Monthly Archives: November 2008

The Free Lunch – Literally

         We blogged about the finances of athletic teams in general and in New York in particular, on June 14, 2008, In Pursuit of the Free Lunch. Check it out.

         Now, we are informed by the New York Times (David W. Chen, Bloomberg Team Pressed Hard for Use of Luxury Suite at Yankee Stadium, N.Y. Times, Nov. 30, 2008, at p. 28) that there was presure put on the Yankees by the New York City officials to make sure and provide a luxury box for use by the city officials, and — are you ready? — to throw in free food for its users. So how did the city get the Yankees to agree to that? We’re glad you asked. According to the Times report of disclosures made by New York Assemblyman Richard L. Brodsky (who is evidently not what you might call the Yankees’ fan — or at least not a fan of their deal with the city) the way the city got the Yankees to cave in on its demands was to threaten to withold its request to the IRS to allow the Yankees to finance their new stadium with tax-exempt bonds. Says the Times:

“The project required permission from the Internal Revenue Service because of the team’s desire to use tax-exempt bonds to finance construction. In one heated exchange, city lawyers threatened they would not make the request to the I.R.S. for the use of the tax-exempt financing unless the Yankees would consider providing the luxury suite.”

One of the Yankees’ lawyers resisted the free food part, and is quoted by the Times as saying “The Yankees feel the city should pay for any food it wants to consume, and I think it’s a little unseemly to require ‘free’ food.”

       So the moral of it all appears to be that, outrageous as this caper may sound, it also contains a touch of poetic justice. If there is one thing that can be said about the practice of cities acquiring land by eminent domain while undercompensating the hapless condemnees who get in the way, it is that those cities and the mega-millionaire owners of professional athletic teams are pursuing the proverbial free lunch at the expense of the taxpayers. Now we learn that the “free lunch” metaphor can be literally true, and it is a case of just deserts that after pocketing those huge municipal subsidies, the team owners have to buy city officials some free lunch. The ultimate touch is provided by the fact that New York’s Mayor Bloomberg is a multi-millionaire, and if anybody should refrain from schnorring and pay for his own hot dogs, he and his staff would appear to be the prime candidates.

         On the other hand, don’t shed too many tears on behalf of the abused Yankees. According to the Times, the deal included the city’s relinquishment of 250 public parking spaces for the Yankees’ exclusive use, and “the rights to three new billboards along the Major Deegan erxpressway, and whatever revenues they generate.” Those revenues are estimated by the Times to be $750,000 annually. That’s some lunch. As they say in some parts of New York, k’n ein nehoreh.

        So all things considered, while we admire the Yankees’ gallant effort to strike a blow against municipal greed, we find it hard to shed a tear for them when they have to pony up for . . . . Wait a minute! That lunch does consist of ballpark hot dogs, doesn’t it? You don’t suppose those folks would trash a grand old American tradition and scarf up foie gras and champagne at a baseball game, do you?

Eminent Domain Program

     The annual ALI-ABA program on Eminent Domain and Land Valuation Litigation will take place on January 8-10, 2009, at the Eden Roc Hotel in Miami Beach. The program will cover developments in substantive law in plenary sessions, as well as breakout sessions dealing with practice issues and specialized topics like condemnation of pipeline and transmission corridors, valuation of unique properties (like churches and schools), and compensability of fixtures. The program faculty consists of a large, diverse group of practitioners who in their practice represent condemnors and condemnees.

Concurrently with this program, ALI-ABA will also present a program for newcomers to the field of eminent domain, entitled Condemnation 101: How to Prepare and Present an Eminent Domain Case.

For detailed information on these programs and a brochure contact ALI-ABA, 4025 Chestnut St., Philadelphia, PA 19104, telephone 1-800-CLE-NEWS.

Once More, With Feeling

The November 21, 2008, issue of The Day, the New London, Connecticut, newspaper, reports that the New London Development Corporation (NLDC), the folks in charge of the Fort Trumbull redevelopment project that gave us the wretched Kelo case, is seeking developers willing to take another shot at it. The former redeveloper, was unable to obtain financing for the project, and is apparently out of the picture. The original project area has been razed and is largely vacant at the moment. Given the country’s unfortunate and worsening economic condition, accomplishment of NLDC’s goal will take some doing, but as they say, developers are an optimistic lot.

