California Choo-Choo — (Cont’d.)

We haven’t had much to say about the supposedly abuilding high speed train line between San Francisco and Los Angeles, or at least its initial 119 mile segment running from Madera to Fresno (aka the middle of nowhere), because there hasn’t been much news on that subject. But news came with a bang on the front page of today’s Los Angeles Times (Cost of State’s Train Surges, Jan.17, 208, p. A1) bringing the dispatch that the financial condition of the train project is parlous. The now conceded increase in the cost of that segment jumped from an estimated $2.8 billion to — are you ready? — $10 billion. This, we are told, is the worst-case scenario that was “long forewarned” but the warning was rejected by the railroad project’s management. Now it is coming to pass.

So much for the news which, as it turns out, is no news at all. Overruns of this kind, that belatedly try to raise the excuse of “higher cost of land acquisition” are old hat. Our own files contain an old article in a conservationist magazine called Cry California. The Spring 1966 issue contains an article by Joseph C. Houghteling, then member of the California Highway Commission, entitled Confessions of a Highway Commissioner at p. 29. In it the author reveals that “Actual costs were an average of 32 percent above estimates, most of the increment coming from additional right-of-way costs.” (at p. 30). That was a half century ago, and evidently not much has changed since then.

If you want an insight into how this happens, take a look at 40 Loyola L.A. L. Rev. at 1108, footnote 162, for an extensive collection of studies indicating that underpaying property owners for land taken from them is common in California as well as in other states. In a nutshell, appraisers of thousands of parcels constituting a major right-of-way are under pressure to come in with low opinions of value to impress their condemnor-clients and because unsophisticated and unrepresented property owners believe that “you can’t fight city hall” and accept those lowball offers in disproportionate numbers. For an explanation of this process by a prominent appraiser, see Ibid, at pp. 1106-1107, footnote 158. In other words, lowballing by condemnors is common and property owners who refuse condemnors’ pre-condemnation offers and try their cases, whether before judges or juries, usually recover compensation quite a bit higher than those offers, often higher by millions of dollars. For some outstanding examples of the stunningly higher awards granted by courts, or even agreed to by condemnors once the weaknesses of their own appraisals are exposed, see Ibid, at pp. 1146-1148.*

So if the California high speed railroad builders are experiencing unanticipated costs of right-of-way acquisition, they are only treading an old beaten path of their own making. California law requires explicitly that condemnees be paid the highest price that their property would bring in a voluntary market transaction. So it should not come as a surprise that when instead condemnors try to lowball condemnees, the compensation they have to pay is higher than their hopes.

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* Our favorite case of that sort is People ex rel. Dept. of Transp. v. Southern Calif. Edison Co (2000), where California DOT deposited $245,000 as its good faith estimate of “just compensation” for a partial taking of a major electrical transmission line, but at trial (a) the jury awarded some $49.5 million, and (b) on appeal the California Supreme Court affirmed and ordered the State not to brief the issues of valuation because the court would not consider them.

Ed McKirdy — R.I.P.

It took us a few days to recover from the shock, but reality must be faced. Our friend and colleague Edward McKirdy has passed away. He was a gentleman and a super lawyer whose presence enhanced any gathering.

We could at this point go on and launch into a string of complimentary adjectives, but it somehow seems unnecessary. If you knew Ed you must know what a gentleman, a scholar and a mensch he was, and what a privilege it was to work with him. And of course there was Ed the man. If nothing else, it was a unique pleasure to dine with him, and just to sit with him and Laura, his charming, one-of-a-kind wife and engage in the lost art of intelligent and witty conversation over a good meal.

Our profession is poorer for his passing, and we will never see the likes of him, his talents and his wit again.

The Fish that Ate Manhattan

Los Angeles Daily Journal

Jan. 3, 2018

THE LITTLE FISH THAT’S KILLING MANHATTAN
Gideon Kanner
Professor of Law Emeritus, Loyola Law School

Being old isn’t all bad. If you’re lucky, you remember things and you gain perspective. Case in point, the abysmal traffic conditions in Manhattan recently reported by the New York Times which reports that Midtown Manhattan traffic has reached a near-gridlock condition. Winnie Hu, “App-Hailed Cars Clog Streets. Should Riders Pay for the Jam?” Dec. 27, 2017 (front page, no less).

Current average car speed in midtown Manhattan is 4.6 mph, down from 6.5 mph only five years ago. (Walking speed is 3 mph — which means that a jogger can beat Midtown traffic.) The Times attributes these conditions to the presence of Lyft, Uber and Juno ride-hailing app vehicles looking for fares. Adding insult to injury, “more than a third of ride-sharing cars and yellow taxis that clog the streets are empty at any given time during weekdays in Manhattan’s main business district.”

