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Redevelopment Wrecks in California
The argument is always the same: Tax-hungry bureaucrats and land-hungry developers claim that the use of eminent domain is necessary for economic development. They promise everything from high-rise condominiums to trendy shopping malls, all in the name of more taxes and jobs. There is a strong incentive for cities and developers to over-hype the benefits of individual private development projects involving eminent domain in order to garner political and public support. But it turns out that many of these projects are failures.
Below you’ll find prominent examples of these failures in California. Failures occur for a range of reasons: financing fell through, developers backed out, tenants were not secured, market conditions changed, or incompetence prevailed. These reasons show why economic development is best done through the marketplace rather than by government force. Simply put, governments do not make very good real estate speculators.
There are better ways to achieve economic growth—all without giving home and small business owners the boot. Check out Development Without Eminent Domain: Foundation of Freedom Inspires Urban Growth, by former Mayor of Anaheim Curt Pringle.
San Diego, California
The condemnation and demolition of the upscale, successful Gran Havana cigar and coffee lounge in San Diego for a Marriot Hotel showed that no business is safe from the threat of eminent domain without the protection of strong property laws. It also showed that no matter how promising an eminent domain-backed redevelopment plan can seem to tax-hungry officials, it can fail. The plot where the thriving Gran Havana once stood now serves as a parking lot four years later.
In the spring of 1979, the Soviet Army destroyed nine-year-old Ahmad Mesdaq’s family home in Afghanistan. With his parents and infant brother, he fled to the United States—away from coercive governmental abuse in his homeland and straight to the land of opportunity.
In 1994, Mesdaq opened the elegant Gran Havana. Due to the success of the business, he purchased and renovated an 8,000-square-foot building on the corner of Fifth Avenue and J Street in 2002, three blocks from the Padres’ new baseball stadium. “I spent over nine years trying to buy the ideal location for my business,” he said in a 2004 interview. “This place is perfect. It’s right near the new ballpark and is a corner building that has a lot of exposure to the street.”
By 2003, Mesdaq had invested millions and established a thriving neighborhood business that supported his entire family. But this success was not enough for San Diego officials. In April 2004, it voted to condemn Mesdaq’s building for a Marriott hotel, claiming it was in a blighted area. Ahmad decided to take his fight to the courts of law and public opinion. The idea that his dream could be taken by the city and handed over to another private party was “humiliating and frustrating,” and he refused to sit passively by while the city bulldozed everything for which he had worked. Despite all of Mesdaq’s efforts, the courts upheld the condemnation and ordered him to vacate in June 2005.
The city wasted no time, demolishing the Gran Havana days after the court decision. Adding further insult to injury, Mesdaq’s business was taken and demolished for nothing—at least for nothing more than the parking lot that currently occupies the corner of Fifth and J. The hotel developer had until 2011 to build the Marriott, but in May 2009, the developer asked for and received a two-year extension, meaning the city will have demolished a business, only to have a parking lot replace it for at least a decade.
Santa Ana, California
Over the past decade, Santa Ana officials—without ever casting an official vote—began acquiring homes in an older neighborhood east of downtown for urban renewal. Envisioning new townhouses and apartments, the city forced out property owners with threats of eminent domain. Now possessing sixty parcels and having spent more than $22 million to “acquire” them, the city has found no developers interested in developing the area and, with the recent decline in the housing market, it is unlikely any development will come soon. Visions of new, luxury apartments have given way to a reality of empty, dilapidated houses.
The city continues to claim that eminent domain was not used to acquire any of the properties for its failed scheme. This may be true in the sense that no property owners were brought to court, but the threat of eminent domain loomed large in letters sent out by the city. Though several property owners have produced these letters threatening condemnation by the city, city officials have not changed their story, denying they ever made use of eminent domain. “We never really threatened to condemn anyone’s property. It was never that we were going to condemn if somebody didn’t sell to us,” said Cynthia Nelson, Deputy City Manager for Development Services.
Such claims are particularly insulting to someone like Carol Blair. She was living in the same house her grandmother had lived in when the city announced it wanted to “buy” it from her. She initially refused the city’s offers, but when the 64-year-old woman received a letter from the city threatening eminent domain, she cried. In 2005, after holding out for several years and watching her neighborhood disappear around her, she sold her house, feeling it was a battle she could not win.
With no hope of development anytime soon, a bustling neighborhood has been replaced with trash-filled, empty lots and boarded-up houses thanks to the reckless abuse of eminent domain for redevelopment. What kind of message does this redevelopment wreck send to those passing through the town? “Welcome to Santa Ana. Welcome to a slum,” says Councilwoman Michele Martinez.
San Jose, California
San Jose’s redevelopment agency is flexing all of its political muscles to bring the Oakland A’s to the city. Since 2003, the agency has spent $20.2 million purchasing five downtown parcels near the Diridon train station to attract the baseball team. Further, the agency is pushing to acquire thirteen more parcels in the area, totaling 13.5 acres, even though there are some major setbacks with bringing the A’s to town.