The deadline for responses to NLDC’s Request for Qualifications is January 5, 2009. According to The Day story, what NLDC has in mind is “plans for a hotel and conference center, office and/or research facilities and residential and mixed use.”

Rots of Ruck, guys.

The Mad Hatter’s Tea Party Goes On

       We sure hope that in reality things aren’t as weird as reported, but in his puff piece relating the glories of Buffalo’s architecture, the New York Times architeture critic, Nicholas Ourousoff, informs us that “Just as local preservationists are completing restorations on some of the city’s most important landmarks, the federal government is considering a plan that could wipe out part of a historical neighborhood.” Nicholas Ourousoff, Saving Buffalo’s Untold Beauty, N.Y. Times, Nov. 16, 2008, p. 1 (Arts & Leisure Sec.)

       The same historical structures?? Sheesh!

Hydroelectric Dams – Build them Up, Or Tear Them Down?

        How times change. It wasn’t all that long ago that building dams for irrigation, flood control and power generation was all  the rage. You can check it out by reading Marc Reisner’s book CADILLAC DESERT (1993). It’s not that we necessarily agree with Reisner’s views, but his book does provide a good overview of the history of American dam building which was all the rage, starting at the time of the Great Depression of the 1930s.

        As far as the law of eminent domain is concerned it was a case of land condemnation for a dam, United States ex rel. TVA v. Powelson, 319 U.S. 266 (1943) that provided the context in which the U.S. Supreme Court uttered its shibboleth that the law of eminent domain is compounded of the principle of indemnity and the people’s right in public projects. As it happened, Powelson proved to be probably the single most inappropriate case for such a statement. Why? Because, far from suffering the expense that would put the creation of public projects at risk if condemnees were to be indemnified for all their economic losses, the TVA, the Tennessee Valley Authority, made a killing from its dams.

        In her book CITIES AND THE WEALTH OF NATIONS (1984) Jane Jacobs describes how by using hydroelectric dams, the TVA was able to generate cheap electrical power at a 50% cost advantage over its competitors. The cheap electricity attracted industry to the area, so that before long the generating capacity of TVA’s hydroelectric dams was exhausted, so the TVA built coal-fired power plants that still had a 30% cost advantage over its competition. Thus TVA became the largest power generator, making oodles of money, so that the court’s concern that there was tension between indemnifying the people whose land was taken for those dams and the people’s interest in public projects, proved to be simply absurd. TVA and its customers made a killing, and in that context the prices it paid for the land it condemned for those dams were a proverbial steal.

        But that isn’t the end of the story. The creation of those large, coal-fired power plants inspired extensive strip mining of coal in Kentucky and West Virginia, causing serious environmental degradation. As Jacobs puts it, “The scale and ruthlessness of strip mining were fully in keeping with the prodigious power production that the coal fed. Topsoil and forests were ravaged, valleys choked with debris. Floods grew in fury, compounding the damage.” All this was no public benefit to the people of the region, even if it created a windfall to TVA and to the industry that got to enjoy all that cheap power.

         Even the promised “just compensation” could be illusory. We learn from a recent New York Times article (Felicity Barringer, Decades Later. Simmering Debate on Road Heats Up, N.Y. Times, Feb. 21, 2008, at p. A12) that the TVA took hundreds of acres of rural land in North Carolina in the 1940s and promised to build a new county road to replace the road that was permanently flooded by one of its dams, but it failed to deliver on that promise.

         Now we learn that, according to our betters, all that past dam building frenzy was all wrong. Environmentalists now want dams to be torn down, and believe it or not, some of them are getting their way. The redoubtable Felicity Barrnger informs us in another, more recent, article that agreement has been reached to tear down four dams in the Pacific Northwest (Pact Would Open River, Removing Four Dams, N.Y. Times, Nov. 14, 2008, at p. A18). Why? Because the fish don’t like them. The more important question is why would the power companies that are selling the electrical power generated by those dams agree to tear them down? Answer: bureaucratic blackmail. “For the [power] company, the alternative to removing the dams would be renewing its long-term license, which would have required it to spend hundreds of millions of dollars on new systems and structures to mitigate the impact on salmon.” (Ibid). In plain English, those dams have to go to please the fish, so keeping them in operation has been made too costly by the onerous bureaucratic burdens imposed on the power company via the license renewal process. So much for the people who rely on those dams for irrigation and power.

