Thursday, April 07, 2011

Seeking balance over blight, academics suggest new standards, dropping underutilization, and tougher look at projects with more % of private benefits

This is Part 3 of a three-part series (Part 1, Part 2) on Fordham Law School's eminent domain symposium in February.

Is there a reasonable compromise that would preserve the use of eminent domain as a tool for government while preventing dubious tactics like claiming underutilization--or cracks in the sidewalk--equal blight?

And shouldn't courts play some role in scrutinizing blight, especially for certain projects, ones which promise a greater ratio of private than public benefits?

In an intriguing paper titled The Use and Abuse of Blight in Eminent Domain, attorney (and part-time Columbia academic) Martin E. Gold and Lynne B. Sagalyn of Columbia Business School (and the book Times Square Roulette), set out a hierarchy of eminent domain projects, from those with clear public benefits to those with more private benefits.

Those at the bottom of the hierarchy deserve the most scrutiny, and thus a closer examination of blight findings. They mention Atlantic Yards as falling somewhere in the middle of the hierarchy and criticize some of the definitions used in the AY eminent domain case, notably underutilization.

Need for review

They make a strong case for redefinition, arguing that "effectively there is no review of blight findings in New York" and--as others have contended--the courts have abdicated their role in policing eminent domain.

So "thoughtfully crafted, objective and measurable, standards for the determination of blight" are needed:
If blight is to continue to be a condition and cornerstone for condemnations for renewal or economic development undertakings, it needs serious alteration; otherwise it will continue to serve more as an expensive foil for projects sought by developers and government officials, than as a screen filtering out lands that should be left alone.
Types of blight

They catalog several definitions of blight in laws around the country:
  • structural defects/health hazards
  • faulty or obsolescent planning
  • neighborhood character/blighted open land
  • unproductive land
All but five states allow a positive determination of blight on the basis of just one blighting factor.

The upshot: as historian Colin Gordon put it, blight "has lost any substantive meaning as either a description of urban conditions or a target for public policy."

And even though some states have tried to tighten their laws in the wake of Kelo, the authors say blight remains essentially malleable, and general reforms are needed to ensure that states can't create advantage with looser blight standards.

Seven levels of uses


The paper describes a hierarchy of seven levels of uses, from pure public use to pure private use.

At the top is pure public use, including such thing as transportation, airports, and sewer systems. At the next level are facilities operated by private companies, such as transportation facilities and private prisons.

Then come privately owned utilities that serve the public generally and are highly regulated,

Moving down the hierarchy, the public versus private benefit ratio will decrease. Some projects have both large public and large private benefits, and some have small amounts of each. The issue is not the absolute amount, but the ratio.

Economic development

The category of eminent domain for economic development is so large the authors divided it into subcategories.

At the highest level are projects that include such criteria:
  • the initiating entity is the government
  • the public sector has developed a careful plan
  • condemnation is crucial to the project
  • private entities are selected in carefully conducted competition governed by clear and transparent rules
  • private entities gaining the land will be accountable to the public
  • there's reasonable assurance that the project will be built in a timely fashion.
Does Atlantic Yards fit at the highest level? No, I'd observe. The government didn't initiate the project, and the competition--for the MTA's Vanderbilt Yard--was pre-ordained. And the state did not drive a very hard bargain.

What about the careful plan? Despite the language in the Supreme Court's controversial 2005 Kelo v. New London decision upholding condemnation because of the government's planning process, "it is not always possible to prepare a [government-only] plan with such purity," the authors write.

Similarly, most project will have both public and private benefits, so it will be tough to make a claim of pretext, as other panelists suggested.

About AY

The authors write:
Moving down the hierarchy within the Economic Development Use group would be projects where the initiative is a joint one between the government and a developer. The government or the developer may have had the initial idea for the development. The developer might be interested because of the location and because the project is geared to their special capacity and experience. The developer may also be, or become, interested because of the government assistance that it believes is available. This description fits the Atlantic Yards project in Brooklyn, a multi-billion dollar, 22-acre project in downtown Brooklyn that includes large amounts of housing and retail space, a new basketball arena, and public open space. The project was originally conceived by Bruce Ratner and his Forest City Ratner Companies and was driven by them. It was then assisted by the New York State Urban Development Corporation which does business as the Empire State Development Corporation (ESDC) and turned into a jointly managed project.)
Jointly managed, perhaps, but there's substantial evidence that Forest City Ratner has the upper hand. After all, the ESDC has the awkward task of both overseeing the project and encouraging it; that's why the agency's Peter Davidson went to China last fall to recruit Chinese investors.

In the federal eminent domain case, the Second Circuit Court of Appeals, the authors note, did not try to interpret Atlantic Yards in light of Kelo but stressed that the appellants conceded that the project would target blight (at least in part) and that some benefits would be delivered.

The authors point out that, in New York, a joint approach with the private sector is often pre-ordained because of the costly environmental review process.

Down the ladder

Moving down the ladder are cases when the full initiative comes from a private company. Then come one-to-one property transfers, projects done solely to obtain a tax benefit, and projects based on tax-increment (TIF) financing.

