Wednesday, July 19, 2006

Imminent Eminent Domain Problem

In today's Sac Bee, Peter Schrag looks at the legal and policy folly that is Proposition 90, the spectacularly manipulatively named "Protect Our Homes Act."

If there's anything I retained from BarBri - past February 23, that is - it was ConLaw guru Chemerinksy's comment that Kelo - the Supreme Court decision that fueled this fear of local governments exercising eminent domain to turn over your grandmother's home to Rick Caruso - changed absolutely nothing in current law. But it had one hell of a publicist.

So now we have a super rich guy from New York backing an effort here (ah, the price we pay for being a public policy incubator for the nation) to push a patchwork proposition to limit the use of eminent domain in California:

In a state where assessments are fixed until the property is sold and where municipalities are all in pursuit of sales-tax-paying commercial developments, such condemnations are particularly attractive. Proposition 90 says private property may only be condemned for "public use" -- meaning roads or parks or schools -- not for delivery to private development.

But Proposition 90 isn't just about eminent domain. Buried in it are "takings" booby traps that throw into question a wide array of future regulations, zoning decisions and other actions that "result in substantial loss to private property." The initiative allows regulation to protect public health and safety, but says nothing about protecting the environment or public welfare.

It also says that if private property is taken "for any proprietary government purpose … the property shall be valued at the use to which the government intends to put the property if such use results in a higher value for the land taken." That appears to mean that slumlords must be compensated not at the value of the condemned housing, but at the value of the property under the convention center or affordable housing units that replace it. Nor could a city turn the housing over to a private agency -- say a church or social organization -- even if such an agency was a more efficient operator of the project. Even backers of Proposition 90 concede that there'll be plenty of litigation to clarify the ambiguities and apparent contradictions in the law.
What really burns, beyond the primary public policy shortcomings of the measure, is the notion that backers admit that there will be loads of litigation to give the damn thing meaning!

That sound you hear is Hiram Johnson spinning in his Colma grave.

Or not. But either way, this is all that guy's fault. Progressive tool my arse.

But I digress. If it wins, Prop 90 could mean your city, struggling to snatch economic redevelopment and hope from the jaws of urban decay, has either no legal chance to do so or couldn't afford it anyway.

This is serious baby-with-the-bathwater territory that highlights the folly of both alarmist judicial decision coverage and hastily created ballot measures.

Unintended consequences city, people.


jvgordon said...

While I agree that the outcome in Kelo was predictable from prior case law, that should not make it less surprising that the nation did not really notice how absurd eminent domain had become until Kelo . Unless you live in a city with historically abusive eminent domain practices, like New London, Detriot, Pittsburgh or Indian Wells (CA), this is not something that would have been on most people's radar until SCOTUS brought it to light.

While I am not intending this comment to take a position on Prop 90, I will note that approximately 80% of the public wants eminent domain reform. And it's easy to see why. When government can take property and give it to a private citizen, it allows the government to pick winners and it takes property value (sentimental or potential) from the original owner. The usual victims are small businesses, long time homeowners, and churches, because they tend to be holdout property owners. The usual beneficiaries are wealthy developers and large corporations, because they have the knowledge and political ability to organize eminent domain through local governments, especially through redevelopment agencies. There's a reason that eminent domain is sometimes referred to as "Robin Hood in reverse."

I don't know yet if Prop 90 is the right solution, but I do know that this is government abuse that needs to be stopped, and that most of America agrees with me on that.

Anonymous said...

The legislative process is messy and tainted, but the only WORSE way I can think of creating policy is by Initiative. Part of the reason why is that there's even less debate and analysis of an initiative than there is of legislation. This is a great example of the problem.

Eminent domain has led to some bad outcomes, and even some misuse, but it's also made some really wonderful things possible. I'm all about ending government abuse, but let's be clear that not all eminent domain is govnerment abuse and Prop 90 will TOTALLY change the face of local redevelopment. And not in a good way.

As a developer that has several active projects in Redevelopment Areas, I'm horrified at your description of the eminent domain process. Eminent Domain is the power of the local government, not "wealthy developers and large corporations," and that the land owners are paid fair market value for their property (this value includes potential uses of the property) which is decided by the courts. Also, for the record, not all holdout property owners are churches and old ladies in their family homesteads. Some are toxic polluters who would rather own their property than deal with the costs of cleanup required to develop their property on their own. I'm involved in a case where a local government may use eminent domain to BUY toxic property where the owner has made it clear they have no interest in any use for the property themselves, but they know they couldn't sell it in a regualr market sale because it's so dirty they can't build anything on it without serious remediation. We want to spend the cash to remediate it and reuse it, but they make more money through eminent domain than a market sale, so here we are. Also, the dirty land is right next to a waterway with a tendancy for flooding, just in case you were wondering.