        So if you want an insight into how crazy those who govern us can be, here it is: on the one hand, every politician out there is forever yammering about the need to increase our domestic energy supplies and to protect the environment, lest global warming do us in if we keep emitting carbon dioxide. But on the other hand, there they are, insisting that hydroelectric dams that provide the cleanest and cheapest energy and irrigation, to say nothing of flood control, be torn down.

         Welcome to the Mad Hatter’s tea party.

INTERESTING UPDATE. While perusing the November 30, 2008, issue of New York Times Magazine, we came across a slick, full-page ad by Shell (inside the back cover), bragging about “tackling climate change and providing fuel for growing population.” It specifically mentions coal gassification, gas liquefaction, wind power, hydrogen fuels, fuel from algae, fuel from straw, and fuel from woodchips. But no mention of hydroelectric power. Odd, don’t you think? Why wind power, but no hydroelectric power?

Update on Palmdale Airport

       This is an update on our earlier post If You Can’t Build It, They Won’t Come, dated October 2, 2008. It tells the story of how Los Angeles blew $100,000,000 around 1970 to acquire some 17,000 acres of land in the high desert near Palmdale, for what it modestly called the Los Angeles Intercontinental Airport. It never got off the ground, you should pardon the expression. Check it out.

       Now, the Los Angeles Times reports that the Los Angeles Airport folks have finally given up. They have transfered the operation of the Palmdale Airport, to the City of Palmdale which will now run it and try to make something of it. Dan Weikel, Palmdale to Run Troubled Airport, L.A. Times, Nov. 12, 2008, at p. B3.

       We learn from the Times article that since 1971 no less than eight airlines have tried to make a go of using the Palmdale airport, but none succeded. This in spite of the fact that in the latest try, United Airlines was receiving subsidies from the city and federal governments amounting to $230 per passenger.  But it appears that the feds have come to their senses and have refused to renew their subsidy.  United Airlines had asked for $6 million to continue operating at Palmdale for another year.

       Your tax money at work.

Yes, Virginia, There is Redevelopment in New London, Connecticut, But It’s Downtown, Not on the Site of the Wretched Kelo Redevelopment Project, and It’s Pursued by Private Enterprise.

 It shouldn’t be news to the readers of this blog that the vaunted redevelopment plan for New London, Connecticut, the one that gave us the infamous Kelo case, has been a civic and economic disaster. Using the power of eminent domain, an entire lower middle class neighborhood was taken by the city and razed to the ground in order to . . . what? Maybe we better take a look at the Supreme Court’s Kelo opinion and see what the city had in mind. After all, the project, according to the Supreme Court, was evaluated by a team of consultants who considered six alternative development proposals for the Fort Trumbull redevelopment area. 

The reader of the Kelo opinion is struck by two things. First, a lamentation over the city’s declining condition brought about by the shutdown of local U.S. Navy facilities and consequent above-average unemployment, and second, the need for urban revitalization through redevelopment. Though couched in restrained judicial prose, Justice Stevens’ majority opinion ultimately depends on the assertedly thorough, carefully vetted redevelopment plan produced by the city, that the court’s majority accepted at face value in justification of the city’s proposed redevelopment project. In the end those city plans were used by the court as a justification for its refusal to provide meaningful review of the issue whether or not the city’s redevelopment plans were really in the nature of “public use,” as required by the Constitution, or whether the city’s own self-serving say-so that they were, was sufficient to deem a purely private, profit-making enterprise to be a “public use.” The court’s (5 to 4) majority concluded that the latter was the case. 