The Columbia case

The authors devote a brief case study to the expansion plan for Columbia University in West Harlem, noting how the Appellate Division, in an opinion authored by (the unnamed in this paper) Justice James Catterson, rejected the state's pursuit of eminent domain, only to be overturned by the Court of Appeals.

The Court of Appeals stated that courts can substitute their own judgment for that of the legislative body only when the finding is "irrational or basis," a standard even more difficult than the already daunting "arbitrary and capricious" standards for review of governmental decisions.

The conclusion:
This means that effectively there is no review of blight findings in New York.
Blight reforms
Various states have tried reforms, redefining and narrowing blight, requiring that conditions pose actual threats to health and safety, require multiple conditions for a finding of blight, or require parcel-by-parcel determinations rather than area-wide determinations.

But blight remains a persistent and highly malleable concept, thanks to the quiet but powerful role of "city officials, redevelopment agencies, urban planners, real estate consultants and attorneys, developers, and environmental interest groups" that appreciate the status quo.

Why did Kelo provoke such a backlash in 2005, when previous sweeping eminent domain decisions did not? The authors quote a researcher who suggested that the pattern of eminent domain had changed in recent decades, moving from cities to suburbs, targeting the middle-class.

Toward better safeguards

In the final section of the paper, Gold and Sagalyn suggest several reforms, though they first tackle some reforms with which they don't agree.

Should every parcel in a project area be required to be blighted? They say no, suggesting that the omission of "all small sites... would have prevented the acquisition of the critical mass" required for Times Square redevelopment, and that "[t]his was true in the Atlantic Yards Project as well."

That deserves a closer look. Yes, the arena block--or at least the arena site--requires contiguous space, but why did Forest City Ratner want a rectangle 100 feet east of Sixth Avenue? Construction staging.

Now that the plan is different, construction staging isn't needed, and only a piece of that rectangle looks to be used as a broadcast support area.

What about requiring the burden of proof be on the government to prove that condemnation is necessary for the clearance of blight, rather than putting the onus on property owners?

Six states have increased judicial scrutiny in eminent domain cases, the authors note, and while that could limit clear abuses, they question whether judges can effectively police blight.

Still, given the tough initial decision in the Columbia case, "a heightened level of scrutiny in the review of governmental findings of blight can be an eye opener."

A better definition

The authors thus propose a "definition crafted by experts in the field that excludes the most abused components and requires finding the degree of blight and showing a minimum level of blight."

The first among the criteria that should go is underutilization, which, it should be pointed out, was key to both the Atlantic Yards and Columbia cases. The authors echo other critics who noted that underutilization could be applied almost anywhere:
At a minimum, a clear level of substantial underutilization, quantifiable on a per parcel basis, would need to be set for this to make sense.
They also recommend dropping the “age” of structures, as well as the contribution to future potential blight, another highly subjective finding.

Then they recommend a more sophisticated approach to quantification of blight. Currently only seven states require a version of quantification, as a minimum percentage of properties must be blighted for the whole area to be found blighted.

They say that's not enough: the degree of blight within the parcels themselves would need to be measured, and showing of a minimum level will be required to act.

How to get there? The authors suggest state governors appoint panels of experts, who also could evaluate whether standards should vary geographically within a state. (As was noted at the symposium, rural and urban areas face different challenges.)

Such standards could then be applied in a subtle way, with "stricter requirements for uses that have public-to-private benefit ratios at the low end of the public purpose hierarchy (as offered in this article or as established by the state)."

The upshot: a middling project like Atlantic Yards would require more scrutiny regarding blight than a strictly public project.

Estimating benefits?

At the symposium, I queried Gold about the authors' proposal that public and private benefits be balanced, given that it's difficult to estimate public benefits.

I suggested that ESDC projections of Atlantic Yards benefits are aspirational, since they take on the best-case--a project built in full over ten years--but not the worst case.

Gold said he wasn't sure there was a solution. "You can't foresee the recession of the sort we had recently," he said. "You couldn't foresee, between the beginning of the Times Square project, and the implementation of Times Square project, that we would go through several cycles of the economy that would make it impossible for developers to do what they wanted."

Still, he said, "It makes sense to at least try it, so you can get some idea of what could happen," He suggested that we recently experienced a "Category 5 recession," while lesser categories could be built into projections.

"That's something that might be worth doing so the public has a better balance, because it's always recited over and over what the best case scenario is," he said.

1 comment:

  1. The reality of the matter is the future of Eminent Domain will be determined by economics, not politicians and/or judges. The power of the market (Even more than lawsuits) determined the Ratner cannot build the housing/office space components of AY. It does not matter if it is developers (Like Ratner), Columbia University, The Goverment (With projects like Willets Point (A place that really is BLIGHTED)), or individual corporations, the principle is the same: If the cost and/or risk is NOT < projected benefits, it is not happening. This is why Chris Christie said NO to the rail tunnel, and Gov. Scott in Florida said the same to high speed rail... The economics involved. People can argue if they were right or wrong (That is a different issue). But the point remains, they did not think it was economically worth it. The days of $1.3 billion train stations (Fulton St) and $1b sports facilities (Like AY, Yankee Stadium & Jones/Cowboy Stadium are over).

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