Fremont Latest California City Seeking to Reinvent its Downtown

Undaunted by the so-called "death of redevelopment," several California cities have pushed to reinvent -- a.k.a. redevelop -- their downtown cores.  And it appears to be working.

The San Jose Mercury News recently reported that the city of Fremont is breaking ground soon on its extension to Capitol Avenue, creating a new "Main Street" for its Downtown District.  And Fremont is not alone.  Stockton also has a plan to "Bring Downtown Back."  In Southern California, The Desert Sun reports that Palm Springs is moving forward with its downtown redevelopment.

So perhaps redevelopment didn't die after all, but it does look different.  There are no redevelopment agencies to acquire the property necessary, but cities like Fremont can work with developers, and use their powers of eminent domain where necessary for related improvements, such as the extension of Capitol Avenue.   And, as my colleague Brad Kuhn reported earlier this year, we may see cities using Infrastructure Financing Districts to get larger projects rolling.

Is there a trend away from "big box" shopping centers to walkable urban centers?  It looks like there very well may be.  And how will cities make this happen?  Stay tuned...

Redevelopment 2.0 -- Infrastructure Financing Districts Approved for Redevelopment Project Areas

Despite being destroyed and dismantled, redevelopment in California has been born once again, this time reincarnated under the name of "Infrastructure Financing Districts."  Last week, Governor Brown signed into law AB 471, which amends section 53395.4 of the California Government Code to allow infrastructure financing districts to finance a project or portion of a project located within a redevelopment project area or former redevelopment project area.

Infrastructure financing district law now provides a mechanism to finance projects that would have otherwise been financed by redevelopment agencies but for their elimination.  Local agencies can now form an infrastructure financing district over a redevelopment project area to finance redevelopment projects that were not yet completed prior to the dissolution of redevelopment agencies.  The newly formed infrastructure financing district can issue bonds to pay for real or other intangible property and certain public capital facilities of communitywide significance, and such bonds will be secured by any increase in property tax revenue over the assessed value of the property within the infrastructure financing district.

The new law also encourages local agencies to wrap up their redevelopment affairs, as a redevelopment project cannot be financed until the successor agency to the former redevelopment agency receives a finding of completion.  Similarly, the law makes clear that any new debt or obligation created under infrastructure financing district mechanism will be subordinate to enforceable obligations of the former redevelopment agency.  In other words, the new law may accelerate the redevelopment wind-down process.

The question now is whether or not infrastructure financing districts will be successful to re-invent redevelopment projects.  The infrastructure financing district idea passed the Legislature in the early 1990s as an alternative to redevelopment, permitting the use of tax-increment financing for infrastructure without requiring a finding of blight. But the idea has rarely been used, primarily because they require two-thirds voter approval to be created or issue bonds.  While there was discussion about reducing this requirement, as part of the new law the the two-thirds vote requirement was not changed. 

 

Redevelopment Wind-Down: A Few Random Thoughts

I saw a couple of California redevelopment-related stories over the past week that seemed worthy of at least a brief comment. 

First, a court decision involving a rather bold argument by a public agency. 

The City of Loma Linda, like so many California cities, used to have a redevelopment agency.  That redevelopment agency acquired property and embarked on various efforts to, well, redevelop things.  When Governor Brown eliminated California's redevelopment agencies, many projects were left in mid-stream. 

In the case of Loma Linda, the redevelopment agency purchased some property, erected a fence, and cut off another property's access to the public street.  It seems like a pretty simple takings case, and the owner sued.  But then Governor Brown's legislation intervened, and things got weird. 

The redevelopment agency was no longer a viable defendant in the takings case, because it no longer existed.  And the City claimed it was not a viable defendant, because it hadn't engaged in the conduct that resulted in the taking. 

The trial court didn't find this argument persuasive, and according to the attorneys representing the property owner, the case is now pending before the Court of Appeal.  We'll see what happens, but I have trouble believing that owners subject to takings by former redevelopment agencies won't be provided a remedy just because the agency that engaged in the taking no longer exists.

Second is another story about the redevelopment fallout.  Governor Brown has apparently offered a bit of an olive branch to the cities in the form of an expansion of California's Infrastructure Financing Districts.  According to James Brasuell at Planetizen,

Brown’s proposal would expand the use of IFDs beyond infrastructure to include military base reuse, urban infill, transit priority projects, affordable housing, and ‘associated necessary consumer services.

But this would only apply to cities and counties that had fully satisfied their former redevelopment obligations, which Mr. Brasuell hypothesizes is a means of accelerating the redevelopment wind-down.  According to a January 10 article in the Sacramento Business Journal, Skepticism over Brown’s redevelopment replacement, the reaction from cities has been lukewarm.  The article also notes that Governor Brown's proposal looks an awful lot like AB 243, which he promised to veto just last year after it passed in both houses.  As always, stay tuned. 

Polanco Act 2.0 Set to Commence in 2014

When Governor Brown eliminated California’s redevelopment agencies with one swipe of his pen (OK, fine, he had a bit of help from the California Supreme Court as well), one of the things that got a bit lost in the ensuing chaos is the fact that California’s redevelopment law had evolved over the decades, becoming hopelessly intertwined with any number of other laws.

One such law is the Polanco Act, Health and Safety Code sections 33459 et seq.  The Polanco Act provided the government with tools to clean up contaminated property.  More specifically, it allowed the government either to force property owners to clean up their properties or to clean the properties themselves and then charge the owners for the clean-up costs, along with attorneys’ fees.  But there is a bit of a problem.

The act generally referred to as the “Polanco Act” is technically called the “Polanco Redevelopment Act.”  What’s the big deal, you ask?  Well, the big deal is that redevelopment agencies were the only ones empowered under the Act to implement it.  But now we have no redevelopment agencies and, as a result, while the Polanco Act is still on the books, there is no agency empowered to do anything to use it. 

This is where AB 440 comes into play.  The law, signed by Governor Brown last month, essentially creates “Polanco Act 2.0” by providing that other government agencies can implement most of the original Act’s provisions.  There are a few twists, however. 

On the one hand, local agencies seeking to implement AB 440’s provisions do not have the power to acquire the contaminated properties, as redevelopment agencies could do in the past.  Rather, agencies are limited to a “right to enter” onto those properties in order to facilitate clean-up efforts.  In other words, agencies under AB 440 don’t have quite the power redevelopment agencies had under the original Act.

On the other hand, under the original Act, redevelopment agencies could only act with respect to properties falling within a designated redevelopment area.  Agencies using AB 440 face no such limitation.  Instead, agencies can implement AB 440’s provisions with respect to any property the agency declares to be “blighted.”  And much like many of the complaints concerning redevelopment, the legislature’s definition of “blighted” is subject to a fair amount of interpretation.  Blighted properties are those with the presence or perceived presence of a release or releases of hazardous material that contributes to the vacancies, abandonment of property, or reduction or lack of property utilization of property. 

One other key feature of AB 440 is that it provides immunity for agencies, subsequent property owners, and their lenders, from environmental liability once a clean-up effort is approved by the Department of Toxic Substances Control (DTSC) and/or Regional Water Quality Control Board. 

The law takes effect January 1, 2014.

Join Us This Week at the Appraisal Institute's 2013 Conference

The Southern California Chapter of the Appraisal Institute holds a great conference each year covering a variety of hot-topic issues.  The 2013 Conference will be held this Thursday, September 12, 2013, and my partner Rick Rayl and I will be presenting on the future of redevelopment in California.  So, if you're interested in what's played out over the last year for redevelopment agencies, what lawsuits have been filed, what projects are moving forward, and what the future holds for all the property that is now owned by the successor agencies, come join us.  

The rest of the Conference is worth highlighting as well.  The program is packed with speakers, panel discussions and tours that will highlight emerging issues in valuation, new trends in real estate development, and major projects transforming the downtown Los Angeles skyline. Scheduled topics include a case study of the New Wilshire Grand Hotel, the Appraisal of Green Homes, Los Angeles' Small Lot Subdivisions, Underwriting a New Deal, and Using Technology in Regression Analysis.  There's a number of great speakers lined up, including folks from Cushman & Wakefield, Brookfield Homes, and Southern California Edison.  Three afternoon tours will examine a broad range of Southern California's most interesting real estate.  

The full-day event kicks off with breakfast at 7:30 a.m. and concludes with a cocktail mixer in the evening.  OREA credit and AI credit should be available.  Click here to register.  Look forward to seeing you there!

 

Underwater Mortgages and Eminent Domain: Framing the Issues, Part 2

Today I want to focus on whether the plan to seize underwater mortgages through eminent domain is legal. Getting into this topic, in my view the debate should not focus on whether this plan passes constitutional muster at the federal level.  I've seen much written on this subject, but I really think this is a red herring, and that the answer is pretty easy.   While others disagree, I believe the plan passes constitutional muster at the federal level. 

The U.S. Supreme Court has issued a long line of cases that all make pretty clear that the government could constitutionally condemn underwater mortgages.  The now-infamous 2005 Kelo decision provides some good clues that this is the case.  But one can also look to even more direct precedent, such as the 1984 decision in Hawaii Housing Authority v. Midkiff

In Midkiff, the Court approved of a plan even more extreme than this one.  It allowed the State of Hawaii to condemn properties for the purpose of selling them to individuals who owned homes on them.  There, the problem was that a few owners owned vast amounts of property, including many residential areas.  And unlike most parts of the country, when someone purchased a home in those areas, they did not acquire the land on which the home was built.  Instead, they acquired the home itself, along with a long-term lease of the land. 

 

By approving Hawaii's plan (in an 8-0 unanimous decision, no less), the Court affirmed the transfer of these property rights from one private owner to another, so long as there was some public purpose for the plan.  The Court explained this limitation:  "[O]ne person's property may not be taken for the benefit of another private person without a justifying public purpose, even though compensation be paid." 

 

Here, there can be little doubt that the underwater-mortgage plan arises from a "justifying public purpose," and I expect that it would pass constitutional muster.  Note again that not everyone agrees with this view.  One example is a July 2012 Special Alert authored by a group of attorneys at Dechert titled California County Considers Using Eminent Domain to Seize Underwater Mortgages.  They conclude that the plan fails because (1) it does not provide for just compensation, (2) it does not possess a sufficient public use, and (3) it may violate the Commerce Clause. 

 

While I think these arguments (and others) will be made, ultimately I think agencies will survive right to take challenges as long as they work carefully to craft their public use findings, making clear the larger public goals being pursued by the plan.  On the other hand, if agencies get lazy with their findings, and if it appears that the main purpose of the condemnation is to benefit the property owner whose mortgage is being acquired, courts will likely conclude that the public use test has not been met. 

 

(For anyone who really wants to puzzle over these federal constitutional issues, my colleague Ben Rubin pointed out to me that while Justice O'Connor wrote the majority opinion in the Midkiff case, she penned a strong dissent in Kelo.  Have fun reading those tea leaves.)

 

Assuming for a moment that I am right about the federal constitutional issue (i.e., that the plan, if properly implemented, does not violate the Constitution), this does not end the inquiry.  In fact, I think that the people who have framed the key legal issue as one of federal constitutional law have missed the mark. 

 

Specifically, I think the far more interesting question is whether the plan complies with state law.  And this is no easy question given the nationwide eminent domain reform effort that followed the Kelo decision. 

 

Since 2005, many states have passed laws designed to protect homeowners from eminent domain and, in particular, eminent domain that would involve the transfer of private property to another private owner (as opposed to a government owner).  Ironically, those very laws designed to help protect homeowners may now present legal obstacles to the underwater mortgage plan.

 

For example, in California voters approved Proposition 99 in 2008, and the Legislature passed a number of moderate reforms in 2006 and 2007.  It's pretty clear that nobody was thinking about a plan to seize underwater mortgages when those new laws were adopted, but looking at them, they could raise concerns for proponents of the plan. 

 

Indeed, the Dechert attorneys also conclude the plan violates California law, explaining that the proposed takings likely exceed the local agencies jurisdiction because the mortgages are "located" outside the territorial boundaries of the agencies, and because the proponents would be be able to make the requisite public use and necessity showing. 

 

More fundamentally, condemnations that involve the transfer of property from one private owner to another typically involve findings of blight and proceed pursuant to powers granted to redevelopment agencies.  As we have been discussing all year, California's redevelopment agencies have all been dissolved, making these types of condemnation actions impossible.  This could prove a significant hurdle to the underwater mortgage plan in California. 

 

For anyone who wants to explore the California law on these issues a bit more closely, the 1982 California Supreme Court decision in City of Oakland v. Oakland Raiders provides a pretty detailed discussion of (1) condemning intangible rights, (2) condemning property and transferring it to a private party, and (3) the application of the territorial limitations of condemnation to intangible property, among other relevant topics.  There, the Raiders obtained a summary judgment ruling that the City of Oakland lacked the power to condemn the Raiders franchise, but the Supreme Court reversed, allowing the case to proceed on the merits of whether the City could establish a legitimate public use to support such a taking. 

