Millions of people all over the world understand that, and millions of those who do, strive to leave their homes and come here to live among us. If nothing else, this should tell you a lot.

So enjoy your holiday, and don’t forget that turkey feast or whatever floats your boat gastronomically.

Is the Chavez Ravine Curse Being Lifted?

The Dodgers are into the 7th game of the world series, which is a big deal even if they don’t win it. So given the long interval between the Dodgers’ last series and today, maybe the Chavez Ravine Curse is finally being lifted. You don’t know about that curse? Sure you do if you are a reader of this blog.

A while back we wrote about it, explaining the municipal shenanigans that led to the City of Los Angeles acquiring that plot of land and conveying it to the Brooklyn Dodgers to induce them to move from Brooklyn to Los Angeles. The taking displaced a neighborhood of low-income Mexican families who made their homes there. Ostensibly, this was done to create new, low-cost housing. But that didn’t happen. The city took the land and underpaid its Mexican owners, going so far as to deny them interest on their meager awards, even though they were plainly entitled to it. Some of them tried to stand their ground but were forcibly removed by L.A. sheriff’s deputies. For our piece telling that story see “The Curse of Chavez Ravine,” http://gideonstrumpet.info/2011/04/

Now, more of that sordid background has come to light in the form of a collection of historical photographs made available by the LA Public Library that you — whether eminent domain junkies, or baseball aficionados — may want to see. If so, go to https://www.scpr.org/news/2017/10/31/77135/remembering-dodger-stadium-when-it-was-chavez-ravi/ It will tell you stuff about the history of Dodger Stadium and the fate of little people who get in the way of a grandiose municipal project that in the name of “public use” takes land from some private property in order to reconvey it to other, more favored folks for the latters’ private gain. To see those photos, copy and paste the above link into your browser.

That’s “public use”?

Postscript: We now know the answer to the question posed by the title of this post, and the answer is “No.” The curse of Chavez Ravine is not being lifted. Not yet anyway. Maybe next year. So stay tuned.

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.

Murr — SCOTUS Meets Dick Babcock’s Ghost

So the Murr v. Wisconsin opinion has finally come down, and as predicted by us, it’s an intellectual mess, as must be evident to anyone with some knowledge of eminent domain law, who has read it. We could spend a lot of time surveying the Murr disaster area, but others have begun doing it, so why duplicate their efforts? As we often do, we recommend today’s blog post of our colleague, Robert Thomas in his blog www.inversecondemnation.com for an overview of Murr. Also, check out Roberts’ post of June 26, 2017, for a more in-depth analysis. Here, we concentrate on only one aspect of it. Quoting one passage from Justice Kennedy’s opinion:

“Though a use restriction may decrease the market value of the property, the effect may be tempered if the regulated land adds value to the remaining property, such as by increasing privacy, expanding recreational space, or preserving surrounding natural beauty. A law that limits use of a landowner’s small lot in one part of the city by reason of the landowner’s nonadjacent holdings elsewhere may decrease the market value of the small lot in an unmitigated fashion. The absence of a special relationship between the holdings may counsel against consideration of all the holdings as a single parcel, making the restrictive law susceptible to a takings challenge. On the other hand, if the landowner’s other property is adjacent to the small lot, the market value of the properties may well increase if their combination enables the expansion of a structure, or if development restraints for one part of the parcel protect the unobstructed skyline views of another part. That, in turn, may counsel in favor of treatment as a single parcel and may reveal the weakness of a regulatory takings challenge to the law.” Slip Opinion at 12-13.

But the question of how the taking benefits the owner’s remaining land that is not taken, goes to the measure of compensation, not to liability for the taking. It is basic appraisal lore that only after the value of the taken part of the subject property is determined, and benefits (usually special ones, but sometimes general ones too) to the remainder are determined, that they are deducted from the severance damages (or in some places, from the entire just compensation). That’s how the owner’s net just compensation is determined. Justice Kennedy thus confuses liability with the measure of compensation, and puts the cart before the horse. In other words, first you determine that a taking occurred and then you value the economic harm done to the owner, from which you deduct benefits. But by Kennedy’s lights you first value the harm done, and then — in an amazing feat of circular reasoning — you use that harm to decide whether a taking occurred. Justice Kennedy also forces the owner to try valuation twice — once in what is usually a bench trial for the purpose of determining liability and if successful, once again, this time before a jury, to fix compensation for the taking. With all due respect, this is wasteful of both the parties’ and of judicial time and resources, it violates the judicial economy principle, and accomplishes nothing except maybe placing an unwarranted and illegitimate obstacle in the path of the aggrieved land owners seeking relief from an unconstitutional taking of their land.