But guess what? After all the foofaraw and a Supreme Court opinion that roiled the country, brought a storm of criticism upon the court, and made the phrase “eminent domain” a dirty word, the New London redevelopment project went nowhere. We blogged about these things repeatedly, and if you are interested see our posts of July 13, 2007, Nov. 27, 2007, Mar. 25, 2008, and May 29, 2008, telling the story of how New London’s vaunted redelopment plans for Fort Trumbul did not get off the ground and how its redeveloper could not even get financing for the project. 

But all this leaves open a question that until now has not been reported in the national press. What has happened in New London after its Supreme Court victory, given that  the Fort Trumbull redevelopment project proved to be a failure? We now have a fascinating answer. While the vaunted redevelopment project has gone nowhere, there has been some revival in New London by – are you ready? – private enterprise. The New York Times (Lisa Prevost, In Connecticut, Developers Change Tack, N.Y. Times, Nov. 9, 2008, p. 13 (Bus.Sec.)) informs us that in contrast with all the gloom about its future, that was successfully peddled by the city to the U.S. Supreme Court in the Kelo case, there are signs of revival in New London – not in the area that had been chosen by the city for the Fort Trumbull redevelopment project (so much for all those fancy, expensive studies), but largely in the downtown area.  

It turns out that several downtown and waterfront buildings are being privately renovated and converted to condominiums with some success. What this article makes clear is that New London’s problem is that it is, well, New London — an old, tired city, much of whose population has moved out over the years, and not some sort of hip place with a scenic, historical, or commercial cachet that is likely to draw visitors and trendy, affluent would-be residents. The city boasts that it is located mid-way between Boston and New York. Which comes close to a definition of the proverbial middle of nowhere, where these days it’s hard to make a living and even harder to make a municipal silk purse out of that sow’s ear. Those charming sidewalk cafes in yuppified areas of hip cities that boast of successful redevelopment projects can be fun, but you won’t enjoy one on the Connecticut waterfront in, say, February.  

But there is life in New London. Condominiums are being promoted by their developers with varying degrees of success. “Downtown rentals, on the other hand, have done well,” says an owner of 65 rental apartments in six renovated buildings in the center of city. And here you thought that without that Fort Trumbull redevelopment project, New London was about to roll up its sidewalks and shrivel up. 

So while urban prosperitywise things may nor be beer and skittles in New London, neither are they as dire as the city represented to the Supreme Court. The important part is that progress is being made in New London, and it is being made by private enterprise — the people best qualified to make it: locals whose lives and fortunes have been invested in their city, not an out-of-state redeveloper who moves in, pockets a generous municipal subsidy, wreaks havoc on a community targeted for redevelopment, cleans up (or tries to), and then moves on to wreak havoc on some other community.  

So are those New Londoners going to live happily ever after? A definite maybe. It appears that along with the moderately good news there is also a cloud on the horizon. The state of Connecticut is blowing $750,000 on a study of how to maximize the economic potential of New London’s downtown transit facilities. Uh-oh. Will it be another case of “We are from the government and we are here to help you”? We shall see. Stay tuned.

Oh yes, we almost forgot. What about Pfizer pharmaceutical company, the industrial giant that had built a $300 million research facility across the Thames river from Fort Trumbull. The one whose presence in the community was going to vitalize this redevelopment effort on acount of all those well-paid Pfizer employees moving into the community and freely spending their money on upscale housing and merchandize that would become available on the site of the taken lower middle-class homes?

Actually, nothing happened. Pfizer has suffered some business reverses and laid off 10,000 employees. The investors who “rushed in to buy many of the brick buildings that line Bank Street, parallel to the riverfront” didn’t make out too well either — according to the New York Times report, “unfortunately, they didn’s always renovate them.” So much for city-sparked redevelopment.

The Ripeness Mess Revisited

     At long last here is an outspoken, intellectually honest federal judge telling it like it is with regard to the Williamson County – San Remo Hotel – International College of Surgeons mess, and who candidly explains what hash the Supreme Court has made out of the confluence of ripeness and issue preclusion rules in cases of uncompensated property takings.  Looks like there is hope. See Del Prairie Stock Farm v. County of Walworth, 572 F.Supp.2d 1031 (ED Wis. 2008).