 

Aside from California, other states have also passed reforms in the wake of Kelo, some more narrow, but some significantly more far-reaching than California's.  These laws will likely become the focus of the legal battles over the underwater mortgage plan, not the federal constitutional questions that are currently getting far more publicity. 

 

In sum, while I think the plan will survive scrutiny under the federal constitution, it may not fare so well under the various state laws, including California's. 

 

The next post will focus on whether the plan is likely to succeed if it proceeds, and what unintended consequences could result from the plan's implementation.  

Update on Redevelopment Lawsuits

The parade of lawsuits involved in the redevelopment dissolution process continues to grow.   Here are a few quick updates:

  • Five San Diego County cities have sued the state over AB 1484.  Chula Vista, National City, Oceanside, San Marcos and Vista have joined forces to attack the law.
  • In Northern California, El Cerrito has also sued, claiming the "true up" payment it purportedly owes ($1,756,794.67) is unlawful.  Read more about the El Cerrito lawsuit in the July 17 El Cerrito Patch article, City Sues State, County Over $1.76 Million "Demand for Payment"Other cities have also reportedly sued or are planning to sue. 
  • The City of Brea is seeking a temporary restraining order against the implementation of AB 1484, claiming that compliance with the City's $15.5 million "true up" payment would risk putting the City in default on certain bond obligations. 
  • The League of Cities plans to move ahead with a lawsuit challenging AB 1484.  According to League Executive Director Chris McKenzie: “The board of directors of the League took this action because AB 1484 represents a clear and present threat to the ability of cities to meet the public safety and other vital public service needs of the city resident of California. We also strongly believe the sales tax and property tax "claw-back" provisions violate the constitution and are inconsistent with other parts of AB 1484 that declare that redevelopment successor agencies are separate and apart from city governments."
  • Hercules, LLC (a subsidiary of Catellus) has sued the State Department of Finance, the City of Hercules and Contra Costa County over the Department of Finance's decision to reject a $53.3 million settlement entered into between Hercules, LLC and the Hercules Redevelopment Agency in 2010.  The City (as successor to the RDA) had listed the agreement as an enforceable obligation on the City's ROPS schedule, and the Oversight Board had approved the agreement as qualifying as enforceable.  However, the Department of Finance rejected the agreement, declaring it unenforceable (and therefore not subject to repayment).  The complaint sums up the lawsuit in a simple sentence:  “The State of California’s Department of Finance (“DOF”) has attempted, by the stroke of its pen, to abrogate contractual rights worth tens of millions of dollars that are held by [Hercules, LLC].”  An article in the Hercules Patch, Catellus Sues State Department of Finance, Hercules Over $53.3 Million Settlement Agreement, provides more details. 

California Legislature Passes Bill that Changes Redevelopment Dissolution Process

Ever since the Supreme Court issued its decision in the Matosantos case last December, facilitating the dismantling of California's redevelopment agencies, there has been talk of new legislation -- either in the "clean up" variety or in the substantive overhaul variety. 

Today, the Legislature passed AB1484 as a budget trailer bill (the Senate approved the bill at around 1:30 p.m., and the Assembly followed about an hour later).  

AB1484 probably qualifies as too substantive to be characterized as mere "clean up," though it falls short of a major overhaul of the system.  And it certainly does not reinstate redevelopment in California.

So what does it do?  For now, nothing.  Remember back to high school civics.  A bill does not become a law just because the legislature passes it.  AB1484 now heads to Governor Brown's desk, where he will either sign it or veto it.  If he signs, AB1484 becomes law.  If he vetoes, the legislature has the opportunity to override the veto, something about as likely as me winning the lottery. 

If the Governor signs it, AB1484 will (1) change the manner in which the dissolution process occurs, (2) reallocate some of the affordable housing funds back into affordable housing, and (3) refine how "enforceable obligations" are defined, among other things. 

We will have more about the substance of AB1484 -- along with any rumors we hear about what Governor Brown may do once it lands on his desk -- shortly.

Eminent Domain Odds and Ends

A few odds and ends for our readers:

  • New Federal Eminent Domain Legislation:  According to the Eminent Domain Law Blog, two Senators have introduced a new bill, Protection of Homes, Small Businesses, and Private Property Act of 2012.  This, again, you may ask?  What ever happened with HR 1433, the Private Property Rights Protection Act of 2011?  HR 1433 appears to be dying a slow death, but the new 2012 bill seeks to pick up the slack.  In particular, it is targeted at the same issue:  preventing the federal government from using its eminent domain power and state and local governments from using federal funds to fund the use of eminent domain for economic development.  One problem:  HR 1433 had some teeth, providing for penalties and allowing owners to proceed with a private right of action to enforce non-compliance.  The 2012 version apparently lacks the enforcement and penalty mechanisms, but perhaps that's what is needed to get legislative support.
  • Battle for Brooklyn:  A Lawyer's Perspective:  We've written in the past about the documentary Battle for Brooklyn, which involved a property owner's fight against the use of eminent domain for the new Brooklyn Nets basketball arena.  If you're interested in a lawyer's perspective, you'll need to read Michael Rikon's article "I Represented the Devil of Brooklyn," which was recently published in the Practical Real Estate Lawyer.  For a great synopsis, visit our colleague Robert Thomas' blog, inversecondemnation.com
  • Hi-Ho Silverado:  According to an article in the Napa Valley Register, "City plans Saratoga Drive extension," the City of Napa may use eminent domain to temporarily acquire portions of properties along the Silverado Trail to construct a new road linking the highway with homes to the east.  The acquisition of temporary construction easements are common for public projects, but just because they are temporary does not mean there will not be impacts.  One impacted business, for example, will be required to vacate its property for 30 days in order to install an underground drainage system.

 

State of Diminished Expectations

The opening skirmish in the next phase of the battle between cities and the state over control of property taxes played out in Sacramento Superior court yesterday afternoon.  At issue was property taxes formerly controlled by redevelopment agencies.  While the court ruled against the petitioning cities, as with every other aspect of the California’s budget battles, it is difficult to say that there were any real winners.    

In City of Palmdale, et al. v. Ana Matosantos, Palmdale and eleven other cities sued the Department of Finances and various county auditor-controllers contending that the state has been too stingy in approving enforceable obligations of the former redevelopment agencies.  The first disbursement from the Redevelopment Property Tax Trust Funds is scheduled to occur tomorrow and the petitioning cities argued that money for the disputed obligations should be held back.  They also argued that the June 1 disbursement should include extra money to the cities to make up tax revenue they should have received earlier in the year.

As it turns out, the cities were asking for a greater share of tax revenue that simply does not exist.  This has to be as disappointing for the cash strapped state as it is for cash strapped cities.                      

To put all of this into context, it is important to look back at why redevelopment was abolished in the first place.  Its end came not because of any philosophical objections by the Governor or Legislature.  Rather, in the face of an anticipated $25.4 billion budget deficit, property tax increment controlled by redevelopment agencies proved to be an irresistibly tempting source of funds for the state.  The expectation was that ending redevelopment would free up property tax revenue which could be used to narrow the state’s budget deficit.  Unfortunately, as with everything having to do with the state’s budget, things haven’t worked out exactly as planned. 

The unwinding of redevelopment agencies and the payment of their debts involves the establishment of Redevelopment Property Tax Trust Funds into which the former tax increment for each project area is deposited.  Successor agencies are charged with preparing Recognized Obligation Payment Schedule (“ROPS”) delineating enforceable obligations payable by the successor agency.  An oversight board, comprised of appointees from various local agencies within the redevelopment project areas, decides which of the items qualify as enforceable obligations to be submitted to the Department of Finance for approval.  Those obligations deemed to be enforceable will be disbursed, twice annually, by the county auditor-controller from the Trust Funds.  Any residual balance will then be distributed to school districts and other local agencies.   

According to press accounts, the state Department of Finance has questioned hundreds of millions of dollars in purported enforceable obligations.  Fearing that money needed to pay those contested amounts would be disbursed to school districts and other local entities, the city of Palmdale and 11 other cities banned together to file.  At yesterday’s hearing they asked the Court to issue an order preventing property tax revenues from being paid on Friday to school districts and other local entities, and that this money must be held in trust until after their disputes with the state are resolved. 

But here is the rub.  In most instances, after paying undisputed ROPS items there will be no money left over to sequester.  In fact, for a majority of these petitioning cities, there will not be enough property tax revenue to pay all of the undisputed ROPS items. 

The petition was denied and the June 1 disbursement to successor agencies will occur as planed.

Despite the state having prevailed in court, there are no real winners.  The shortfall in property tax revenue to pay existing enforceable obligations comes as a major blow to cities charged with winding up their former redevelopment agencies.  It also comes as a blow to the state, which had planned on surplus funds being available to offset its funding obligations for school districts.

In the short run, it seems that little has changed.  There is still insufficient tax revenue to pay all of the obligations of the state and local entities.  New legal challenges are being filed almost daily and the battle for control of those revenues rages on.
 

Redevelopment Happy Endings Do Exist....

The demise of redevelopment in California has surely sparked strong emotions from both its supporters and its opponents.  And while the wind-down process continues to dominate the headlines, a recent article caught my eye about the tale of a long, hard-fought redevelopment battle -- with a happy ending, for everyone. 

If you have a moment, check out a great story in last week's Park La Brea Press, Eminent Domain Didn't Send Bernard's Packing, detailing a property owner's successful fight against redevelopment in Los Angeles.  The article provides a current update on a drawn out eminent domain battle between a mom and pop luggage shop in Hollywood who opposed making way for the new W Hotel. 

The story begins back in the 1950's, when Bernard's luggage shop began renting the location they ultimately purchased 20 years later.  It was a family-owned business, a staple in the community.  Then, the owners heard news that their property, along with 31 others, were potentially going to be condemned for a new hotel. 

While Suzette Kelo was battling for her property rights on one side of the country, the mom and pop luggage shop owners led a strong grass roots movement of their own to stop the redevelopment acquisitions.  Shortly after the Resolution of Necessity hearing, a billboard went up:  "Murder on Vine Street:  Eminent Domain Kills Small Businesses."  Amidst a media frenzy, legal threats, and community complaints, the parties ultimately reached a settlement whereby the W Hotel would be built around the business, with the store reconstructed allowing the developers to install subterranean parking.  

Like any happy tale, there must always be bumps in the road.  In this case, unfortunately, the battle was quite taxing on the family, and the luggage shop is no longer in business.  However, the family continues to own the property, and it apparently has some high hopes for a bright future.  Store owner Bob Blue hopes to have a restaurant tenant within the year, and hopefully an eatery to complement Hollywood's history.

The Redevelopment Wind-Down: A Quick Update

California continues its process of dismantling its redevelopment infrastructure.  The state's redevelopment agencies disappeared on February 1, 2012, and today marks another key milestone.  May 1 is the deadline for the creation of the Oversight Boards that will watch over the Successor Agencies as they dispose of redevelopment assets. 

What does this mean?  In many cases, nothing particularly significant.  Oversight Boards have been empanelled for many Successor Agencies before today, and even once empanelled, there is no guarantee that anything will happen immediately.  But theoretically, Successor Agencies can start to dispose of assets, with Oversight Board approval. 

There are a few other things going on, and some acronyms to talk about.  Here are a few highlights:

Recently, we saw the first lawsuit generated by the winding down process (at least , the first one we noticed).  The City of Fresno has sued over the make up of its Oversight Board, arguing that the Board has not been created in compliance with AB X1 26.  An April 23 article in the Fresno Bee, Fresno Oversight Board members sued at chaotic meeting, opens with this colorful quote:

The Fresno Oversight Board got two pieces of bad news when it met Monday for the first time.
Board members were told they don't exist.
Then they got sued -- by their own legal advocate.

A Sacramento County judge later ruled that the Board could meet -- for now -- but ordered the parties to return to court for a substantive hearing on the Board's makeup on May 14.  

And while the successor agencies and their Oversight Boards try to sort through the process, there are continued efforts in the Legislature to amend the law.  There have been a dozen or more bills introduced, focusing on everything from basic housekeeping/clean up to addressing affordable housing funds to creating a framework for an orderly dissolution process. 

The bill that has seemed to have the most momentum has been AB 1585,  It seeks to do the following:

  • Provides discretion to oversight boards to allow for expansion of enforceable obligations;
  • Restores some funds for low and moderate income housing;
  • Provides guidance regarding disposition of assets in an effort to avoid “fire sale”; and
  • Makes changes to stabilize bond payments.

AB 1585 was approved by the Assembly, 56-7, receiving two more votes than the super-majority required for passage as an urgency measure.  At this point, it remains unclear whether AB 1585 -- or any other pending redevelopment legislation -- will pass in both houses.  And if something does pass, it is also unclear whether Governor Brown will sign any such legislation.  To the extent a new law impacts the amount of money available to the state, a veto remains a likely outcome. 

Finally, a few new acronyms.  The Enforceable Obligation Payment Schedule, EOPS, is the schedule of enforceable obligations created by the redevelopment agencies before their dissolution.  These are not particularly significant at this point, because the real focus is on the Recognized Obligation Payment Schedule, ROPS, which is the enforceable obligation payment schedule created by the successor agency and then certified by the county auditor-controller and approved by the oversight board.  The ROPS will be getting considerable attention over the next few months as the stakeholders argue about what qualifies as a legitimate enforceable obligation -- and what does not.    