Opponents to the plan, which include other sports teams, such as the San Francisco Giants and the Sharks, contend that a 1988 ordinance says that the city is required to put the measure on a ballot when spending on sport facilities with more than five thousand. The city, however, never specified that it was purchasing that land for the purpose of building a stadium, claiming that the ballpark was only one option for the land, which could also be sold to a housing developer if the plan with the A’s fell through. Even if everything goes as planned, the MLB would still have to approve the new location of the Oakland A’s, which is anything but certain.
The redevelopment agency is barred from using eminent domain for the project until the city specifies what public purpose it is serving. Until then it must obtain those parcels through voluntary exchange, which is a relief to property owners. That doesn’t mean, however, that it is a wise use of public money.
San Jose has 16 redevelopment areas that finance the RDA’s $200 million budget. Redevelopment agencies are funded by tax increment districts, in which property taxes go straight to the agency’s coffer and can only be used for redevelopment purposes. This system diverts taxes from essential public services that must be paid for by the city. While the RDA spends millions in pet projects, the city faces layoffs and massive service cuts because of a $116 million hole in its general fund. Doug McNew, President of the Silicon Valley Tax Payer Association “calls the phantom ballpark project emblematic of the agency’s wasteful spending. For every success, he said, there are more examples of failure.”
While eminent domain has not been used to purchase those downtown parcels, it has been used as a tool in political negotiations. The Sharks, who originally opposed the project, dropped their appeal after making a deal with the RDA to build a parking garage by the HP Pavillion. In this case, the agency said it will use eminent domain if property owners fail to reach a voluntary agreement with the Sharks. Deals like this should alert the citizens of San Jose that in many instances, eminent domain is used for political purposes and not for the benefit of the public.
Officials will often pursue the project that will bring in the most amounts in tax dollars to the city, rather than pursuing those projects that will serve the public best. “The disappointing thing is to feel that there’s money for other things when something like projects in the neighborhoods can be delayed, especially in the areas that have been underserved for decades,” said a frustrated Judy Purrington, a leader in South San Jose’s Edenvale/Great Oaks neighborhood when she heard the city was buying land for the ballpark, even though promises for a new community center were never fulfilled.
Indio public officials originally adopted the Indio Centre Project as a federal urban renewal area in 1962. According to Keyser Marston – a public consultant firm hired by the city – by 1999 nearly forty years of redevelopment efforts had yielded only “high levels of vacancy, excessive vacant lots, deterioration and dilapidation, and inadequate public improvements.”
The city started using eminent domain to acquire property in the area back in 1980, when officials razed Nobles Ranch, an African-American and Hispanic neighborhood behind the Indio Fashion Mall. About ninety homes whose owners did not reach a voluntary agreement with the city were forced to sell after going to court. Back then, the city spent $8 million to acquire property to help then-owner David Miller double the mall’s size. However, Miller’s financing fell through and most of the lots are still vacant.
The city renewed its efforts to purchase the remaining eleven properties when Developer Richard Weintraub bought the mall in November 2003 with plans to transform it into an elaborate lifestyle center. Since 2005, the city used eminent domain again to secure the remaining twenty acres behind the mall, spending $6.56 million – three hundred and seventy percent more than the appraised value – to purchase the properties. In total, the city has spent $14.5 million over the past twenty years acquiring property for a mall expansion, but still there is no construction in sight as both parties disagree over their vision for the neighborhood.
Unfortunately, thirty years of redevelopment failure were not enough to change the city’s approach. The redevelopment agency already owns 40 percent of the properties in the downtown area and has plans to further expand its holdings. The most recent purchase was a 7,225-square-foot building near the corner of Miles Avenue and Smurr Street for $350,000 and the city is already appraising another property for purchase, even though its general fund faces a $5.4 million deficit. The current vision officials have for the city is to transform it into a college town, with projects for the creation of a law school.
Mayor Pro-Tem Ben Godfrey said land assemblage places the city in a prime position when the economy turns around, but Indio citizens must remain skeptical. The economy has been through many economic cycles since the city first began acquiring property downtown, but significant economic development has yet to be seen. Maybe officials should start thinking about a free-market oriented solution to their problems instead of clinging to their central planning policies.
Chula Vista, California
The City of Chula Vista has recently considered adding two controversial new redevelopment zones for some of the city’s older residential neighborhoods. Some of the civic leaders were given only four days to respond to the city’s plans, even though it will take several years before the project can be implemented. The rush to add new areas to the existing redevelopment zones raises questions, especially considering the obscure record of redevelopment effort in the city.
A deal between the redevelopment agency and Scripps Hospital in 1991, for example, forced several successful businesses to relocate because the hospital needed land to expand. The project, however, never came to fruition and the Scripps Mercy has yet to finish paying the city all the money it still owes.
