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A debate on eminent domain for Atlantic Yards and in New York: blight, pretext, holdouts

Catching up on some 2011-12 eminent domain reading...

The Fordham Urban Law Journal hosted a debate between NYU Professor Roderick Hills and Ilya Somin on the eminent domain decisions by the New York Court of Appeals in the cases of Atlantic Yards (aka Goldstein) and Columbia University (aka Kaur).

Somin's 2011 article  “Let there Be Blight”, which I covered here and here, argued that these takings violated both the New York state and federal constitutions, especially, he said, because of the contrast between the court’s broad definition of  blight and the state constitutional provision limiting blight condemnations to “substandard and unsanitary areas.” Hills responded with a critique and Somin posted a reply.

Somin's argument

I quoted Somin's argument:
the New York Court of Appeals erred badly, by allowing highly abusive blight condemnations and defining pretextual takings so narrowly as to essentially read the concept out of existence.
The "extraordinarily broad definition of “blight,” he allowed, is not out of line with that of other states that define blight expansively though "at odds with the text of the New York Constitution, which allows blight condemnations only in 'substandard and insanitary areas.'"

He also pointed to three areas in which the court failed to consider evidence and thus "broke dubious new ground":
  • evidence that the blight studies were predetermined
  • evidence that the firm conducting the blight studies, AKRF, had a conflict of interest, given that it had been concurrently and consecutively paid by Columbia and Forest City, respectively
  • evidence that the parties seeking the land had contributed to the blight
Somin also criticized the failure "to consider any evidence of improper motive," the unwillingness to consider the pretextual nature of "a planning process completely dominated by a private beneficiary," and the failure to address the fact that a private company, Forest City Ratner, was the clear beneficiary of eminent domain.

He wrote that Goldstein and Kaur "probably rank among the most dubious blight condemnation decisions in American history" and said:
The upshot of the court’s rulings is that developers and other politic ally influential interest groups are free to lobby for blight designations obtained on the basis of studies conducted by firms facing an obvious conflict of interest and acting under biased instructions. Further, the results of such studies are to be assessed under a nearly limitless definition of blight that includes any area which might be “underdeveloped” or “stagnant.”
The Hills response

In "Rethinking Balancing Tests in Blight Condemnation Jurisprudence,” Hills criticized Somin for an unpersuasive (New York) constitutional critique, and unwise policy proposals. Regarding the constitutional critique, he wrote:
Article XVIII, section 1 permits condemnations that eliminate “substandard and insanitary conditions.” From its inception, however, this provision was used to eliminate under-populated but not especially blighted neighborhoods for the purpose of allowing private firms to improve these neighborhoods for private purposes.
For example, he cited the decision that led to the creation of Stuyvesant Town in Manhattan:
The case for the condemnation was not that the housing in the Gas House District was unequivocally worse than average New York City housing, but rather that the housing could be improved.
The holdout issue

While Hills acknowledged "governmental tendencies to over-use eminent domain" during the urban renewal era, he suggested the "alternatives to judicial deference are not ideal"--notably the problem of a holdout seeking ever more compensation.

(I'd add that, in the case of Atlantic Yards, the holdouts in most cases were not seeking more compensation but making a political protest. Had the government owned/operated the arena, or had a different project, the holdout problem would have been different.)

Judicial deference

Beyond that, Hills suggested that the Somin-supported "mushy balancing tests"--regarding too much private influence or or too little public benefit from eminent domain--would mostly let judges "do whatever they like," and they mostly "defer to politicians."

That's not untrue, given that the Atlantic Yards eminent domain cases were all deferential.

That said, once the arena was a done deal, state Supreme Court Justice Marcy Friedman did harshly criticize Empire State Development, the state authority overseeing/shepherding Atlantic Yards, ordered a Supplemental Environmental Impact Statement, and hinted she might have ruled differently had she been fully informed.

Private beneficiaries

If judges "should be especially suspicious of condemnations where the identity of the private developer is known in advance," Hill observed, that suggests "judges should encourage cities to raze whole city blocks before cities have a firm commitment from a specific developer."

He called that "madness from the perspective of sensible planning." Perhaps. New York City's efforts to assemble land for private developers in Willets Point hasn't worked so well. But in the case of the Atlantic Yards project, when there was underutilized public property--the Vanderbilt Yard--and existing private property, seems more murky.

The Atlantic Yards example

Hills wrote, regarding Atlantic Yards:
That Bruce Ratner was involved from the outset in the development of Atlantic Yards might suggest corruption, but it might also suggest that the relevant politicians were not such fools as to think that they could embark on a major land assembly without firm commitment from a developer with a track record of success in managing commercial development in Brooklyn. (Ratner demonstrated such success by his developing Metrotech Center, a few blocks west of Atlantic Yards). By contrast, the New London site now sits barren and empty as a result of the New London Development Authority’s failure to secure a specific development commitment from a reliable developer up front.
That's a little simplistic. Ratner built MetroTech beginning in the 1980s, when it was hard to get private developers interested in Brooklyn. By 2003, the economy had changed drastically. But the Metropolitan Transportation Authority never tried to market the newly valuable Vanderbilt Yard for development. And Atlantic Yards was never primarily a commercial development.