We can't predict what will happen next, but it will almost certainly be interesting.  And at the end of the day, it seems likely that the Fresno lawsuit will be only one in many, many legal disputes over this process. 

Join Us at IRWA Chapter 11 (San Diego) on April 18 for the Update on Redevelopment in California

The demise of redevelopment world tour continues!  Gale's been speaking away up north at the IRWA, the Appraisal Institute, and various other organizations, and Rick and I have been trying to do our part to keep up down here in Southern California.  So, here we go again -- this time down in San Diego, and we hope you'll join us.  We promise to use some new materials and give some updates on the status of pending clean-up legislation and how the redevelopment agency winding up process is playing out in California. 

The details:  we'll be speaking to the San Diego Chapter of the International Right of Way Association on April 18, 2012.  The meeting will take place at the Handlery Hotel, located at 950 Hotel Circle North, and it usually starts around 11:30 am.  Yes, you'll hear about the backdrop of the events leading up to the adoption of AB1X 26 and 27, the ensuing litigation and the Supreme Court's opinion in Matosantos, and the aftermath of the decision on redevelopment agencies across California.  But we'll also get into what's been playing out over the last few months on the ground.  We hope to see you there!

Not Just Another End of Redevelopment Story

By now, loyal followers of this blog are well versed in the whys and wherefores of redevelopment's demise.  You know all about the 30+ year struggle between the state and cities over allocation of property tax revenues.  The impact on the State's budget caused by Proposition 98, the creation of ERAFs and Propositions 1A and 22 in the new millennium are by now old hat.  You can recount by heart the story of the rise and fall of the alternative voluntary redevelopment program that was ABx1 27 and the Supreme Court’s decision in California Redevelopment Assn v. Matosantos.

But what does all of this mean for the assets, obligations, and liabilities of the former redevelopment agencies?  How do cities go winding down their redevelopment agencies and disposing of their assets?  When the Legislature adopted ABx1 26, it no doubt anticipated that most cities would elect to participate in the alternative voluntary redevelopment program.  Undoubtedly, a few would be unable or unwilling to make the required payments and would therefore wind down their agencies as mandated by ABx1 26.  What the Legislature never anticipated was that all 400 or so agencies would be dissolved simultaneously.  As a result, ABx1 26 paid scant attention to the details of dissolution.

The Legislature is now grappling with the unintended consequences of ending a 60 year program at the stroke of a pen.  What, for example, did they mean when they instructed cities to dispose of the assets of their former redevelopment agencies "expeditiously and in a manner aimed at maximizing value”?  Are successor agencies supposed to “expeditiously” sell the properties at fire sale prices or should they develop long-term asset management plans to dispose of them in a more orderly, but less expeditious, fashion?  What of cities that elect to retain the housing assets and functions previously performed by their redevelopment agencies?  ABx1 26 passes on the obligations and liabilities for low to moderate income housing programs without clearly identifying funding sources.

These and other issues are addressed in various bills now pending before the State Legislature. 

If you are interested in learning more about pending cleanup legislation, how the winding up process is actually playing out, or if you would like a refresher on the whys and wherefores of redevelopment’s demise, I will be speaking at the IRWA chapter 42 lunch in San Jose next Wednesday,  For more information or to register for the lunch, please go to the Chapter 42 page.

The Weekly Condemnation Update

 Here's some news making headlines this week in the eminent domain community:

  • The Base Year Transfer Rule Under Threat of Eminent Domain:  A new published California Court of Appeal decision -- Duea v. County of San Diego -- came out yesterday addressing whether a property owner can transfer their base year value to a replacement property when the owner sells its property to a private developer under threat of eminent domain.  The Court held that the owner had some procedural missteps which doomed the case, but also went on to hold that this type of transfer does not qualify for a base year value transfer.  We'll have more on the opinion shortly, but in the meantime, take a look at our colleague Robert Thomas' inversecondemnation.com blog post on the case.  
  • Eminent Domain in Placer County:  According to an article in the Sacramento Bee, Eminent domain process OK'd for road widening in Placer County, Placer County Supervisors authorized the use of eminent domain to acquire pieces of five properties needed to complete the widening of Auburn Folsom Road.  While the property owners argued that the County failed to negotiate in good faith, the County responded that the road widening project had been on the books for years and it had successfully negotiated with 13 other impacted owners.
  • Condemnation for Hesperia Interchange:  According to an article in the Hesperia Star, City officials could use eminent domain to acquire interchange land, the City of Hesperia may turn to eminent domain to complete the Ranchero Interchange, a $59 million project that would connect Ranchero Road to Interstate 15.  The City has apparently obtained rights to all necessary properties but one.  The City hopes to begin construction work on the project in late 2012 or early 2013 and have the interchange open by July 2014.
  • Redevelopment Updates:  Looking for an update on redevelopment in California?  There's a nice, simple opinion piece in the Bakersfield Californian, Redevelopment work may have a place after all, which gives a concise update on some bills making their way through the legislature.  SB 1585 would clean-up the dissolution process and better defines "enforceable obligations," while SB 654 would restore some funds for low and moderate income housing.  SB 986 would require bond proceeds specified for specific developments to be used for those projects as opposed to throwing the money into the city or county's general fund.  And SB 1186 would allow agencies to establish community development authorities to oversee affordable housing projects.  

 Keep on the look-out for our E-Alert on the Duea opinion.  

What Does the End of Redevelopment Mean for Real Estate in California?

Are you interested in learning more about the impacts of the dissolution of redevelopment agencies in California? Will you be in the Walnut Creek area on Thursday? If so, please sign up to attend a candid panel discussion with influential local politicians who can articulate what aftershocks can be expected by the recent decision to eradicate Redevelopment Agencies. I will be providing a legal perspective on why this all came about and what it means for cities and counties whose redevelopment agencies were abolished.

The event is sponsored by the East Bay chapter of Commercial Real Estate Women. A Link to the March 15th event can be found here.

Local and National Redevelopment Updates

There are a number of redevelopment updates making headlines both in California and nationwide. 

National Redevelopment Update:

We've been following H.R. 1433 -- the "Private Property Rights Protection Act of 2011" --  a bill that would limit the power of eminent domain on a national platform.  We last reported in January that the bill was finally adopted by the House Judiciary Committee, and would next make its way to the House for approval.  According to an article on The Hill by Pete Kasperowicz, House votes to overturn Supreme Court decision on eminent domain, that next step has now occurred and the House approved the bill as well.  Now, the bill will move to the Senate.  Can it clear the last hurdle?  We shall see.

California Redevelopment Update:

While the redevelopment battle wages on nationally, here's a quick update on what's taking place here in California with the wind-down process.  There have been three bills introduced by the CRA to clean-up or otherwise alter the effects of AB1X 26:

  1. SB 1151:  instead of throwing all the redevelopment agency assets on the market now (which would likely flood the market and further reduce the return on assets), this bill would require the successor agency to prepare a long-range asset management plan that outlines a strategy for maximizing the long-term value of the real property and assets of the former redevelopment agency.  The agency would submit the plan on December 1, 2012 to the Department of Finance (DOF), and the DOF and oversight board would approve the plan by December 31.
  2. SB 1156:  this bill would enable cities and counties to establish a "community development and housing joint powers authority" to assume successor agency responsibilities and create an additional sales tax to fund sustainable economic development and affordable housing.
  3. SB 1220:  this bill, titled the "Housing Opportunity Trust Fund Act of 2012," would establish a permanent source of funding for afforable housing.  The funding would come through the imposition of a $75 fee on the recordation of each real-estate document, and such funds would be used to support the development, acquisition, rehabilitation, and preservation of afforable housing.

We'll let you know if these bills gain any traction.

Redevelopment Agencies Suffer Another One-Two Punch

We all knew that redevelopment agencies wouldn't go down without a fight after the California Supreme Court delivered the elimination-knock-out-punch in California Redevelopment Association v. Matosantos.  As expected, agencies took a two-pronged approach to try and stave off their elimination: (1) through the legislature, and (2) through the court system.  Friday delivered another one-two punch to redevelopment agencies, and this time they may be finally pinned in a corner.  

Legislative Update:  With respect to the legislative fix, we reported a few weeks ago that Senator Padilla had proposed legislation -- Senate Bill 659 -- that would delay the dissolution of redevelopment agencies until April 12, 2012.  This would, of course, not only clean-up the wind-down process, but also give the CRA time to come up with other potential budget fixes that would allow redevelopment to continue in some form.  Friday delivered the news that SB 659 would not be taken up by the legislature.  According to the CRA Executive Director's Update, the bill "appears to have died and will not move through the legislature."  The CRA has identified a number of issues that still need to be fixed, including legal bond obligations, loss of staff, and stranded public infrastructure projects.  

Judicial Update:  With respect to the full court press through the judicial system, the Supreme Court challenge was not the only litigation challenging the adoption of AB1X 26.  We reported some time ago that 12 other cities had filed a lawsuit in superior court challenging some of the technical, procedural issues as to how the bill was adopted.  Friday brought a preliminary hearing on those claims, and it was once again bad news for redevelopment agencies.  According to an article in the Sacramento Bee, Judge rejects efforts to halt elimination of California redevelopment agencies, The superior court refused to stave off their elimination, and while it is not a final ruling, the preliminary ruling is likely a good indicator of the ultimate outcome.  

Are there any bullets left?  Is redevelopment finally over?  With the February 1 dissolution date quickly approaching, the end may finally be near. 

Private Property Rights Protection Act of 2011 Approved by House Judiciary Committee

We've been closely tracking H.R. 1433 -- the "Private Property Rights Protection Action of 2011" -- a bill that would limit the power of eminent domain on a national platform.  (See our August and April 2011 posts.)   There hasn't been much action lately, but we finally saw some significant movement. 

According to an article by Lawrence Hurley in the E&E Reporter, "House panel approves bill limiting federal eminent domain power," the House Judiciary Committee finally approved the bill by an overwhelming 23-5 vote. Now, the legislation will move its way to the House for approval.

As a quick refresher, H.R. 1433 would do the following: 

  1. Prevent states and municipalities from using eminent domain for economic development purposes (such as redevelopment) if the agency receives federal economic development funds.
  2. Penalize any state or municipality that violates (1), above, by making the agency ineligible for federal economic development funds for 2 years.
  3. Prohibit the federal government from using eminent domain for economic development purposes. 
  4. Allow for enforcement of these provisions by (i) a property owner or tenant subject to eminent domain or (ii) the attorney general.
  5. Prevent any state or federal agency from using eminent domain to acquire property of a religious or non-profit institution by reason of that entity's non-profit or tax exempt status, or any quality related thereto.

With the elimination of redevelopment agencies in California, the bill -- if ultimately passed by the House and Senate -- likely will not have much impact here.  But for other states across the country, this is big news.   We'll see if the momentum continues and let you know what happens next.

Eminent Domain 2011 Year in Review

We're looking back on 2011's wild ride and looking forward to the twists and turns still in front of us in 2012.  We've summarized all of this into the 2011 version of our annual Eminent Domain Year in Review piece.

For those who don't want to take the time to read the actual article, here are a few of the highlights:

  • In January, Governor Brown proposed eliminating redevelopment agencies.  In June, he finally got legislation to accomplish that goal.  In August, the Supreme Court agreed to hear a legal challenge to the new law.  And on December 29, the Supreme Court upheld the law dissolving California's redevelopment agencies, while simultaneously striking down a companion law that would have provided agencies a "pay for play" mechanism to buy back into the system. 
  • For the first time, a California court imposed liability for a regulatory taking under the three-part Penn Central test.  The Avenida San Juan Partnership v. City of San Clemente, 201 Cal.App.4th 1256 court held that the city's efforts to down zone a property to preclude its development triggered liability under Penn Central.
  • In Galardi Group Franchise & Leasing, LLC v. City of El Cajon, 196 Cal.App.4th 280, the Court reaffirmed the rule that a claim for lost business goodwill must derive from the operation of a business on the property, precluding goodwill claims by a franchisor.  However, the court also held that the franchisee could assign its goodwill claim to the franchisor, allowing the franchisor to make a goodwill claim in the name of its franchisee.
  • In Los Angeles County Metropolitan Transportation Authority v. Alameda Produce Market, 2011 Cal. LEXIS 12171, the California Supreme Court held that one party's withdrawal of a condemnation deposit does not result in the waiver of any other party's right-to-take challenge, despite the general rule that withdrawal of a condemnation deposit effects such a waiver pursuant to Code of Civil Procedure section 1255.260.

For 2012, we expect considerable focus on the fallout from the Matosantos decision as the unwinding of California's redevelopment infrastructure is dismantled (subject to the success of the legislative efforts to modify the new law).  We also expect continued development of the regulatory takings law, with a possible renewed focus on Penn Central. 

