As California lawmakers battle over how to close the state’s huge budget deficit, the fate of redevelopment agencies hangs in the balance. Local government officials are desperately lobbying state lawmakers to keep redevelopment agencies alive, pointing to all sorts of fabulous “development” that would not have been possible without the agencies.
But, as Steven Greenhut explains in this article in City Journal, redevelopment agencies are not as wonderful as local bureaucrats would have you believe.
“In theory, RDAs spearhead blight removal. In fact, they divert billions of dollars from traditional services, such as schools, parks, and firefighting; use eminent domain to seize property for favored developers; and run up California’s debt to pay those developers to construct projects of dubious public value, such as stadiums and big-box stores. Most Californians have long been unaware that these agencies exist. As the activist group Municipal Officials for Redevelopment Reform puts it, RDAs constitute an ‘unknown government’ that ‘consumes 12 percent of all property taxes statewide,’ is ‘supported by a powerful Sacramento lobby,’ and is ‘backed by an army of lawyers, consultants, bond brokers and land developers.’”
House Judiciary Subcommittee on the Constitution
Hearing on H.R. 1433: “Private Property Rights Protection Act”
Tuesday, April 12, 2011, at 4 p.m.
Rayburn House Office Building
In an increasingly partisan nation, one issue unites Democrats and Republicans, liberals and conservatives: reforming eminent domain laws to end the use of public power for private gain. A bipartisan bill being considered in Congress right now would greatly discourage this abuse of power by stripping federal funding from any municipality that condemns private property for private development. This would finally provide some federal protection for the property rights of all Americans, especially the poorest and most-vulnerable, from the alliance of land-hungry developers and tax-hungry government officials.
H.R. 1433 (the “Private Property Rights Protection Act”) cosponsored by Representatives Jim Sensenbrenner (R-WI) and Maxine Waters (D-CA), prohibits states and municipalities from using eminent domain for private development if they have received federal economic development funds. It also prohibits the federal government from using eminent domain for economic development, which is defined as taking private property and transferring it to another private person to increase tax revenue, jobs or general economic growth. A nearly identical bill that was introduced immediately after the U.S. Supreme Court’s disastrous decision in Kelo v. City of New London passed the House overwhelmingly by a vote of 376-38, with the Senate never voting on passage.
Importantly, the bill would still allow eminent domain for traditional public uses like public utilities, roads and post offices, and would also allow local officials to remove properties that pose an immediate threat to public health and safety and put abandoned property to productive use.
Among those who will testify in favor of H.R. 1433 are Dana Berliner, a senior attorney with the Institute for Justice, which litigated in defense of homeowners in New London, Conn., in the Kelo case, and Lori Ann Vendetti, a homeowner from Long Branch, N.J., who spent years battling to save her home and her parents’ home from condemnation for a high-end condominium project.
Berliner will tell the Committee: “In this economy, Congress does not need to be sending scarce economic development funds to projects that not only abuse eminent domain and strip hard-working, tax-paying homeowners and small businesses of their constitutional rights, but that may ultimately fail. Let New London be a lesson: After $80 million in taxpayer money spent, years tied up in litigation and a disastrous U.S. Supreme Court ruling, the neighborhood is now a barren field home to nothing but feral cats. The developer abandoned the project, and Pfizer—whom the project was intended to benefit—also left New London.”
It’s very important that elected officials in Washington hear from their constituents. Click here to find out who represents you, and let them know you support eminent domain reform.
Roy Fowler has been forced to shut down his family business, after two years of fighting the City of Azusa’s threat to seize his property by eminent domain. City council members want to replace his furniture business with a restaurant, grocery store, and other businesses they like better than Roy’s.
The city council slapped Roy’s thriving business with a “blight” label a few years ago, in order for it to be included in their “redevelopment” plan for the area. Roy fought to save his business by challenging the blight designation and the inclusion of his property in court. His efforts were all for naught. Last fall, the judge ignored the evidence that Roy’s property was not “blighted” and rubberstamped the inclusion of the city’s redevelopment plan.
Upon hearing the judge’s decision, Roy’s attorney, Christopher Sutton, compared California redevelopment trails to the Salem Witch Trials. “‘It is like the government declaring you a witch,’ Sutton said. ‘An accusation of blight is the same as an accusation of witchcraft. You have no ability to rebut it.'”