    This was another one of those atrocious cases where the owner claiming an uncompensated taking of his property filed his lawsuit in state court as required by the Williamson County case, only to have the defendant-county remove it to federal court and there have the chutzpa to argue that the federal court lacked jurisdiction because the owners were supposed to litigate in state court, which of course they did until the county removed it to federal court. Nothing doing, ruled the federal court, and remanded the matter back to state court, noting that the reason it did not sanction the county was that the owners had not asked for sanctions. Keep that in mind.

Good Advice

       Take a look at the blog for an outstanding list of myths about eminent domain that many lay folks believe, but which simply aren’t true. If your clients are facing the prospect of an imminent taking make sure they read it.

       Though this list was written in the context of an impending referendum on whether to build a local rail line (which, if approved, will require many takings of privately owned land for the right-of-way in Hawaii), this is good advice in the context of imminent condemnation for any purpose, anywhere. Check out the post entitled  Clearing Up Myths About Hawaii Eminent Domain Law and the Rail, dated November 2, 2008. Good stuff, that.

Arigato, Gaijin San

        Reading about the ongoing misadventures of the American automobile industry got us thinking. True enough, those Detroit worthies that have been making American cars haven’t been what you might call astute for a long time. The plain fact is that, unchastened by decades of declining fortunes in the market place, they have often been selling ugly and unreliable junk, even as their Japanese competitors have turned out attractive, dependable cars that have been snapped up by American buyers.

       At the moment, American car manufacturers are doing better in terms of quality of their product, but given the state of the economy and all, this appears to be a case of too little and too late. There is a good chance that General Motors, Ford and Chrysler will be filing for bankruptcy in the near future. At least the market thinks so – General Motors bonds have been reduced to “junk” status and are yielding around 20% while the fed funds rate is a mere 1%. 

       In other words, the Japanese have been kicking ass in the American car market and doing right well at it. And so, it seems passing strange that – guess what? –American state governments have been subsidizing Japanese automobile manufacturers. Thus, the New York Times has reported that the State of Mississippi has condemned some 2.5 square miles of land for a Nissan plant, and on top of that has given Nissan $400 million in cash and tax rebates, and has assumed the $17 million cost of a vehicle preparation building, plus another $80 million for a job training program and another $60 million for new and improved roads serving the Nissan facility. See David Firestone, Black Families Resist Mississippi Land Push, N.Y. Times, Sep. 10, 2001, at A20. Why would the state do it? Money, that’s why. A number of southern states have been acquiring land, often by using eminent domain, and then turning it over gratis to the likes of Nissan, Toyota, Honda etc., along with multi-hundred million dollar subsidies in the form of cash and tax abatements. Is this a great country, or what? Can you imagine a Japanese prefecture spending its treasure, to the tune of gazillions of Yen, to subsidize an American automobile plant in some part of Japan that could use more employment, so the gaijins can better compete with Toyota et al.? No? Neither can we. The Japanese must think we’re crazy, and if they do, who can blame them?

       This is done in the hope that those Japanese car manufacturers will create local jobs that, true enough, those states can use. But even so, if you stop and think about it, this thing is still crazy. Acting in the name of job creation, American [state] governments are blowing hundreds of millions of tax dollars subsidizing foreign competitors of American car manufacturers who are being forced to lay off tens of thousands of their employees, so that in the end, Mississippi’s gain is Michigan’s loss. A latter day economic civil war, as it were.

       It seems to us that, whatever the economic benefits to those southern states, this is about as irresponsible a use of the power of eminent domain as can be imagined. If the Japanese want to buy American land in voluntary transactions and build their car plants with their own money, let them. That would be a case of the Japanese car manufacturers paying for the cost of doing business in America, and of market competition with which it is hard to argue. But eminent domain is not a private activity pursued to enrich private profit-seeking enterprises, a fortiori to enrich foreign enterprises at the expense of their Anerican competitors. It is supposed to be the exercise of sovereign government power that is proper only when the taking is for “public use” or at least is used to generate “public benefits.” So how can a state’s waging of economic warfare on other states and impoverishing them in the process meet those criteria?