Finally, we expect an increasing split in the way the public views eminent domain, with Kelo torch bearers coming down swiftly on perceived "bad" uses of eminent domain (and, in particular, any version of redevelopment-based eminent domain that might arise from the ashes of 2011).  But for traditional uses of eminent domain for public infrastructure projects, we expect increasing support for such projects, as the public sees the public benefits - and job opportunities - massive infrastructure projects can generate. 

If you want more, go ahead, click the link and read the entire article (you know you want to). 

Two Weeks Later, Where Does Redevelopment Stand in California?

The last two weeks following the California Supreme Court's decision eliminating redevelopment have been nothing short of a whirlwind.  Stories are flying all over the place on the decision's implications, whether redevelopment may be revived, or whether there may just be some small tinkering with AB1X 26.  While the updates seem to be changing by the hour, here's what we know as of today:

  • Senator Alex Padilla (D-LA) has introduced a bill to delay the dissolution of the redevelopment agencies until April 15, 2012.  It's unclear if this is a delay tactic to give RDAs a chance to come up with an alternative solution to California's budget problem, or if it is just to do some clean-up work on the dissolution bill.  But it appears this proposal is not being met with much support, as law makers are concerned it would mean local schools would miss out on a portion of the redirected property taxes.
  • In an effort to save afforable housing, Senate Leader Darrell Steinberg has introduced Senate Bill 654, which would allow dollars already earmarked for low and moderate income housing, perhaps as much as $2 billion, to remain in place.  This bill seems to be getting more legislative support, but who knows whether Governor Brown will use his veto power.
  • Many of us thought that sponsoring cities and counties across the State would simply assume the role of "successor agency" for the dissolved RDAs.  This may not, in fact, be the case.  The City of Los Angeles has already voted to not assume the sucessor role of the LA CRA, finding it would cost $109 million to take on the agency's responsibilities and 192 employees.

We'll be watching as more stories continue to unfold.  In the meantime, many agencies across the State are starting to comply with the RDA shutdown.  It will be interesting to see whether a consensus can be reached on a post-redevelopment proposal, or whether the discussion of keeping RDAs alive will start to dwindle. 

Missed our Redevelopment Webinar? No Problem, We've Got You Covered

After our webinar on the California Supreme Court's decision in California Redevelopment Assn. v. Matosantos, we've received a number of requests for the materials both by folks who attended and those who missed the event.  We've got you covered:  you can find our Power Point slides here.  But we can do even better:  you can find the entire recording of the webinar here.

Let us know your thoughts.  And, if you have any follow-up questions, feel free to give us a call or shoot us an e-mail. 

Join Us at IRWA Chapter 57 on January 11 to Discuss the End of Redevelopment

We're taking our show on the road!  In case you missed our webinar on the California Supreme Court's decision in California Redevelopment Assn. v. Matosantos, or if you just want to see our fantastic presentation skills in person (not sure what's wrong with you, but ok...), we hope you'll join us at the International Right of Way Association Chapter 57's monthly luncheon on January 11, 2012. 

IRWA Chapter 57's monthly luncheons typically begin at 11:30 a.m., and they take place at Canyon Crest Country Club at 975 Country Club Drive, Riverside, California.  Here's the e-vite to register.  My colleague Rick Rayl and I will be the guest speakers, covering the events leading up to the adoption of AB1X 26 and AB1X 27, the ensuing litigation and the Court's opinion, and the aftermath of the decision on redevelopment agencies across California

Bring your questions, and we'll do our best to answer them.  If you're not already a member of Chapter 57, but you want to attend, let us know in advance and we'll pay the cover charge for your lunch (how's that for a deal!).

End of Redevelopment in California: More on Yesterday's Supreme Court Decision

Yesterday, we reported briefly on the Supreme Court’s decision in California Redevelopment Assn. v. Matosantos.  As many of you undoubtedly know by now, the outcome was the nightmare redevelopment agencies feared most, but that many (including us) had forecast after listening to oral argument last month. 

The Court upheld ABX1 26, allowing the dissolution of California’s redevelopment agencies to proceed, but struck down ABX1 27, the “voluntary” buy back program that would have allowed redevelopment to continue.  In particular:

  • The Court had little difficulty upholding ABX1 26, the law eliminating California’s redevelopment agencies. The Court reasoned that because redevelopment agencies were created by the Legislature, the Legislature could also eliminate them:  “A corollary of the legislative power to make new laws is the power to abrogate existing ones. What the Legislature has enacted, it may repeal.” 
  • When it came to ABX1 27, the Court felt differently.  All but Chief Justice Cantil-Sakauye concluded that the “voluntary payment” portions of ABX1 27 run afoul of Proposition 22, adopted by voters in November 2010. The Court further concluded that the balance of ABX1 27 was not severable from the improper payment provisions, and the Court struck down ABX1 27 in its entirety. 

Though as a technical matter the CRA obtained a split decision (successfully attacking one of the two laws), the outcome represents a self-described “worst case scenario” that is obviously not what redevelopment proponents had in mind when they filed the lawsuit.  That said, the result is not too surprising to those who followed the oral argument, which focused largely on three issues:

  1. The fact that redevelopment agencies were created initially by the Legislature, which would, absent some constitutional prohibition, mean that the Legislature could also abolish them.
  2. The fact that the “voluntary” payments under ABX1 27 were not particularly voluntary, since failure to make them meant the redevelopment agency would be eliminated.  And, if not voluntary, the payments seemed to run afoul of Proposition 22.
  3. The question of whether the two laws were so intertwined that striking down one (presumably, ABX1 27) would necessitate striking down both. 

Much as it telegraphed during oral argument, the Supreme Court started by concluding that ABX1 26 – the dissolution bill – passed constitutional muster.  Rejecting the argument that Proposition 22 created a constitutional right for redevelopment agencies to exist, the Court found no discussion of redevelopment agencies taking on constitutional stature, and without some explicit mention of such a profound shift in the law, the Court would not imply any such intent.  As the Court summarized, the drafters of legislation do “not, one might say, hide elephants in mouseholes.” 

The Court moved on to ABX1 27, focusing its attention on the “voluntary” payment program.  The Court concluded that ABX1 27 was substantively indistinguishable from earlier efforts by the State to shift property tax increment from redevelopment agencies to the State’s educational revenue augmentation funds (“ERAFs”) – the very circumstance Proposition 22 sought to prevent. 

The Court then put the nail in the ABX1 27 coffin: “A condition that must be satisfied in order for any redevelopment agency to operate is not an option but a requirement.  Such absolute requirements Proposition 22 forbids.” 

Finally, the Court turned to the severability question, needing to decide whether ABX1 26 could stand alone, or whether it must fall given ABX1 27’s fate. The Court responded to claims that a number of legislators had reportedly opined that the Legislature would not have wanted such an outcome by looking at the statute’s specific severability clause stating the opposite, concluding that

whatever individual legislators may have said at one point or another, what the Legislature actually did establishes it would have passed [ABX1 26] irrespective of the passage of [ABX1 27], and that [ABX1 26] is volitionally separable. Consequently, it is severable.

Thus, the Court’s final conclusion: ABX1 26 stands, while ABX1 27 falls. 

What Happens Next: the Mechanics? The Court examined some of the mechanics of ABX1 26’s implementation in light of the partial stay and the passage of time that has rendered some of the law’s time frames impossible. The Court concluded that it had the power to reform the law, and it chose a superficially simple solution: all initial dates in ABX1 26 are shifted four months, representing the time period during which the Supreme Court’s partial stay was in place. 

But there is a twist. For any obligations that span multiple fiscal years, the Court did not reform the deadlines. Instead, only those trigger dates which fall before May 1, 2012, get shifted. This means, for example, that for the distributions required to be made on January 16 and June 1 every year, the January 16, 2012, distribution is now due May 16, 2012, but the June 1, 2012, distribution (and all future distributions) remain due as set forth in ABX1 26. 

What Happens Next: Implementation? Moving beyond the technical issues, the real question is what happens to redevelopment obligations and assets. This will be the subject of considerable discussion in upcoming weeks, but there are a few, bright-line rules people should know:

  1.  For obligations incurred prior to January 1, 2011, the obligations remain valid and binding. 
  2. For deals under negotiation when the Supreme Court stay was issued, the redevelopment agencies have no power to consummate the deals. 
  3. Remaining redevelopment assets will be sold. 
  4. If the agency transferred any assets to its city/county or another public agency after January 1, 2011, the transfer is potentially subject to ABX1 26’s “claw back” provisions. 

What Happens Next: a Legislative Compromise? Finally, entering into the realm of pure speculation, there is already some murmuring about a possible legislative compromise designed to reinstate some form of redevelopment. Whether any such compromise sees the light of day remains to be seen. And even if it does, considerable obstacles may exist. 

In particular, any legislative effort to reinstate some form of redevelopment must overcome the very problem that led to the demise of ABX1 27: how to fund “Redevelopment 2.0” without running afoul of Proposition 22. Moreover, a legislative compromise only works if the Governor approves it, and Governor Brown’s early comments do not suggest he is dissatisfied with the Court’s holding. 

For more information on the opinion and its aftermath, please join us for a webinar, Supreme Court Upholds Elimination of Redevelopment in California - Now What? It will take place on January 4, 2012, at 2:00 p.m. 

Supreme Court Upholds Law Eliminating California's Redevelopment Agencies

Today, the California Supreme Court issued its much-anticipated opinion in California Redevelopment Assn. v. Matosantos, the case challenging ABX1 26 and ABX1 27.  In a decision foreshadowed by the tone of last month's oral argument, the Court upheld ABX1 26, but struck down ABX1 27 as a violation of California's Proposition 22:

  • "Assembly Bill 1X 26, the dissolution measure, is a proper exercise of the legislative power vested in the Legislature by the state Constitution."
  • "A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency‘s community sponsors to state funds benefiting schools and special districts. Proposition 22 ... expressly forbids the Legislature from requiring such payments."

This means that the law eliminating California's redevelopment agencies stands, while the law that would have provided a mechanism to reinstate redevelopment agencies upon making certain "voluntary" payments was struck down.  The bottom line:  the decision ends redevelopment in California.

We will have more on the opinion in the very near future.  In addition, we will be hosting a free webinar on Wednesday, January 4, 2012, at 2:00 p.m. to discuss the opinion, its implications, and what happens from here.  We hope you'll join us, you can register here

UPDATE, 2:05 p.m.  While we digest the opinion and attempt to write something meaningful about it, Robert Thomas has already managed two substantive blog posts on the case today, including a short summary of the opinion and a good collection of early reports on the decision

Supreme Court Hears Arguments on the Future of Redevelopment

The Supreme Court heard oral arguments yesterday in California Redevelopment Assn. v. Matosantos, the action filed by the California Redevelopment Association, League of California Cities and others challenging the constitutionality of ABX1 26 and ABX1 27.  Based upon their questions it appeared that the Justices were satisfied that ABX1 26, the bill abolishing redevelopment agencies, passes constitutional muster.  However, ABX1 27, the bill allowing for their reinstatement by the making of  “voluntary” payments, seemed to be on much shakier grounds.  The question then becomes:  are the two so inexorably intertwined that they must stand or fall together, or is 27 severable from 26?  The future of redevelopment in California may depend on how the Justices answer this question.  

 

A. What the Legislature Creates, the Legislature Can Abolish

Based on their questions, the Justices seemed convinced that, on a stand alone basis, AB1x 26 would be constitutional.  Redevelopment agencies are, after all, creatures of statute.  The Legislature which created redevelopment agencies has the power to abolish them.

Counsel for the Petitioners conceded this issue, but argued that the vice of 26 is not that it dissolves redevelopment agencies per se, but that it dissolves them and transfers their tax increments to schools and special districts in violation of Proposition 22.  The Legislature cannot use a constitutional means to achieve an unconstitutional end.  Of course, this argument hinges upon the contention that the Legislature enacted 26 in an effort to coerce cites and counties with redevelopment agencies to participate in 27’s “Voluntary Alternative Redevelopment Program,” which Petitioners claim is not at all voluntary.

The real test then becomes whether ABZX1 27 is or is not constitutional and, if it is unconstitutional, is it severable from ABX1 26? 

B. Is the “Voluntary Alternative Redevelopment Program” Truly Voluntary?

The Justices tested the Petitioners’ contention that reestablishment payments made by cities and counties under 27 would inevitably come from local tax revenue, in violation of Proposition 22.  As many of our readers will recall, Proposition 22 amended the California Constitution to prohibit the State from redirecting revenue from locally imposed taxes to pay for the State’s obligations.  Attorneys for Petitioners, Respondents and the Intervener, County of Santa Clara, all seemed to agree that payments under ABX1 27 would most likely come from local tax revenues. 

Counsel for the State argued that this was not prohibited by Proposition 22 because it merely prohibits the Legislature from making a law “requiring” tax increments to be diverted to state obligations.  ABX1 27 was drafted to avoid this prohibition by creating a “Voluntary Alternative Redevelopment Program” in which cities or counties may elect to participate.  Many of the Justices seemed skeptical of this argument.  More than once the term “ransom payment” was used to characterize the payments required by 27.