Ironically, even though the city is forcing Roy to close shop before the end of April, the city council has not yet selected a developer to carry out their big plans. The lot will now sit vacant until the city goes through this lengthy process. Even then, there is no guarantee the city will be able to attract the businesses the city prefers.
Be sure to check out Redevelopment Wrecks, 20 Failed Projects Involving Eminent Domain Abuse, which documents how “plans” similar to Azusa’s often fail to produce the development and subsequent windfall of tax revenue politicians expect.
FOR IMMEDIATE RELEASE:
March 31, 2011
The Institute for Justice—the nation’s leading legal advocate against eminent domain abuse—is calling on Republicans in the California Legislature to approve a proposal currently before them that would eliminate more than 400 redevelopment agencies across the state. The Institute sent a letter to Republicans today urging them to set aside partisan politics and focus on protecting the private property rights of California’s hard-working home, small business and farm owners. The Institute for Justice litigated the infamous Kelo eminent domain case before the U.S. Supreme Court.
“The Institute for Justice has catalogued hundreds of abuses by California redevelopment agencies,” said Institute for Justice Senior Attorney Dana Berliner. “Eminent domain is used over and over to take property from one private party in order to give it to a more favored private developer. And California redevelopment bureaucrats continually violate the California laws and the Constitution, ignoring every effort by the Legislature to rein them in—most recently in 2007. The past decades have shown that these agencies refuse to be reformed, and it is time now for the Legislature to abolish them.”
California is one of the worst abusers of eminent domain in the nation. IJ has documented nearly 200 projects across the state that have threatened or used eminent domain for private gain; within each of those projects, dozens, hundreds, if not thousands of homes, businesses, churches and farms have been impacted. (That research can be downloaded at http://www.castletrans.wpengine.com/3491.) California Scheming: What Every Californian Should Know About Eminent Domain Abuse explains how California’s reform efforts to date have not addressed the core problem of the state’s law, which provides incentives to perpetuate the designation of vast areas of the state as “blighted” and to continually increase redevelopment debt.
“Redevelopment in California is a billion-dollar, state-subsidized boondoggle responsible for out-of-control debt, higher taxes, and the erosion of private property rights through the habitual abuse of eminent domain,” said Christina Walsh, the Institute’s director of activism and coalitions. “This is a historic opportunity to finally end eminent domain abuse in California, which has been fraught with abuse, fraud and waste. Partisan politics shouldn’t stand in the way of protecting private property rights.” So far, only one Republican has voted to eliminate redevelopment: Chris Norby. Norby is a long-time defender of property rights and fiscally responsible government.
The purpose of California’s Community Redevelopment Law (CRL) was to remedy unsanitary urban slums that posed a genuine threat to the health and safety of the public. Like blight laws all over the nation, the CRL grants local governments the authority to use eminent domain to seize private property and transfer it to another private owner in the hope that the latter will cure the purported blight. But California redevelopment agencies stretch the law to declare nearly any area to be “blighted” and thus subject to eminent domain for private development.
Indeed, redevelopment in California often has little to do with true blight. Instead, redevelopment mutated into a multi-billion dollar profit machine in which hundreds of redevelopment agencies and thousands of private developers, lawyers, consultants and bankers continually strip valuable property from people of modest means and give it to big business.
The scope of the California redevelopment machine is enormous. There are over 400 active redevelopment agencies in California (about 80 percent of municipalities have one) overseeing around 750 blight zones. In fiscal year 2005-2006, these redevelopment agencies owned $12.9 billion worth of property (a $1.5 billion increase over the previous year) and had $8.7 billion in revenues. And according to a new report in the Orange County Register, “From January 1 through March 8, $689 million in bonds were issued in 45 separate measures by 30 local agencies, OC Watchdog reporter Teri Sforza found. The bonds must be repaid with property taxes that otherwise would pay for local government services such as police and schools. The new debt is on top of billions owed by redevelopment agencies for earlier bonded debts.”