We could go on, but in a tour de force of self-restraint, we won’t. Suffice it to say that the Murr majority opinion provides the aggrieved party with a suggested “remedy” that is akin to advising a car driver with a flat tire to change it with a screwdriver, and then to do it again.

All of which brings to mind a bit of history. After the “taking issue” burst upon the legal scene in the 1970s, I had a talk about it with the late Richard Babcock, then the dean of the nation’s land-use bar. Dick was opposed to the damages remedy for regulatory takings, and being from Illinois, a fabled, far-away place where at that time judges actually provided non-monetary remedies, notably what Dick called the “builder’s remedy” whereby a court would invalidate an overreaching land regulation and order the regulators to issue a building permit. The photo below depicts Babcock (left) and your faithful servant, engaged in scholarly discourse concerning the proper remedy for regulatory takings.

His punch line to me was: “You may win a right to ‘just compensation’ for regulatory takings, but even if you do, judges will never allow an actual payment of money to land owners.” Though I thought at the time that he was being unduly cynical by thus questioning the good faith of judges, he turned out to be right on that one — the “taking issue” has been coming up before the US Supreme Court time and again during the past thirtysomething years, but with two exceptions the court never affirmed an actual money judgment against a land-use regulatory agency. Owners’ victories have consisted of invitations to go back and try the whole shebang all over again. Those exceptions were City of Monterey v. Del Monte Dunes, a case of such transparently bad-faith city conduct, that it caused some harsh remarks from the bench to the city’s lawyer during oral argument (by Justice Kennedy, inter alia, come to think about it). The other was the bizarre “California raisins” case where the feds’ trucks pulled up in front of Mr. Horne’s ranch and demanded that he fill them up with some $400,000 worth of raisins without any compensation. The 9th Circuit — who else? — thought this was hunky dory, but the Supreme Court reversed and ordered the feds to cancel the fine they imposed on poor Mr. Horne and to pay him the value of the raisins which had already been determined. No, we are not making this up — see Horne v. USDA.

In one of his law review article, the late Justice Scalia noted that Roman Emperor Nero would issue decrees, but then had them posted on poles so high that no one could read them. The law of takings is sort of like that. The court has established as a matter of principle that when private property is taken by the government, just compensation is payable whether the taking is physical or regulatory. But then it surrounded this basic holding with a thicket of conceptual and procedural obstacles, that make it nearly impossible for aggrieved parties — except perhaps wealthy folks with multi-million-dollar litigation budgets and decades of time to devote to byzantine litigation — to secure enforcement of their constitutional rights under the Fifth Amendment’s “Just Compensation” clause. Indeed in the notorious Penn Central case the court confessed that it has been “simply unable” to articulate any rule whereby to determine when compensation is required, and that it was deciding these cases ad hoc, one by one.

Bottom line: to invoke the insights of another old-time takings law maven, Fred Bosselman: the courts are denying land owners due process of law — they do so by providing too much process, not too little.

Dispatch from La-La land

There is a typical California kerfuffle going on on the California coast near Half Moon Bay (south of San Francisco). A successful tech mogul named Vinod Khosla bought a 90-acre beachfront parcel that the previous owner permitted to be used by the public upon payment of a fee. But upon acquiring the land, Mr. Khosla closed public entry to this beach with expectable consequences. The locals threw a tantrum, demanding that “their” access to Mr. Khosla’s beach be provided.