The Justices probed further as to what sources sponsoring agencies might have to make the ABX1 27 payments that would not otherwise be prohibited.  There seemed to be a consensus that if the payments made under 27 were deemed to be involuntary, they would indeed run afoul of Proposition 22. 

C. The Severability Clause in ABX1 27 

At various points the question was posed:  what happens to 26 if we decide that 27 is unconstitutional?  Counsel for the CRA and League of Cites argued that since 26 was enacted solely to compel cities to make the payments under 27, the two bills are not functionally severable.  He added that to uphold 26 and strike down 27 would be the worst of all possible outcomes for his clients.  Counsel for the State took a more nuanced approach, but ultimately acknowledged that his clients would be satisfied with such a result.  Counsel for the County of Santa Clara hammered hard on the theme that 26 should be allowed to stand while 27 should be struck down.  He argued that for too long redevelopment agencies have siphoned off money desperately needed by counties to meet their financial obligations. 

In the end, it may all come down to Section 5 of Chapter 5 of ABX1 27 which says, in essence, that if any provisions of 27 are held invalid, the provisions of ABX1 26 shall continue in effect.  Counsel for Petitioners argued that this clause is not conclusive.  He asserted that the Court must be able to conclude the Legislature would have passed 26 even if 27 had failed.  The legislative history of these two bills, he argued, shows that it was never the intent of the Legislature that redevelopment be abolished with no means for its reestablishment.  

Did the Legislature utilize a constitutional means in the adoption of ABX1 26 to achieve an unconstitutional end? Is ABX1 27 truly a “voluntary” program so as to not run afoul of Proposition 22?  Can the Court find that 26 and 27 are so joined at the hip as to not be functionally severable, despite the severability clause in 27?  These are the questions that the Justices are now weighing and which will be answered in their decision, which is expected to be handed down before January 15, 2012.

Stay tuned….

Follow Supreme Court Arguments on Future of Redevelopment Live

Last Friday I spoke at the CLE Eminent Domain Conference in San Francisco.  The topic of my talk was "The Death And Possible Rebirth of Redevelopment in California."  I spoke on the current state of limbo in which redevelopment agencies find themselves as a result of the passage of ABX1 26 and ABX1 27 and the ensuing lawsuit challenging their constitutionality.  While I mentioned that the California Supreme Court would be hearing arguments on November 10th, I neglected to mention how to access the webcast of the proceedings.  For those interested in watching the arguments, direct your browser at 9:00 a.m. on Thursday, November 10, 2011 to the California Channel at www.calchannel.com
 
Back in August, the Court agreed to hear the case on an expedited basis, so as to reach a decision before Jan. 15, 2012, when the first payments under AB1x 27 would be due.  The positions staked out by the two sides were neatly summarized in statements given this morning on Sacramento's Capital Public Radio by H.D. Palmer of the Governor's Department of Finance and Chris McKenzie of the League of California Cities.

Palmer: "We believe the law is clear, that these agencies were created by an act of the legislature, and similarly, they can be dissolved by an act of the legislature."

McKenzie: "It's an abuse of their power - you can't violate the constitution and claim, oh, but we really are just using this other power that we have."

We expect to see these conflicting arguments probed and challenged by the Supreme Court Justices on Thursday.  Check back here later in the week for our take on the arguments and how they were received.

Rancho Cordova Redevelopment Agency Hit With Big Eminent Domain Jury Verdict

As you may recall, we've been closely following an eminent domain action pending in Sacramento County Superior Court involving the Rancho Cordova Redevelopment Agency.  The case involves the RDA's efforts to acquire a 9-acre site owned by the Lily Company.  After the property owner lost its challenge to the RDA's right to take the property, the case proceeded to a jury trial with respect to the property's value.  The results are in, and it's not a happy ending (at least so far) for the RDA. 

The Sacramento Bee reports in its article, "Price tag sky rockets for Rancho Cordova in land case," that the RDA initially estimated the property's value at $2.2 million, but after taking into account contamination clean-up costs, it dropped its offer to $387,000.  The jury came back with a much different conclusion:  $7.9 million -- more than 20 times the agency's offer.  This value also included the remediation costs (meaning the jury really came in at $9.6 million, less $1.7 million for clean-up).  You can read more about the case on Gideon's Trumpet (our colleague Professor Kanner keeps a running tab of "lowball" offers by government agencies, although I'm not sure why his figures differ a bit from the Sacramento Bee article.) 

What's next?  The RDA can:

  • Pay the judgment and record a final order of condemnation on the property, thereby transferring title to the RDA; 
  • Appeal the jury's determination, but that's always an uphill (and expensive) battle; or
  • Abandon the condemnation action, deciding not to go forward with the acquisition. (Absent some sort of prejudice, the Eminent Domain Law allows an agency to abandon an eminent domain action at any time, subject to the agency's paying the property owner's attorneys' fees and costs, along with any damages caused by the abandoned taking.)

We'll see what the agency ultimately does, but I doubt it likes any of the options.  

You may also be wondering how a redevelopment agency moves forward with a condemnation trial and pays a judgment given the pending California Redevelopment Association lawsuit before the Supreme Court which has essentially stayed all redevelopment agency activities.  If you happened to catch my presentation to IRWA Chapter 1 (Los Angeles) yesterday on the "Death (and Rebirth?) of Redevelopment," you may recall I mentioned that redevelopment agencies are still allowed to pay enforceable obligations; a judgment in condemnation would fall under this category, so here the RDA can fork over the money.

California Supreme Court Sets Oral Argument Date for Redevelopment Lawsuit

Most of us in the right of way profession are following closely the redevelopment lawsuit pending before the California Supreme Court.  The decision could have widespread implications.  So, to keep you fully informed, here's another quick update.

Yesterday, the California Supreme Court announced it will hear oral argument from 9 a.m. to 10 a.m. on Thursday, November 10, 2011.  For those of you up north who are keen on seeing the event in person, oral argument will be taking place at the Supreme Court Courtroom, Earl Warren Building, Fourth Floor, 350 McAllister Street, San Francisco.  For the rest of us, there will be a live TV broadcast and webcast of the case on California Channel at www.calchannel.com

To find out more details, or to see what else the high Court will be hearing, you can take a look at the court's website.  And, if you can't take the time to tune in, I'm sure we'll be providing our thoughts shortly after the hearing takes place.

National Eminent Domain Webinar: Join Us on December 1

Want the scoop on what future challenges local government agencies face with respect to eminent domain and redevelopment?  Want to hear from some of the most well-recognized eminent domain attorneys across the nation?  Want to get some CLE credit?  Want to get all your questions answered?  Want to do it all from your desk, in a short one-and-a-half hour presentation?

Come join us on Thursday, December 1, at 10 a.m. (PST) for the online seminar, "Eminent Domain: Redevelopment Challenges for Local Government, Navigating Federal Funding Requirements, Challenges for Public Utilities in Right-of-Way Projects, and Objections to Taking for Public Use."  The panel is nothing short of outstanding:

  • Rick Rayl and I will be giving an update on redevelopment, and in particular the potential nationwide ramifications of California's currently pending redevelopment lawsuit before the California Supreme Court. 
  • Robert Thomas and Mark Murakami, our good friends at Damon Key (Hawaii), and authors of the blog inversecondemnation.com, will focus on strategies for handling and raising objections to a taking.
  • Anthony Della Pelle from McKirdy & Riskin (New Jersey), and author of the blog New Jersey Condemnation Law, will focus on issues with planning for public utility takings and right of way projects.
  • J. Casey Pipes from Helmsing, Leach, Herlong, Newman & Rose (Alabama), is the Owners' Counsel member firm from Alabama and Co-Chair of the ABA Litigation Section's Condemnation, Land Use, and Zoning Law Committee, and he will be covering how to navigate the waters of complying with federal funding requirements.

For more details and registration, please check out the Strafford website.  We're hoping you'll sign up.  There's a Q&A session at the end, so bring your questions.

And, as a final note, much thanks to Robert Thomas for getting the ball rolling on this webinar.  It's pretty exciting to be working with some of the top eminent domain attorneys across the country.

Some Quick Updates on the Redevelopment Lawsuit(s)

I wanted to provide a quick update on what is going on in the lawsuits involving ABX1 26 and ABX1 27.  For those trying to keep score on who stands where, the following is a list of the amicus briefs that have been filed. 

In support of the CRA / League of Cities' position, seeking to overturn the laws:

  • Association of California Cities - Orange
  • City of Irvine
  • Long Beach
  • Public Interest Law Western Center
  • San Bernardino County
  • Southern California Coalition
  • Southern California Non Profit Housing
  • Riverside County

In support of the State's position, seeking to uphold the laws:

  • Affordable Housing Advocates
  • California Professional Firefighters
  • Center for Constitutional Jurisprudence
  • California Teachers Association 
  • Los Angeles Unified School District
  • MORR - Chris Norby
  • Santa Clara Unified School District

Next, we have a new lawsuit entering the fray.   Last week, a group of 10 Southern California cities filed a lawsuit seeking to strike down ABX1 26 and ABX1 27.  This lawsuit, filed in Superior Court, would seem at first glace to be a bit late to the party.  After all, the Supreme Court has already accepted jurisdiction over the original lawsuit, promising a decision by January.

So what is the point of a new filing in Superior Court?  Perhaps there is none.  The State responded almost immediately, filing a notice of related cases and noting for the Court that the case encompasses issues pending before the California Supreme Court and may become moot before any action is taken. 

But there may be a bit more to it.  The new lawsuit indeed raises the very same arguments as those being made in the Supreme Court.  But the new lawsuit also raises some additional grounds for striking down the laws - 14 claims of invalidity in total - including claims that the bills:

  1. Did not qualify for passage on a majority-vote basis.
  2. Exceeded the scope of the "special session" in which they were passed.
  3. Did not meet the requirements necessary to take effect immediately.
  4. Endanger existing contracts.  

And one final update.  Yesterday, Governor Brown vetoed SB 450, a bill proposed by Senator Alan Lowenthal of Long Beach that would have made changes in Low and Moderate Income Housing funds managed by redevelopment agencies.  But before anyone thinks Governor Brown may be changing his mind, his veto message for SB 450 makes clear that the veto is tied to the pending Supreme Court case, which makes the bill "a little ahead of its time."

Redevelopment: Supreme Court Denies Request for Clarification and Other Random Thoughts

As probably everyone following this blog already knows, redevelopment is under attack in California.  While some might assume the attack flows from continued outrage over the Supreme Court's Kelo decision, the reality is actually quite different.  Here in California, the driving force is not moral outrage, but budgetary crisis. 

As I learned earlier this week at the IRWA Chapter 67 lunch meeting, Governor Brown's plan to eliminate redevelopment is not part of some long-planned effort.  According to a presentation by one of my partners, Gale Connor, when now Governor Brown was Mayor Brown of Oakland in recent years, he actually benefited from and backed several redevelopment efforts.  It is only now, when facing nearly impossible budget shortfalls, that Governor Brown has taken this path. 

 

So where do things stand?

 

Status of the Lawsuit:  The lawsuit over ABX1 26 and ABX1 27 continues in the Supreme Court.  The respondents (those supporting the laws) filed their brief on September 9; the responsive brief from the California Redevelopment Association is due September 24.  (By the way, I've seen these bills referred in several iterations including "X1 26," 1x 26," "26 1X," and various other combinations.  According to the official bill on the legislature's website, the correct designations are ABX1 26 and ABX1 27.  I'll try to use that designation consistently from now on, but I make no promises.) 

 

Earlier this week, the Court also denied the CRA's request for clarification/modification of the partial stay entered last month. 

 

Other Recent Developments:  In an effort to avoid the new legislation and the murkiness of the lawsuit and the Supreme Court's partial stay, a few agencies have adopted a different tactic, seeking a legislative end run around the whole mess.  Whittier reportedly took the first crack at it, seeking a legislative exemption from the new law regarding the sale of the site of the former Fred C. Nelles Youth Correctional Facility.  

 

While initial press reports suggested this tactic might succeed, it ultimately failed in the legislature.  A September 12 article in the Whittier Daily News, "Defeat of Nelles development bill likely to delay project, Whittier officials say," describes the effort and its ultimate failure in more detail.   If Whittier had managed to garner legislative support, one must wonder whether Governor Brown would have signed the law. 

 

Other agencies are reportedly trying similar tactics, including an effort by Monrovia related to the Gold Line Extension Project, which is described in a September 7 article in the Altadena Patch, "Gold Line Extension Could be Delayed by Redevelopment Lawsuit." According to an article in today's Arcadia Patch, the Monrovia City Council has hired a lobbying firm to help with those efforts, but the legislative session has now ended, so it seems unlikely anything will happen on this front in the immediate future.

 

Finally, one "clean up" bill was passed before the legislative session ended.  SBX1 8 passed in both the Senate and Assembly on September 8, but it has not yet been signed by the Governor.  If signed, it would make several changes to ABX1 26 and ABX1 27.  We'll provide additional details about those changes when and if the Governor signs the bill. 