Today, there are 103,000 for-hire vehicles plying New York streets, as opposed to only 47,000 as recently as 2013. Uber alone puts 65,000 cars on Manhattan streets. The upshot is that you can easily get a ride when you want one, says the Times, but once you get in the car, you’re stuck.

But another way of looking at this problem is that Manhattan streets are unequal to the task of accommodating modern traffic. So the question virtually asks itself: Weren’t New York traffic engineers smart enough to see what was coming and what to do about it? Yes, they were, but these days, planning and building are two different things once environmental concerns are brought to bear on the problem at hand.

The story of the old decrepit Manhattan West Side highway that was torn down back in the 1970s, but never replaced is instructive. Why? Oh, they tried, and therein lies a tale. What stopped the would-be highway rebuilders was a lawsuit brought by environmentalists who persuaded a local federal judge, Thomas F. Griesa, to bar the construction of a new replacement West Side Highway on environmental grounds.

By an odd coincidence, the same issue of the Times that tells us about the impending Manhattan gridlock also carries an obituary of Judge Griesa, and brings it all back to mind. Griesa found that the plans for the proposed replacement highway violated environmental laws, and barred its construction. The plan was that the new West Side Highway would permit much of the local traffic to bypass the congested mid-Manhattan streets, and keep it moving. It would run from the southern tip of Manhattan to 42nd Street, using a tunnel for a part of its route. It was projected to cost some $2 billion (in 1970s dollars, or $5.7 billion adjusted for inflation).

So was the proposed new highway environmentally bad by increasing air pollution, as claimed by the environmentalists? No. Judge Griesa, according to the Times, rejected that argument, and based his highway-killing judgment on the proposed highway’s adverse impact on fish. Fish? In Manhattan? Yes, fish. Specifically, the Hudson Striped Bass which was not even endangered. It was, according to the judge, “one of the nation’s most popular and commercially lucrative fish,” and it still is. So the new highway was not built, even as Manhattan traffic grew worse and is now approaching gridlock conditions.

As far as I know, the Hudson River has been cleaned up to some extent, but that was largely due to removing industrial waste accumulated on the river bottom in the industrial area way upstream, near Poughkeepsie. It had nothing to do with automobile traffic in Manhattan. Swimming in the Hudson remains hazardous in places. And so I fail to see how improving the river water quality for fish does much of anything for embattled New Yorkers stuck in traffic, waiting for the red light to change so they can move forward another few feet. To say nothing of wasted energy and air pollution caused by all those idling cars (recall that, ironically, air pollution was what the environmentalists claimed to be defending New Yorkers from).

Which brings us to the moral of this story — actually two morals. First, judicial rulings have consequences, even when there is a time lag between their promulgation, and a visible manifestation of their effects. Some judicial rulings can be terrific, but others are unsound, or even disastrous, like the misbegotten judicial notion of bussing kids from good schools to decrepit, dangerous inner city ones, a feat that helped empty the cities of their middle class populations and in some cases transformed them into urban wastelands, as middle-class families fled to the suburbs.
Second, a legal question: How come, in eminent domain cases, the same judges who wield a heavy hand in environmental review litigation — such as killing entire public projects on environmental grounds — hold that condemnors’ findings of public use are “well-nigh conclusive” and disclaim any power to deal on the merits with land owners’ defenses alleging that condemnors’ findings of necessity for the proposed public works, their efficacy, safety, location, layout, etc. are defective?

In the notorious Chevalier case, the California Supreme Court went so far as to hold that in eminent domain cases, state compliance vel non with statutory criteria of public necessity was altogether nonjusticiable, not even where the condemnors’ determination was obtained by fraud, bad faith and abuse of discretion. The California Legislature repealed that rule in 1976 but the court never retreated from it, and even now review of these matters is available only in cases of a condemnors’ “gross abuse of discretion” or bribery. New York federal courts did the same over there, when in the Rosenthal & Rosenthal case they upheld a condemnation, refusing to inquire into allegations that a redevelopment project’s boundaries were corruptly drawn to benefit the mayor’s friends.

Conclusion: Ideas do have consequences, and as this saga illustrates, in time seemingly unconnected court rulings can have a profound impact on people’s lives. The parties who fought it out before Judge Griesa almost a half-century ago could have no idea that their wrangling over the comfort levels of an abundant fish would come at the expense of people’s life quality affecting their daily lives.

Lowball Watch — Virginia

The Martinville Bulletin, 12-29-17, reports that the Virginia DOT deposited $6.28 million for the taking of a truckstop, but settled for $7.2 million, an increase of close to $1 million. Laurence Hammond, VDOT to pay $7.2 million for truck stop closed by Batentout Highway project, for an increasr of $920,000.

http://www.martinsvillebulletin.com/news/region_and_state/vdot-to-pay-million-for-truck-stop-closed-by-botetourt/article_69d43010-3fcf-5034-882a-8de569ae0695.html

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.”