The engine driving the redevelopment machine is debt and taxes. Under California law, once a local government declares an area “blighted,” its redevelopment agency gets a property tax windfall. In a scheme known as Tax Increment Financing, redevelopment agencies get 100 percent of the property tax revenue from a blight zone over and above the “baseline” amount of property taxes the area generated when it was first declared blighted.
California’s redevelopment agencies now siphon off most of the property taxes from the hundreds of blight zones across the state. In fiscal year 2005-2006, for example, the total assessed value of property in California’s blight zones was $537 billion. Because of Tax Increment Financing, however, redevelopment agencies received 100 percent of the property taxes on $381 billion of this total. Overall, redevelopment agencies capture about 10 percent of all property taxes collected in California.
A redevelopment agency, however, is entitled to its property tax windfall only if it goes into debt to implement the redevelopment plan. By 2004, redevelopment agencies in California had a total debt of $61 billion, and historical trends show that agency debts double about every 10 years. The addiction to debt and property taxes has caused outright financial insanity in some communities.
The perverse financial incentives of California’s redevelopment laws mean that redevelopment agencies: (1) want their blight zones to be as large as possible; (2) want their blight zones to last as long as possible; and (3) want to incur massive debt.
Cities, in this context, have perverse incentives of their own. They always want to replace low-tax land uses, such as single-family homes and small businesses, with tax-intensive uses, such as high-rise condominiums and big-box stores.
The absence of any concrete proof that redevelopment does any good makes California’s redevelopment machine one of the greatest scams of all time. Although redevelopment advocates like to point out shiny new big-box stores, there are a few things they do not like to talk about. First, studies repeatedly show that redevelopment projects are net economic losers once the true costs are tallied in terms of jobs and businesses destroyed, and tax breaks and other subsidies to big business. They also do not talk about how the preference for sales tax-generating retail mega-stores creates low-skill service jobs and destroys small businesses that frequently require skilled labor. Redevelopment agencies also do not talk about the personal implications of taking away someone’s cherished home or an entrepreneur’s small business. Finally, the last thing redevelopment apologists don’t want to discuss is the fact that redevelopment overwhelmingly tar gets the poor and minorities.
Development Boondoggle More than Township Bargained For?
By Jason Orr
The township is faced with these tough decisions in part because for a decade, it has been preoccupied with feckless and destructive “redevelopment” that has destroyed a community, infringed on property rights, and positioned Mount Holly for another decade of financial woes.
Mount Holly’s Gardens neighborhood was having difficulties with crime around the turn of this century. Rather than increasing enforcement of the law and protecting that community’s residents, the Township Council decided it would be better to kick everyone in the community out and replace them with luxury apartments and townhomes for wealthier residents who could swell the township’s coffers.
Using the threat of eminent domain, the township took a wrecking ball to the working class neighborhood, leaving piles of rubble in the wake and even damaging occupied homes. The Gardens now looks like a warzone and not a single new home has been built.
Meanwhile, Mount Holly has been left with an enormous debt load costing millions of dollars, not including the millions more the township must spend acquiring the nearly 70 homes left in the Gardens before the developer will begin new construction. Since officials are no longer able to quickly snatch up those properties with eminent domain, they are left with no choice but to negotiate with the owners on fair terms—something they should have done from the start.
Mount Holly’s financial difficulties are more than a spot of bad luck that the Township Council could not have foreseen; they are the result of a pipe dream that Mount Holly’s taxpayers will likely have to pay for indefinitely. The Gardens redevelopment was always pie-in-the-sky. The developer used overly-optimistic estimations to make the project seem win-win for themselves and the township, but when more realistic numbers are used in the calculation their rosy forecast changes into a grim outlook. Using current data about the housing market and economy, a recent Institute for Justice analysis demonstrates that this development could actually lose the township more than a million dollars each year—that’s ten percent of the township’s budget.
Even if Mount Holly officials ultimately prevail in court and are able to condemn the remaining Gardens properties, it is questionable whether their finances will allow them to do so. This leaves the developers with a choice. They can be heroes and offer the remaining Gardens residents replacement housing in the new development, as the homeowners have requested for years. Or, they can continue to bank on the cash-strapped township and hope that in another year the properties can be condemned for them.