Ukiah and Placerville on Opposite Ends of the Redevelopment Spectrum

The existence of California's redevelopment agencies continues to make headlines across the state.  Despite the pending lawsuit between the CRA and the State concerning the constitutionality of AB1X 26 and AB1X 27, local government agencies are still taking things into their own hands, sometimes in very opposite directions.  Two examples:

The City of Ukiah:  Over a year ago, we reported that the local business community was urging the City of Ukiah to reinstate its redevelopment agency's power of eminent domain in an effort to eliminate blight.  (Yes, you read that correctly.)  The issue has apparently finally made its way to the planning commission, and is set to be decided this week.  The Ukiah Daily Journal is reporting that the majority of the City council members agree that the power of eminent domain is a useful tool, but do not believe it should be used for residential properties.  If the Planning Commission decides it makes sense to move forward with reinstating the redevelopment agency's power of eminent domain, the issue will be presented to the City Council for approval.  (UPDATE as of 8/31/11:  The planning commission has recommended reinstatement of the power of eminent doman specifically to deal with the Palace Hotel.)

The City of Placerville:  On the opposite side of the spectrum, a group of Placerville residents, known as "Save Hangtown from Redevelopment and Eminent Domain" -- or "SHRED"  -- (gotta love acronyms), qualified a referendum asking the City Council to repeal the City's redevelopment plan or put the matter to a public vote.  The Sacramento Bee is reporting that the referendum is a bit late, so the City Council has to overturn its ability to use eminent domain for redevelopment purposes, or the group will have to wait until the June 2012 ballot to allow the town to decide.

Both of these stories may seem a bit strange with the pending CRA lawsuit; the fate of redevelopment agencies remains unclear, and there is a partial stay which prevents them from undertaking most actions until the lawsuit is decided.  However, the CRA is filing a motion to lift the partial stay so agencies can begin conducting business.  We'll have more on that story shortly.

California Redevelopment Referendum Nixed for 2012 Ballot

We reported earlier this month that a referendum to ultimately decide the fate of redevelopment agencies could make its way onto California's 2012 ballot.  Eminent domain opponent Marko Mlikotin had obtained clearance to begin collecting signatures to overturn ABX1 27, the bill that allows California's redevelopment agencies to avoid extinction by paying money back to the State.  With the CRA's pending lawsuit to decide the fate of ABX1 26 and ABX1 27, Mlikotin's collection efforts have apparently been nixed. 

According to a Capitol Alert article by Torey Van Oot, "Referendum of redevelopment law shelved by opponent," Mlikotin has decided not to pursue overturning ABX1 27, and instead focus his efforts in supporting the State in its defense of the CRA lawsuit:

We have come to the conclusion that the state's case against the redevelopment agencies is very, very strong . . . .  The (organization's) can be spent much more wisely on fighting redevelopment abuse through the courts." 

In other words, Mlikotin realizes that beginning the expensive signature process may not make sense given the pending litigation.  After all, there is a chance AB1X 26 is upheld, while AB1X 27 is declared unconstitutional, which would render Mlikotin's referendum moot.

Redevelopment Remains in Limbo

On Thursday we reported the California Supreme Court’s decision to assert jurisdiction over the writ petition challenging the constitutionality of AB 26 X1 and AB 27 X1.  The Court also issued a partial stay of AB 26 X1 and a complete stay of AB 27 X1.  While the Court’s actions were designed to preserve the status quo until it renders a final decision in January, the status quo can mean very different things to different agencies.

For those that could not afford the payments necessary to re-establish themselves, the Court’s action is nothing short of a stay of execution.  But for those that planned on making the payments and continuing on with business as usual, the stay is an unwelcome barrier to new projects.  

To get a handle on what this all means, we need to first take stock of where things stood before the partial stay was issued.  

A. The Death and Rebirth of Redevelopment

In June, the Governor signed two budget trailer bills that substantially reshaped the California Community Redevelopment Law (“Redevelopment Law”):  AB 26 X1 immediately stripped redevelopment agencies of their authority to issue or sell bonds, incur new indebtedness, acquire or dispose of real property, enter into new contracts, etc.  However, until their dissolution, redevelopment agencies retained the power to honor existing contracts and legal obligations, pay existing debts, etc.  Arguably, cooperation and reimbursement agreements between cities or counties and their redevelopment agencies entered into prior to January 1, 2011, also remained in effect until October 1, 2011.  Thus, many agencies have continued to fund ongoing city or county projects as preexisting obligations.  

Unless they opted to participate in the “Alternative Voluntary Redevelopment Program” under AB 27 X1, as of October 1, 2011, all redevelopment agencies were to be dissolved.  Their assets, contracts and obligations were to be transferred to successor agencies.  Most agreements between cities and counties and their redevelopment agencies, including cooperation and reimbursement agreements, were also slated for termination.  

If a city or county elected to participate in the “Voluntary Alternative Redevelopment Program,” it could do so by adopting an ordinance re-establishing its redevelopment agency and committing to annual community remittances to local school and special districts.  For some cities, the amount of these so-called “pay to play” fees were so great as to present an insurmountable barrier to re-establishment of their redevelopment agencies.  Others ran the numbers and determined that the benefits of continued redevelopment activities outweighed the burdens imposed by the pay-to-play fees.      

Not surprisingly, the constitutionality of AB 26 X1 and 27 X1 was immediately challenged.  On July 18, 2011, the California Redevelopment Association, League of California Cities, and the cities of San Jose and Union City filed a petition for writ of mandate and application for stay in the California Supreme Court.

In the meantime, cities and counties throughout the state adopted ordinances reestablishing their redevelopment agencies under the Voluntary Alternative Redevelopment Program, but often with a catch.  In agreeing to make the requisite community remittances, most of the ordinances state that they are being made under protest and without prejudice to recovering such payments if AB 26 X1 and 27 X1 are declared unconstitutional. 

B. Preserving the Status Quo

The partial stay issued last Thursday was designed to preserve the status quo as it existed at that moment in time.  AB 27 X1 was stayed in its entirety, as were the sections of AB 26 X1 which dissolved redevelopment agencies.  However, the section of AB 26 X1 which stripped redevelopment agencies of their power to take on new obligations was not stayed.  

On the one hand, agencies are today in the same position they were a week ago.  They are powerless to initiate new projects or enter into new contracts, but they can continue to function as they have since the two bills were signed by the Governor in June.  For those cities or counties relying on cooperation and reimbursement agreements with their redevelopment agencies to fund ongoing projects, their day of reckoning has been postponed.  So to, those cities unsure of their ability to make the pay-to-play payments by October 1 now have a bit of breathing room.

On the other hand, agencies that can afford the payments and would have reconstituted themselves under AB 27 X1 are arguably not in the same position that they were a week ago.  To the extent they had plans for new projects to be pursued this calendar year, those plans are now on hold, at least until the Court issues its ultimate ruling in January 2012.  Compounding their uncertainty is a fear that the Court may ultimately uphold the constitutionality of AB 26 X1 but strike down 27 X1, thus removing any pathway to survival. 

Finally, the stay throws a bit of a monkey wrench into the Governor’s budget projections.  He was counting on diverting $1.7 billion from redevelopment agencies to balance California’s 2011-12 budget.  While the money may ultimately be diverted, in the short run the budget continues to fall further behind in its revenue projections.
 

California Supreme Court to Hear Redevelopment Case; Grants Partial Stay

We'll have more soon, but I wanted to report quickly that the California Supreme Court announced today that will assert jurisdiction over the CRA's lawsuit involving the constitutionality of AB 26 X1 and AB 27 X1, the bills involving the dismantling of California's redevelopment agencies. 

The Court also announced a partial stay of the legislation while it considers the case.  A news release by the Judicial Council of California describes the scope of the Court's stay as follows:

The court allowed the first statute [the one that eliminates redevelopment agencies] to remain in effect insofar as it precludes existing redevelopment agencies from incurring new indebtedness, transferring assets, acquiring real property, entering into new contracts or modifying existing contracts, entering into new partnerships, adopting or amending redevelopment plans, etc., but it stayed enforcement of both statutes in all other respects.

The Court also indicated that it intends to make a final decision by mid-January 2012. 

We will have a more detailed analysis in the next day or two.  

California Redevelopment Heading for the 2012 Ballot?

The California redevelopment circus continues today, as California's Secretary of State approved two potential referendums for the 2012 ballot.  One involves rural homeowners and payments for fire services; for our purposes, it's not very exciting (and since I'm pretty sure I don't live in a rural area, I'm not going to join that fray). 

But the other one is more interesting.  It's a proposal promoted by eminent domain opponent Marko Mlikotin to overturn AB X1 27.  For those who have trouble keeping score with all the bill numbers, this is the one that allows California's redevelopment agencies to avoid extinction by paying money back to the State (the payments the CRA challenges as "extortion" and a violation of Proposition 22.) 

In other words, assuming Mlikotin can collect the 504,760 signatures required over the next two months, California's voters will have the opportunity to overturn the bill that allows redevelopment agencies to stay alive, but (at least so far), not the ability to overturn the bill that eliminates them, AB X1 26.

Of course, by the time the state-wide election occurs in 2012, the Supreme Court likely will have ruled on the CRA's lawsuit, which, if successful, could render the referendum moot.  (Would we still have to vote on it if it qualifies for the ballot before the Supreme Court acts?)

So Long Kelo? Bill to Restrict Eminent Domain Up for Vote Today

While the redevelopment battle wages on in California, there's a somewhat similar discussion taking place on Capitol Hill.  We reported back in April about the House Judiciary Committee's consideration of H.R. 1433 -- the "Private Property Rights Protection Act of 2011" -- a bill that would prevent states and municipalities from using eminent domain for economic development purposes (such as redevelopment) on any project for which the agencies are receiving federal funding.  But there has not been much news since.  That may all change today.

According to an Energy & Environment Daily Report, lawmakers on the House Judiciary Committee are scheduled to vote today on the bill in an effort to respond to the Supreme Court's 2005 decision in Kelo v. City of New London.  So far, the bill has received Republican support, while Democrats have been a bit more skeptical.

Arizona's Republican Representative, Trent Franks, is quoted as saying that Congress should "restore the property rights protections that were erased from the Constitution by the Kelo decision."  New York's Democratic Representative, Jerrold Nadler, on the other hand, has expressed reservations about the bill and wants the Committee to seriously consider whether it strikes the right balance between property rights and economic development.

The bill has 24 sponsors, so it will be interesting to see how the Committee votes today.

UPDATE (5:00 pm):  according to our Washington insiders, the bill apparently was not voted on today.  We'll stay on top of this and keep you updated.

The Redevelopment Battle Wages On: CRA Files "Informal" Reply

The heavy-weight boxing match continues:  after California Attorney General Kamala Harris filed an "informal" opposition, the California Redevelopment Association (CRA) has countered with a not-so-"informal" reply brief of its own in an effort to overturn AB1X 26 and AB1X 27.

The CRA's informal reply requests oral argument in the Fall of 2011 since no one seems to dispute the urgent need for the California Supreme Court to decide the constitutionality of the recently passed legislation.  The CRA then focuses on the Attorney General's request to consider the statutes independently and instead urges the Court to read the two together.  

The reason?  The CRA knows the worst-case outcome of its lawsuit is for AB1X 27 to be declared unconstitutional while AB1X 26 survives.  In such a case, redevelopment agencies would lose their option to stay in existence by making the required payment to the State.  And, I've heard at least a few comments that the CRA seems to have a stronger argument on the unconstitutionality of AB1X 27 since it diverts redevelopment funds (which may contradict Proposition 22).  

Finally, in an effort to preserve the status quo, the CRA reiterates its request that the Supreme Court issue a temporary stay of the two statutes until an ultimate decision is made so redevelopment agencies across the state are not required pay the required funds to stay alive or cease existence.  

Send us your predictions and thoughts on who will -- and should -- win this battle.

Redevelopment Lawsuit: Response by California Attorney General

The battle continues over redevelopment in California.  Yesterday, the Attorney General filed an "Informal Opposition to Petition for Writ of Mandate."  The document is 20 pages long, with a 4-page list of Legal Authorities, so it really isn't very "informal"; still, that's what she called it.

Not surprisingly, Attorney General Kamala Harris takes the positions that:

  1. AB1X 26 and AB1X 27 are constitutional, and
  2. The CRA has not justified a stay in their enforcement. 

The Attorney General does not challenge the CRA's decision to file its lawsuit directly in the California Supreme Court.  To the contrary, the Attorney General "requests that [the] Court exercise its original jurisdiction," that it "set [the] matter for expedited briefing," and that it thereafter "[deny] the petition . . . on the merits."

The Opposition starts with an Introduction that chronicles the State's financial woes and bemoans the fact that as "California struggled with massive budget deficits," redevelopment agencies saw their coffers grow.  It goes on to explain that since redevelopment agencies are "creatures of statute," the Legislature has the power to dissolve them (i.e., that AB1X 26 is constitutional).  Finally, it explains that AB1X 27 does not violate Proposition 22 because the proposition precludes only "forced shifts and transfers from RDAs" - as opposed to the "voluntary" transfers AB1X 27 offers. 

The CRA's responses to these arguments are not hard to divine; what remains to be seen is how the Supreme Court views the issues. 