This being California, the locals demanded that the state acquire the beach and make it public so they can use it. But they ran into several problems. First, no state agency is eager to plunge into this battle, since none has a dog in this fight. The likely candidate for acting as condemnor is the State Lands Commission which lacks the power of eminent domain. So appropriate legislation has been introduced and is pending, But where will the money come from to pay Khosla’s just compensation? Here things take a turn into black comedy. The State thinks of paying $360,000 for 6.4 acres out of Khosla’s 90-acre holding, and it purports to be serious, even though in that part of the state you can’t buy a dog house — literally — for that kind of money, much less a multi-acre beachfront parcel of land. Khosla thinks his parcel is worth $30 million, but the state is allocating $1 million for the acquisition of the 6.4-acre part of it.

In short, this caper has all the makings of another one of those California cases in which a condemnor bites off more than it can chew — like the famous DOT v. So. Cal. Edison case where the state deposited $240,000 for the taking of an Edison transmission corridor only to get hit with a $49.5 million judgment that was summarily upheld by the state Supreme Court.

So let’s stay tuned and see how it all turns out. It should be a good show for eminent domain mavens, and lots of employment for specialized lawyers.

For the latest doings in that controversy, see Angela Hart, California Moving to Seize Public Beach Closed off by Tech Billionaire, Sacramento Bee, June 19, 2017.
http://www.sacbee.com/news/politics-government/capitol-alert/article156697154.html?utm_source=dlvr.it&utm_medium=twitter

What’s Wrong With Regulatory Takings Law? Are Some of these Decisions in Good Faith?

A friend sent us the new opinion of the Florida District Court of Appeal (5th District) in Town of Ponce Inlet v. Pacetta, LLC, Case No. 5D14-4520, filed June 16, 2017. Though probably unintended, this opinion provides an excellent example of what is wrong with regulatory taking law, and reveals that courts can be either incompetent or not acting in good faith when they decide these cases. Here is the opening paragraph of the Pacetta opinion:

“The parties in this case make their third appearance before the court. In this appeal, the town of Ponce Inlet (“Town”) appeals a multi-million-dollar second amended final judgment entered following a jury trial on damages arising from an inverse condemnation claim as well as an earlier order resulting from a bench trial on liability (“liability order”) that found in favor of the Appellees . . .”

So after three trials and opinions by judge and jury, and after three appeals you’d think that courts acting with minimal competence and in good faith would get the issue of liability right Yes? No.

We won’t go through the whole history of this litigation; you should read the opinion if you want to get into the whole megillah. Suffice it say here that this opinion ends with holding against the property owners on their Lucas — complete taking theory — and remands the case to the trial court for yet another trial on liability, and damages (if appropriate). Which seems to us as a deliberate judicial strategy to exhaust the property owner and deplete his resources without ever reaching the elusive “real” merits of the controversy. Legal tradition admonishes lawyers to respect judicial decisions, but this . . .?

A while back your faithful servant wrote an article entitled Hunting the Snark, Not the Quark: Has the U.S. Supreme Court Been Competent in its Effort to Formulate Coherent Regulatory Takings Law? 30 Urban Lawyer307 (Spring 1998). With a title like that you can probably guess that our answer was “No!” But dig it up anyway and read it (or re-read it as the case may be) and see for yourself that our negative assessment of the court’s handiwork in this field rested, and still does, on a sound foundation. It is increasingly apparent that things have gone beyond mere judicial incompetence, and it is increasingly proper to question the judicial good faith in these controversies — if that term may be properly used.

Now, almost two decades later it has become all too clear that the evident judicial rationale in these controversies is frequently not a resolution of legal disputes, but rather the creation of a spider-web-like labirynth in which to trap constitutionally aggrieved, faultless property owners whose “sin” is a desire to use their seemingly constitutionally protected property for socially constructive purposes, like creating badly needed housing. They get taxed on its value for its highest and best use, but as it turns out they can’t use it at all for any economically rational purpose.

And this isn’t just our opinion. Check out the torrent of invective pouring out from the scholarly community, that characterizes judicial performance in this area of law as including characterizations ranging from “worse than chaos” to “deceptive” and “absurd,” uttered by commentators on both sides of the issue. See 36 Urban Lawywr at 702-703.

Legal tradition calls for respecting judicial decisions. But respect has to be earned.