Mount Holly’s unenviable balance sheets are the result of a history of poor planning. Township officials believed they could solve a crime problem by running roughshod over Mount Holly’s more vulnerable residents, and now they risk exposing the whole township to inadequate law enforcement and the dangers that entails. As taxes are increased as a result of this blunder, it will be the whole township that pays for the Council’s hubris.
 Erin Norman, “Analysis of the West End Redevelopment in the Township of Mount Holly,” Institute for Justice, February 2011, available at http://www.ij.org/images/pdf_folder/castlecoalition_PDF/mh_analysis.pdf (Accessed 3/16/2011)
Mount Holly Mayor Tom Gibson says that “the West End redevelopment project needs to move forward for the betterment of the community.” That’s why his township has aggressively and negligently torn down over two-thirds of the Gardens, a once tight-knit community of 300 rowhouses home to lower-income and elderly minorities, in order to replace it with the Villages at Parker’s Mill, a swanky development of expensive townhomes and apartments with an unknown construction start date. The township is threatening to condemn through eminent domain anyone who does not accept their final offers.
Unfortunately, the future development Mayor Gibson envisions may not bring in the improvements to the township’s coffers that the project’s original fiscal impact study forecasted. By adjusting the study’s analysis to reflect more realistic assumptions, the Institute for Justice found that the township could suffer a loss of more than $1 million annually—about 10 percent of the township’s annual budget—rather than the originally predicted windfall.
You can read the Institute’s analysis here: www.ij.org/MountHolly.
In “Analysis of the West End Redevelopment in the Township of Mount Holly,” IJ found that the September 2008 fiscal impact study by Richard B. Reading Associates relied on a number of assumptions that are out-of-line with current housing market, population and economic trends in Mount Holly. Specifically:
- The proposed townhomes could be worth roughly 30 percent less than originally predicted.
- The proposed rental units could be worth 50 percent less than originally predicted.
- There may be three times as many new schoolchildren as a result of the project, which could lead to an increase of education costs of as much as $1.4 million per year.
- Based on data from the Reading Associates report, the development will cost Mount Holly an additional $341,442 annually in community support.
- Combining these estimates results in a possible loss to Mount Holly Township of more than $1 million annually—about 10 percent of the township’s annual budget—rather than the predicted windfall.
- This report (and the Reading Associates study) assumes no negative changes in property values, no additional unanticipated costs, and full, continued payments from the developer. Given current housing and population trends in Mount Holly, there are reasons to doubt these assumptions. If any of them change, the project could cost the township even more on an annual basis.
Last week, the Institute for Justice launched a billboard campaign protesting the township’s ongoing abuse of eminent domain. Four billboards are posted on highways surrounding Mount Holly, demanding an end to the township’s landgrab in the Gardens. JPGs of billboards can be downloaded at www.ij.org/MountHolly.
Mount Holly officials have been buying-up and tearing-down the Gardens over the past decade. The remaining homeowners have been made final offers on their homes by the township, amounting to half as much as comparable housing sells for just one block away. The homeowners would not be able to afford what they own now with what the township is offering, and would be forced to move from three-bedroom rowhouses that they own into cramped one-bedroom apartments.
According to the Institute’s report,
The original analysis did not address occupancy rates of the proposed units. As of the 2000 Census, the vacancy rate in the township was 8.1 percent….it seems likely the current vacancy rate is even higher due to the burst of the housing bubble in recent years. Even assuming a vacancy rate of 8.1 percent, 42 of the newly constructed units can be expected to remain empty after completion. Aside from the challenges of having high numbers of unoccupied housing in a community, this would impact the amount of money the township can expect to receive in property tax revenue.
“If Mayor Gibson is truly interested in the ‘betterment of the community,’ he should stop tearing apart what’s left of the Gardens and move the homeowners that remain into the new units,” said Christina Walsh, director of activism and coalitions at the Institute for Justice. “There will be more than enough housing to accommodate demand, especially considering that the new development would double the amount of housing that previously existed in the Gardens, and as many as 42 of the new units could be unoccupied.”
“Given what the township has done to people like Leona Wright, a 92-year-old widow who has lived in the Gardens since 1974, and Nancy Lopez, who on her own raised five children here and often worked two jobs, the only remaining alternative is to provide them with a unit in the new development. Anything less than that is unacceptable and the Institute for Justice will continue to fight for their rights.”