In another instance, developer Jim Pieri’s Españada project to build modern mid-rises along H Street may have created hundreds of jobs. But a memo from Deputy City Manager Gary Halbert points out that the city has yet to recoup the money it spent subsidizing the project through higher tax receipts. Worse, the city anticipates Pieri might need millions more in order to finish the next phase of the project. The project was controversial from the beginning; then-Mayor Steve Padilla was forced to ask the developer to change his plans because of strong objection from residents who viewed the project, which then included high-rises, as a threat to the “small town” feel of Chula Vista.
The first redevelopment area in the city of Vista was created in 1987. After twenty years of aggressively acquiring property through eminent domain, the city voted to expand its redevelopment area to encompass 37 percent of the city, almost doubling the area it legally considers to be blighted. The city’s most recent project was the $47 million, decade-long effort to acquire property from 26 businesses on 41 acres downtown to create the Vista Village commercial center, which opened in 2003. According to Redevelopment Director Bill Rawlings, the problem the city had is that the plan didn’t fit the city’s needs because struggling areas outside the redevelopment area could not make use of redevelopment funds for improvements. The problem, however, may be that the city has plans that don’t fit with what the market needs, stifling private development and creating adverse conditions.
In many cases, the “blight” is created by the city itself. Jerome Hymes is a homeowner in the project neighborhood and is surrounded by vacant lots that are the outcome of eminent domain. “The city is selectively picking us apart,” Hymes said. “They are breaking up my community. They buy a property and demolish it and create blight so they can bring in a developer to remove what they consider unsightly and undesirable. I see it as gentrification. The city selected areas mostly filled with minorities or those who wouldn’t fight back.”
Betty Gilroy, a resident of the “The Loop” near Vista Village, noticed the same thing. The city has promised to improve the neighborhood’s infrastructure, but “the city hasn’t fixed a pothole in my neighborhood for twenty years, so, no, I don’t believe their promises,” she said. Gilroy and her neighbors worked hard to improve their community, getting of the prostitutes and drug dealers that infested their neighborhood. In the mid-1990’s they created patrol groups and with the help of the sheriff’s department cleaned up the area. No help from the redevelopment agency was necessary, all it took was a group of engaged residents who cared about the neighborhood they lived in.
Unfortunately, Vista officials are resolute in their central planning efforts and have sold $36 millions in bonds in 2010 to begin purchasing properties for redevelopment. Their plan is to bundle properties together and then sell it to private developers who will construct mixed-use buildings with ground-floor retail topped by offices and condos. Looks like established residents and businesses in Vista are bound to suffer in the hands of public officials for many years to come.
 Miguel San Jose, “A battle with city hall: An imminent decision awaits a local eminent domain case,” San Diego Lawyer, November/December 2004.
 Doug Irving, “Uprooted And Upset; For Some Former Residents And Landowners Who Sold Property In Santa Ana, The Dream Of Urban Renewal Became A Nightmare”, The Orange County Register, February 8, 2009.
 The Orange County Register, “Blueprint for a Slum; Santa Ana’s Renaissance Plan is back, and residents should be afraid, very afraid,” The Orange County Register, February 20, 2009, at Pg. Edit_H.
 Doug Irving, February 8, 2009.
 Joshua Molina, “San Jose banking land around town”, San Jose Mercury News, July 22, 2008.
 Barry Witt, “Community groups lament ballpark talk”, San Jose Mercury News, April 14, 2005.
 Molina, July 22, 2008.
 Tracy Seipel, $20M land deal could help San Jose assemble final pieces for A’s ballpark San Jose Mercury News, April 8, 2010.
 Molina, July 22, 2008.
 Stephen Baxter, “Environmental hurdle cleared for potential downtown San Jose ballpark”, San Jose Mercury News, June 24, 2010.
 Barry Witt, “Community groups lament ballpark talk”, San Jose Mercury News, April 14, 2005.
 City of Indio, Ca., Report to City Council for the Indio Merged Redevelopment Project, November 1999 (on file with the author).
 Xochitl Peña, “Indio land deal wise?”, The Desert Sun, March 25, 2007.
 David Olson, “Church to move after 50 years; Indio: Buyouts that began decades ago for a mall expansion finally push Mt. Zion to build a new home,” The Press-Enterprise (Riverside, CA), December 3, 2006, at B1; Xochitl Pena, “Mall makeover in Indio’s future,” The Desert Sun (Palm Springs, CA), November 15, 2004, at 4R.
 Xochitl Peña, “Redevelopment to add to its holdings”, The Desert Sun, May 17, 2010.
 “A risky road to redevelopment”, The San Diego Union-Tribune, January 9, 2010.
 Tanya Mannes, “Assessing the mayors; Padilla: Chula Vista’s charismatic leader wasn’t afraid of risks in his work or his life”, The San Diego Union-Tribune, December 2, 2006.
 Rick Rogers, “Eminent domain, imminent distress; Residents question how the city is zoning residential areas for possible redevelopment”, The San Diego Union-Tribune, April 13, 2008.
 Craig Tenbroeck, “Vista may grow patchwork redevelopment area”, December 28, 2007
Rick Rogers, April 13, 2008.
 Cigi Ross, “Member breaks rank with Vista redevelopment panel”, North County Times, March 18, 2010.