One thing does seem likely in light of this "Informal Opposition."  Given that the Attorney General agrees with the CRA that the matter is sufficiently urgent to warrant the Supreme Court's original jurisdiction, I suspect that the Court will take the parties up on the invitation, and that it will engage on this issue.   The outcome is a bit murkier. 

California Redevelopment Agencies File Suit Seeking to Overturn Their Elimination

While Governor Brown's push to eliminate redevelopment agencies seemed to drag on forever, California's redevelopment agencies were not so slow to act once the long-contemplated ABX1 26 and ABX1 27 became law.  On Monday, the redevelopment agencies filed suit directly in the California Supreme Court seeking to overturn the recent enactments.

The redevelopment agencies are represented by the California Redevelopment Association and the League of California Cities.  San Jose and Union City also joined in the lawsuit claiming they will face elimination since they cannot make the contemplated payments required to stay in existence.  

According to a Sacramento Bee article, California redevelopment agencies sue to block redevelopment plan, the redevelopment agencies claim that the legislation violates the voter-approved Proposition 22, which was intended to prevent the legislature from transferring transportation or redevelopment funds (such as fuel taxes and property taxes) to benefit other state or local entities.

The redevelopment agencies filed suit directly in the California Supreme Court because the legislation impacts cities across the state and only the Supreme Court can act authoritatively before the first redevelopment payment is due in January.

We will follow this closely.  Grab some popcorn; the show has just begun.

Governor Signs Law Eliminating Redevelopment in California

For months, we've been reporting on the impending death of California's redevelopment agencies.  Even we had started to feel like the "boy who cried wolf" as we reported on iterations of the Governor's budget plan that didn't come to fruition. 

But this time, it's real.  Along with an overall budget package, this week the Governor signed into law ABX1 26 and ABX1 27.  ABX1 26 eliminates redevelopment agencies in California.  ABX1 27 provides a means of survival if the agencies will pay the state, collectively, $1.7 billion next year (the savings the Governor claims ABX1 26 would generate by eliminating the agencies), along with additional payments every year thereafter. 

Of course, with a story that has as many twists and turns as this one, things are never simple.  First, and most obviously, with ABX1 27 in the mix, redevelopment could potentially survive after all -- assuming the agencies make the required payments.  At this point, it is not clear how many redevelopment agencies would, or even could, make the mandatory payments to allow their survival.  

Perhaps more importantly, the battle now turns from the political arena to the courtroom.  The CRA and League of Cities have already promised a major legal campaign designed to prove the unconstitutionality of the new laws.  And this fight will likely commence with an immediate showdown over an attempt to secure an injunction that will prevent the new laws from taking effect.

As the story evolves, we'll keep you up to date.  In the meantime, there's a pretty good summary of where we stand in Thursday's Sacramento Bee.  The article by Judy Lin,  Redevelopment Change Likely Headed for Court Fight, contains quotes from both sides of the debate.  As just two examples:

Chris McKenzie, president of the League of California Cities, is quoted describing the laws as follows:
"The governor provided the elimination bill," McKenzie said. "What the Democrats did is they added a gun-to-your-head provision. The second [bill] said, Oh, but if you pay the extortion - the $1.7 billion - you won’t be eliminated.’"

The League has also issued a statement decrying the new laws

Assembly Speaker John Perez's response was more restrained and succinct: 

We’re confident that it’s legal and we’re confident that reform is necessary.

Finally, though not about redevelopment, Amazon.com announced that it plans to fight back against another of the Governor's budget provisions, this one, a requirement that Internet retailers collect sales tax.  According to a June 30 Los Angeles Times article, Amazon won't collect sales tax; cuts off California affiliates, Amazon "terminated its relationship with approximately 10,000 Internet business partners in California" because "it does not intend to comply with the new law." 

Undoubtedly, more fireworks await us all as we head into the July 4th weekend. 

For Redevelopment, Today Could Be The End

When last we posted on the topic (see Days that Make Being an Eminent Domain Attorney Exciting: More Redevelopment Developments), the bills that would end redevelopment in California as we know it, AB 26x and AB 27x, had been passed by both the Assembly and Senate, but were left hanging when the Governor vetoed the main budget bills.  It was unclear what life, if any, these budget trailer bills had absent a budget.  The Legislature therefore simply held them without forwarding them to the Governor for his signature.  They have remained in a state of procedural and legal limbo for several weeks.  However, yesterday's announcement that the Governor and Democrat leaders had reached a budget deal changes everything.  With a budget deal in place, the Governor is now apparently ready to sign the redevelopment bills

Unlike the Governor's original proposal which would have simply killed off redevelopment in one fell swoop, there is now a two step process.  AB 26x would eliminate redevelopment agencies, while AB 27x allows for the reestablishment of redevelopment agencies if they commit to making payments to Special Districts Allocation Funds and a County Educational Revenue Augmentation Funds.  (See New Bills to Eliminate Redevelopment Agencies Unveiled.)  Agencies that lack the funds to make the payments would simply be gone forever.  The proponents of these bills claim that for this fiscal year, the State will receive $1.7 billion from redevelopment agencies

Supporters of redevelopment were quick to respond.  "Redevelopment Supporters Vow Lawsuit if Governor Signs 'Smoke and Mirrors' Budget that Includes Unconstitutional Redevelopment Elimination Bills (AB 1x 26/27)" read a press release issued by the Mend it Don't End It Coalition, a group supported by the California Redevelopment Association and the California League of Cities.  Chris McKenzie, executive director, League of California Cities said, “AB 1x 26/27 violate the State constitution.  Voters just passed Proposition 22 overwhelmingly in November to prevent this type of State raid of local funds.  If the Governor signs this legislation, we will file litigation at the earliest opportunity to defend the constitution and the will of the voters.” 

John Shirey, executive director, California Redevelopment Association, said, “Make no mistake about it: AB 1x 26/27 would lead to the elimination of redevelopment agencies throughout California....We plan to file a lawsuit to prevent this legislation from going into effect."
 
Redevelopment has been teetering on the brink for several months now.  Each time that its fate seemed to be sealed, political bickering in Sacramento has been its salvation.  However, this feels different.  The Governor's office has announced a press conference at 3:00 to announce the budget deal.  We will keep you posted.

Days that Make Being an Eminent Domain Attorney Exciting: More Redevelopment Developments

We're trying to keep on top of the developments over the future of redevelopment in California, but by the time we can get something drafted and posted, the story has already changed.  Here's a quick recap of what we know (and what we don't):

Today, the game changed again - maybe.  Governor Brown took swift action on the budget plan, vetoing it in dramatic fashion.

But what does this mean for the redevelopment bills?  Who knows.  At least as of this post, there are rumors the the Governor may also veto the various budget trailer bills, including AB 26x and AB 27x (so far, he has only vetoed the main budget bill, not the companion, or "trailer" bills such as AB 26x and AB 27x).  There are also rumors that the Democrats will not submit those bills to the Governor.  And there are yet other rumors that the Governor may view at least some of the trailer bills as "helpful," presumably signaling an intent to sign them. 

And then there's the questions about what happens if the bills do get signed.  They were passed on a simple majority vote, which would typically mean that they could not take effect until January 1, 2012.  But they were coupled with the budget bill, under new authority that allows the legislature to make such bills effective immediately, even on a simple majority vote.  Now that the Governor has vetoed the main budget bill, does the exception still apply to AB 26x and AB 27x?  Would they instead not take effect until January 1?  Or maybe they can't take effect at all, since they purport to take effect this year, something not allowed under the ordinary legislative process.

By the time you read this, the story likely will have changed again. 

In the end, I cannot help but think about the ancient Chinese proverb/curse, May you live in interesting times.  Interesting times, indeed. 

(Disclaimer:  It turns out the ancient Chinese proverb may not be so ancient - or so Chinese, but it's still an apt phrase here, with all its implications.)  More later.

LEGISLATURE ACTS TO KILL REDEVELOPMENT AS WE KNOW IT

Yesterday, after heated floor debates, both the Senate and Assembly passed the two-bill package to end redevelopment as we know if.  In the Senate, the two bills each eked out the requisite 21 votes, with the final tally being 21-15. In the assembly the bills passed with the more comfortable margins of 51-23 for AB 26x and 47-28 for AB 27x.

Interestingly, these bills did not pass on party line votes, with some Democrats voting no and some Republicans urging a yes vote. A heated confrontation occurred when Assemblymen Don Wagner, R-Irvine compared provisions which compel redevelopment agencies to give money to local governments to offset State obligations, or face elimination, as being comparable to a Sopranos shakedown scheme. This prompted Assemblyman Anthony Portantino, D-La Cañada Flintridge, to demand an apology for the Sopranos reference. If nothing else, the scuffle that followed ensured that nobody fell asleep during the debate,

San Diego Mayor Jerry Sanders issued a statement after the bills passed, echoing Assemblyman Wagner's sentiments, calling the bills an "extortion attempt." He went on to explain that instead of acting on proposals advanced by a number of mayors to reform redevelopment " the Legislature put a gun to our head, threatening to kill redevelopment agencies if they don't hand over local tax dollars to the state instead of using them for streets, parks, housing and other local needs."

If the Governor signs these two bills, the CRA and the League of California Cities may challenge the constitutionality of these measures. Barring a successful legal challenge, if the Governor signs these bills, the big question is whether redevelopment can survive.
 

New Bills to Eliminate Redevelopment Agencies Unveiled

It has been rumored for some time that a “two bill” strategy to eliminate redevelopment has been in the works.  Bill #1 would eliminate redevelopment agencies as of a specific date and bill #2 would exempt any redevelopment agency from elimination if it makes specified payments for the state. 

The text of those bills has now been released.  As predicted, Bill #1 (SB 14x / AB 26x) would, immediately upon enactment, suspend most agency activities including the issuance of new bonds, entering into new contracts, acquiring or disposing of properties, or taking other actions beyond the servicing of existing contractual obligations.  Effective October 1, 2011, the bill would dissolve all redevelopment agencies and designate successor agencies.  County auditors would be required to conduct an audit of each former redevelopment agency by March 1, 2012.

Bill #2 (AB 27x / SB 14x) creates an alternative ongoing redevelopment program.  Redevelopment agencies would be authorized to continue to exist upon enactment of an ordinance to comply with this bill's provisions.  Among those provisions is a requirement that participating cities or counties make specific payments to a Special Districts Allocation Fund and a County Educational Revenue Augmentation Fund.  These monies would then be used to fund schools, fire districts, and transit districts.

One provision that has drawn the ire of many allows the Community Redevelopment Agency of Los Angeles to receive redevelopment revenues beyond a court-ordered cap that the city has already hit.  In view of the firestorm of controversy surrounding this provision, it may soon be struck from the bill.

As both supporters and opponents of redevelopment digest the text of these bills, there will no doubt be more in the way of controversy. 
 

Update on Azusa Redevelopment Project

We previously reported that the City of Azusa utilized the power of eminent domain to redevelop the area formerly known as "Corky's Corner," which required the acquisition of long-time (39 years) tenant The Furniture Station.  After the owner lost a right to take challenge, he settled with the City on the value of the property.  At the time, the City noted it planned to immediately begin redevelopment efforts, but it could not say who would ultimately end up in the new space.  Well, that new tenant has officially been announced.

According to a Pasadena Star-News article by Daniel Tedford, "Azusa scores Monrovia retail outlet as new anchor in the revitalization of Corky's Corner," a deal has been reached with The Outlet by ELS, a bargain retail store currently in Monrovia.  It is obtaining 3.3 acres from the City for $3.3 million.  The Outlet by ELS is moving from its current location in Monrovia, which, ironically, is also currently being acquired by eminent domain.  It hopes to have its store open to the public by summer 2012.

In total, the the City paid $7.2 million for the 3.5-acre redevelopment area.  The Furniture Station's property accounted for $1.45 million of  the total acquisition price.  The City hopes to use the left-over property to attract a sit-down restaurant.  If not, the owners of The Outlet by ELS have the option to purchase the property in five years.

The Future of Redevelopment: From Elimination to Reform?

As we have previously reported (Fate of Redevelopment Remains in Limbo), the bills to eliminate redevelopment agencies have languished due to Republican opposition.  With so many redevelopment agencies scrambling to use or secure redevelopment funds in an effort to protect them from being taken by Sacramento and with shortfalls in property tax revenues due to declining property values, redevelopment agencies are no longer as tempting a target for bridging the State’s budgetary shortfall.  

While redevelopment agencies may survive this budget cycle, the fight over their abolition has subjected them to pointed criticism for various alleged abuses.  If redevelopment is to survive in the long run, some of those abuses, whether real or perceived, must be remedied.

A new bill, SB 286, introduced by Senator Rod Wright (D-Los Angeles), with the backing of the California Redevelopment Agency, is aimed at doing just that.  This bill takes aim at many of those hot button issues that have made redevelopment so controversial in California.