Hills suggested:
The factors are simply too mushy and policy-laden. Even a judge making a good-faith effort to deploy these factors might balk at distinguishing between a municipality’s careful selection of a reliable developer in advance of a project (the hallmark of good planning) and the municipality’s being unduly influenced by that same developer (the hallmark of corruption).
But selecting a reliable developer in advance of a project is not necessarily the same as having a developer make a proposal and then running with it.

A partial solution

Hills offered "a modest suggestion" to increase fairness:
 Give condemnees their attorney’s and expert witness fees whenever the compensation award after trial is higher than the initial good-faith offer made by the condemnor in advance of condemnation...  the fee approach uses a crisp, bright line rule without mushy definitions of “blight,” “private influence,” or “public benefit.”
But that ignores the vast difference between a compensation award--fair market value--and the value of the new development rights. It would make more sense to practice "land readjustment," giving current owners some fractional share in the future development.

Somin's response: blight

In response, Somin argued that Hills gets it wrong, that at the 1938 Constitutional Convention, where the "substandard and insanitary" definition was adopted, a leading proponent stated that:
[s]lum clearance is the redemption of areas where the physical condition of the housing and the neighborhood is so squalid, so demoralized, so lacking in light, ventilation, fire protection and sanitation, so overcrowded with buildings and people that the existence of such areas endangers the health, safety and morals of those living there and impairs the welfare of the entire community wherein such areas exist.
As to whether the word “slum” was broad enough to include any area that lacked “basic amenities” such as central heating and indoor plumbing, Somin allowed that "Hills is perhaps on firmer ground." Still, he argues:
a definition of blight that covers only areas that lack basic amenities is still a far cry from Goldstein’s holding that Article XVIII allows the condemnation of any neighborhood where there is room for “reasonable differences of opinion” over whether it is “underdeveloped.”
He reminded readers:
Before leaving the issue of “blight,” it is important to emphasize that the Court of Appeals’ errors went well beyond simply adopting an extremely expansive definition of the term. It also upheld “blight” determinations that were based on studies conducted by a firm that was on the payroll of the very same private interest groups who would take over the property should the use of eminent domain be authorized. In addition, the firm was issued highly biased instructions that made clear that the authorities wanted it to reach a predetermined conclusion. Moreover, the evidence suggests that Ratner and Columbia themselves may have created much of the “blight” that was then used to justify the condemnation of property for transfer to them.
Somin's response: pretext

Somin suggested that most Hills may be right that “very many” won't try to analyze any of the four factors regarding pretext, as suggested in the U.S. Supreme Court's Kelo opinion: the magnitude of the public benefit; the extensiveness of the planning process; whether the private beneficiary was known; and the intentions of the condemning authorities:
So far, however, the vast majority of state and federal courts that have addressed the issue have adopted at least one of these four standards.... The New York Court of Appeals and the Second Circuit are unusual outliers in rejecting all four.
Somin, a libertarian, noted that he'd rather rely not on judges evaluating pretext but on enforcing a narrow definition of "public use." So pretext remains a second-best option.

And Somin suggested that all the standards need not be applied in each case, thus obviating the potential contradictions of requiring extensive planning but not knowing the identity of the new private owner.

I don't think it's necessarily a contradiction, as long as developers are expected to compete for an RFP, and Somin agrees:
If a project is genuinely well-planned and likely to turn a profit, local government should be able to attract a variety of private investors willing to take it on simply by holding an auction selling the relevant development rights to the highest bidder. That approach both reduces the danger of political favoritism and increases the potential return to taxpayers... If there is serious doubt about whether the plan is good enough to attract bidders, then perhaps it is also not good enough to justify forcing private property owners to give up their land.
Somin's response: the holdout problem

He suggested the holdout problem can be addressed by imperfect market mechanisms, which he calls "a lesser evil than giving local and state officials nearly unconstrained power to condemn property and transfer it to private parties."

Also, he wrote that it's often possible to build around holdouts. (Not the case with the Atlantic Yards arena, though.)

And if there are "sincere dissenters" rather than  strategic holdouts, "letting them stay not only shows respect for property rights, but also maximizes economic efficiency by leaving the property in the hands of those who value it the most," Somin wrote.

I'm not so sure about that. Atlantic Yards represented a huge override of zoning, allowing for much more development at a site that, at least in part, was quite capable of absorbing that development. The question was how that would proceed, and whether a private developer would be in the driver's seat.

In such cases, and if there are truly public purposes, the holdout problem might be solved by economist Claude Gruen's suggestion of automatic condemnation (after acquisition of 80% of the land) and supercompensation.