It's also very myopic to say that "wealthy developers and large corporations" are the beneficiaries of eminent domain. What about the people who live in teh communities where blight is rampant? What about the residents that live in the affordable housing that redevelopment projects create? What about local governments and citizen's generally that benefit from increased Tax Increment? There are LOTS of beneficiaries of redevelopment.

Eminent Domain is a HUGELY important topic that deserves a FAR more thoughtful public debate. Fortunately, whenever a local government chooses to enact it, it gets that debate in a series of public forums that are part of the process. Lastly, the best way to prevent eminent dimain abuse is to elect leaders that know how to use it appropriately. 90 is CERTAINLY NOT the answer. In any case, it certainly deserves far more thoguht than policy-by-polling and a slap dick initiative.

PS - does anyone find it ironic that eminent domain is a tool of local government, which conservatives are always saying we should leave to their own devices becasue locals know best, but for some reason, elected officials in local governments DON'T know best on this issue. I wish they'd publish a list that delineates when those sort of arguments count and when they don't. It would be great poolside reading.

Anonymous said...

I agree with jvgordon and I have a couple of other points.

The first is that some governments have just become too big, look at the SF City Gov. for example, it is becoming harder and harder for them to live within their means. I am not a Republican by any means but we have to force governments to live within their means.

Two, individual rights should not be trumped by some politicians or bureaucrats deciding what should be built on a piece of property. Collective good is all well and good but building a train track or a road is one thing and building a mall, casino or other egregious examples to bring in more tax income is quite another. I am all for their powers to be curbed.

However I do agree that Ny'ers should not meddle in our state affairs.

mrgr8avill said...

This one hits pretty close to home as I am a commercial real estate appraiser having worked with public project acquistions for the last 15 years. First, I have to say that Prop 90 will likely NOT keep me out of work -- on the contrary, for the nxt few years at least, there will be plenty of work doing re-valuations becuase the amendment is retroactive to any project that has not been adjudicated (in ED, the acquiring agency "gets" the property through an "Order of Posession" sometimes years before the case goes to trial).

Having been involved with so many municipalities and on so many different public project levels, I have seen the good and bad of ED, and I personally beliive that a good deal of change is required in the redevelopment aspect of ED. BUT, Prop 90 does away with so many of the GOOD things that ED represents.

Almost every suburban town in California has that big four lane road that was recently built to ease traffic. They got some of the right-of-way for that road by waiting for people to develop property along its frontage, and when the people applied for building permits, the City required them to dedicate the future roadway to the City for future construction. When the money was there and the timing right, the City decided to hurry along the dedication process by excersizing ED, and acquiring the rest of the area needed to build the street at a lower value, because the property owners would have to dedicate the street area anyway whenever they decided to develop.

Under Prop 90, the dedication requirement is gone, meaning that the City would have to pay commercial land values for land that would otherwise have to b given to them if they waited for the owner to devleop. In some cases, this can be ten times or more than they would have had to pay before Prop 90.

Many cities simply don't have the budget to do this, or to defend the almost mandatory lawsuits that will result from any ED activity, as the Prop allows for property owner's attorney fees to be paid for by the acquiring agency.

So, that half-developed two lane road that really needs to be widened and signalized will, after Prop 90, likely not get built until the vast majority of property owners along its frontage have applied for building permits and completed their required dedications.

While I use roads here as an example, the theory works for any public utility corridor.

Prop 90 doesn't just limit ED for redevelopment, it all but kills it for use in any major public improvement project.

Growth will be stunted, traffic will be worsened, and the cost of housing, commercial, and industrial space will increase because it will cost significantly more to develop new tracts of land. This will impact the cost of housing, and products.

Is the sky falling? Probably not. Am I going to stay busy because of Prop 90? Yep. But this is bad, harmful legislation and the word really needs to get out about how damaging it can and will be if passed to the State's growth.

Eliminate ED for redevelopment entirely -- but don't in doing so harm the ability of public agencies to provide roads, utilities, and services.