For example, Palm Desert’s use of redevelopment money to renovate greens and bunkers at a local golf resort created a major uproar.  SB 286 addresses this head-on by prohibiting the use of redevelopment money for golf courses.  To blunt criticism of the use of redevelopment funds for professional sports arenas, and perhaps to supplant AB 1234 (a blanket prohibition on use of redevelopment funds for stadiums), SB 286 would require local voter approval before tax increment funds could be spent on professional sports facilities. 

Criticism that redevelopment agencies are spending money on economic development that would otherwise be earmarked for education is partially addressed by excluding from tax increment revenues transferred to a redevelopment agency any funds considered educational entity property tax revenues.  The catch is that this would apply only to tax increment revenues generated from redevelopment projects established after January 1, 2012. 

The bill is scheduled to be heard in the Senate Governance and Finance Committee on Wednesday.  That hearing should give us some indication as to whether it will garner bipartisan support.  We will continue to track this bill and provide updates on a regular basis.

Court Invalidates National City's Blight Findings

The case involving a small boxing gym in National City, California, has garnered national media attention.  The owner filed suit challenging National City's redevelopment plan for, among other things, failing to follow California's post-Kelo rules on making blight determinations. 

We reported on the case last month in A More Personal View of the Redevelopment Fight from National City.  The trial ended a few weeks ago, and the parties have been anxiously waiting for a decision ever since.  Late yesterday, the court issued its decision, ruling in favor of plaintiffs.  According to a press release issued this morning by the Institute for Justice (the firm that represented the owner in the litigation) entitled Major California Property Rights Victory for Landowners in Eminent Domain Abuse Fight; National City Violated Federal Constitution and State Laws:

The Court struck down National City’s entire 692-property eminent domain zone in the first decision to apply the legal reforms that California enacted to counter the disastrous U.S. Supreme Court Kelo decision in 2005. This ruling, which found that National City lacked a legal basis for its blight declaration, reinforces vital protections for property owners across the state, and underscores why redevelopment agencies should be abolished.

 

The city's reaction to the decision is, not surprisingly, a bit different.  Although acknowledging that the court ruled against the city overall, Mayor Ron Morrison is quoted in the San Diego Union Tribune as identifying a key failure in the plaintiffs' victory:

The main thing they were trying to do was make it so cities can not use eminent domain for economic development. They failed on that. The judge threw that part out.

Obviously, this is a big decision, and property-rights advocates will trumpet its significance.  But for now, unless you live in National City, the decision's impact may not reach you.  Trial court decisions do not create legal precedents that can be relied upon in other, unrelated actions.  While it may well be that this decision will find its way to the Court of Appeal, unless and until the Court of Appeal issues a published decision on the issue, the decision does not actually change California law. 

That said, I'm sure other redevelopment agencies around the state will take note of what happened in National City; rest assured none of them want to be the target of the next lawsuit/national media campaign by the Institute for Justice. 

Note also that this is not the first court decision to strike down blight findings since California's post-Kelo reforms were enacted.  We reported last year on a case in which the court struck down the Glendora Redevelopment Agency's blight findings.  That decision, which was a published Court of Appeal decision, does create legal precedent. 

More information later if we get our hands on the court's actual ruling. 

Eminent Domain Legislative Updates

I presented an update on eminent domain/redevelopment issues making their way through the legislature at this week's IRWA Chapter 67 (Orange County) monthly meeting, and I've received a few follow-up requests for more information.  So I decided it was probably worthwhile to put all the information here on the Nossaman blog. 

  • Status of California Redevelopment Agencies:  It's now been several weeks since the  attempted Assembly votes, where Governor Brown's attempt to eliminate redevelopment agencies fell one vote short.  The Governor needs the $2.2 billion in redevelopment funds this year to bridge the budget deficit.  It sounds like there is some intense back-channel lobbying taking place with the Redevelopment Association proposing a voluntary suspension of their funding or at least agreeing to contribute a portion of their revenue stream to local school districts.  I spoke with a few connected people this week and word is that Governor Brown's elimination plan -- at least as proposed -- is not likely to pass (aside from the Assembly, the proposal would also need to pass the Senate, which does not seem likely).  We'll just have to wait and see what ultimately comes of this.
  • Federal eminent domain legislation: The House is currently considering H.R. 1433, dubbed the "Private Property Rights Protection Act of 2011," which is a bill that would prevent states and municipalities from using eminent domain for economic development purposes (such as redevelopment) on any project for which the agencies are receiving federal funding.  H.R. 1433 also prohibits the federal government from using eminent domain for economic development (including increasing tax revenue or creating jobs for general economic growth).
  • Use of Redevelopment Funds for Sports Teams:  Assemblyman Chris Norby (Fullerton) has introduced AB 1234, which would prohibit redevelopment agencies from using tax revenue or bond proceeds to develop, recruit, or retain any professional sports teams.  This legislation, if passed, could potentially kill a new stadium for the Oakland A's or the San Diego Chargers, which are both being contemplated through the use of redevelopment funds.  (In case you missed it, read a more detailed article here.)
  • Inverse Condemnation LiabilityAB 328 is also working its way through the State Assembly; it is a bill that would require a reduction in compensation payable to a successful plaintiff in an inverse condemnation action in direct proportion to the owner's percentage of fault in causing damages to the owner's property. This would change current law whereby a public entity is liable for 100% of the damages where its project causes physical damage to private property, regardless of whether others contributed to those damages.
  • Renewable Energy Mandates:  This week, Governor Brown signed Senate Bill 2X, which requires private and public utilities to obtain 33% of their electricity from renewable energy resources by 2020, raising the target from the current 20%, while providing the flexibility necessary to meet the higher standard.

We'll follow-up on these legislative issues as soon as we catch wind of anything newsworthy. 

Field of Dreams

“If Gov. Brown wins, plans for sports venues in Escondido and San Diego lose.”  So ran a headline on the Los Angeles Times' blog earlier this year.  The article noted if the governor were successful in abolishing redevelopment agencies, it could kill plans for a minor-league baseball park in Escondido and a new football stadium for the Chargers in downtown San Diego.  Any new stadium for the A’s, either in Oakland or San Jose, could experience some similar fate.

With SB 77 falling 1 vote short of the requisite 2/3 majority in the Assembly, and traction being gained by the California Redevelopment Association’s alternative proposal, stadium boosters may be breathing a cautious sigh of relief.  In view of a bill introduced by Chris Norby (R-Fullerton), that sigh may be premature.

Assemblyman Norby, a long time critic of redevelopment, was the sole Republican to cross over and vote for the Governor’s proposal to abolish redevelopment agencies.  In the past, he has been particularly critical of the use of redevelopment funds for the Chargers' new stadium, calling it “corporate welfare at its worst.”  Earlier this year, he introduced a bill that, while technical in nature, would stifle the use of redevelopment funds for professional sports stadiums.

AB 1234, introduced in February and amended in the Assembly on March 31, 2011, would prohibit redevelopment agencies from using tax increment revenue or revenue derived from bond proceeds for the promotion, recruitment, or retention of any professional sports team, or any related activities.  Specifically prohibited would be the use of such funds for the “development, planning, design, site acquisition, subdivision, financing, leasing, construction, operations, [or] maintenance of infrastructure [for] the occupancy, recruitment or retention of any professional sports.”  

If Assemblyman Norby’s bill ultimately becomes law, the financing of new stadium projects will be that much more difficult, regardless of the overall fate of redevelopment in California.

Azusa Property Owner Loses Right to Take Challenge, Settles Eminent Domain Action

Roy Fowler's Furniture Station has been a well-known staple within the City of Azusa.  The 39-year-old store has witnessed much change in the area known as Corky's Corner.  However, the store is now officially shutting down after the City of Azusa acquired the property through eminent domain.

According to an article in the San Gabriel Valley Tribune, "Long-time Azusa furniture store to close after losing battle against city, eminent domain," the Furniture Station finally reached a settlement with the City after a contentious eminent domain battle.  The City sought to redevelop the area and adopted a resolution of necessity to acquire the property in January 2010.  The owner challenged the City's right to take the property, but that challenge was unsuccessful.  The parties thereafter reached a settlement for $1.45 million -- not dramatically higher than the City's original $1.1 million offer - and substantially lower than the owner's earlier $3.3 million demand. 

Interestingly, at first the City apparently was not interested in the owner's $1.45 million offer, but decided to accept the proposal given Governor Brown's efforts to eliminate redevelopment agencies

The City Manager, Fran Delach was not "happy" with the settlement, but he noted the deal paves the way to allow immediate development of the property.  Delach indicated that the City is negotiating with a "very exciting" potential suitor.  The property owner, on the other hand, was disappointed with the City's negotiation tactics and attitude towards the eminent domain process.  While Fowler will no longer be able to operate the Furniture Station in Azusa, he does have another location in Covina on Arrow Highway and Citrus Avenue.

The Calm Before the Storm

Despite daily rumors to the contrary, neither chamber took up the issue of redevelopment last week.

Both the Senate and Assembly held brief floor sessions Friday morning without voting on either SB 77 or AB 101, the bills eliminating redevelopment. While both houses remained on-call over weekend and today, the next floor sessions are not scheduled until Tuesday, March 29.

Meanwhile, there have been intensive lobbying efforts in support of the CRA and League of California Cities Alternative solution. Essentially, they are proposing that redevelopment agencies voluntarily suspend their housing set-aside for 2011-2012 with an equivalent amount of funds being contributed to local school districts in redevelopment project areas. In exchange, the agency would be allowed to extend the life of its project area for two years. Alternatively, they could contribute up to 10% of their non-housing tax increment revenue stream each year to local school districts for 10 years, in exchange for which they could extend the life of their project areas for one year for each percentage of tax increment so contributed.

Under either scenario, money contributed to local schools by redevelopment agencies could be counted by the State as an offset against its Proposition 98 guarantees to the school district.

Because this would be a “voluntary” program, it would not violate Proposition 22, which prohibits the State from seizing redevelopment money. However, it is unclear whether this proposal is gaining any serious traction.

In view of this public silence, it may be tempting to think that the abolition of redevelopment could slip through the political cracks for this budget cycle. This would be a mistake.

Last Thursday, Ventura Mayor Bill Fulton, publisher of the land-use newsletter California Planning & Redevelopment Report was quoted as bluntly stating “I do believe that probably redevelopment will not survive in anything close to its current form.” Speaking at a redevelopment conference in Sacramento on Thursday, Fulton urged cities to look for alternatives to traditional redevelopment for financing urban revitalization.

Speaking at the same conference, Steve Shea, an aide to Senate President Pro-tem Darryl Steinberg, said that Brown’s proposal to end redevelopment “will fall into place as the larger budget deal come together.”

Thus, if the Governor is unable to place the tax extension on the June ballot and instead is forced to proceed with a ballot initiative in November, it is possible that the he may likewise take a new approach to his attack on redevelopment. Some alternative to AB 101 and SB 77 may be in the works. Whether these would be subsequent trailer bills introduce for a simple majority vote or some alternative approach remains unknown.

What is fairly certain is that this battle is far from over.

The Budget and Redevelopment: Plan B?

Another day has passed with no apparent movement on the two remaining elements of the Governor’s budget.  Rumors are circulating that plans are afoot for bypassing Republican legislators by placing a tax measure on the November ballot. 

Officially, the Governor’s office remains focused on the original plan.  In fact, the Governor’s spokesman, Gil Duran, was quoted as saying that it was “a lie” that the Governor has decided on a November election.  However, other anonymous sources say that while Brown is continuing to negotiate with Republicans to put the tax extension on a June ballot, he is also considering two alternatives if those negotiations fail.

The first would be to place a tax extension on the June ballot by a simple majority vote in the Legislature.  An opinion from the Legislative Counsel Bureau, solicited by Senate Republican Leader Bob Dutton, suggests that a tax proposal could be placed on the ballot with majority vote so long as it addresses a statutory tax initiative already passed by the voters.  Some Republicans have therefore argued that the Governor is seeking political cover by pursuing a two-thirds vote of the Legislature. 

On the other hand, not obtaining a two-thirds vote, as seems to be required by proposition 26, would be fraught with political and legal perils.  The more likely alternative would be to place an initiative on the November ballot.  It has been suggested that such an initiative could include concessions to Republican interest such as regulatory reforms and a spending cap.  This "Plan B" is not without its own difficulties.  Assuming that some announcement is made this week, proponents may have as little as three weeks to collect the hundred of thousands of signatures needed to qualify in time for the November election.

What has not been discussed, at least publically, is whether the Governor has a "Plan B" for redevelopment.  As we discussed in Friday’s post, if the bills abolishing redevelopment were reintroduced as non-urgency legislation, they too could be pass on a simple majority vote.  What is uncertain is whether some pro-redevelopment Democrats would break ranks and oppose the legislation.  After all, their vote to kill redevelopment placed many Democratic legislators at odds with their urban constituencies.  If the Governor were to propose a November ballot initiative which includes significant concessions to conservative interest, some of those Democratic legislators may be more willing to vote against killing off redevelopment.

UPDATE, 5:10 p.m.:  Perhaps to avoid the possibility of the defections described above, rumors are now afoot that Floor sessions for both the Senate and Assembly are possible tomorrow.  There may be an effort by the leadership to have one or both houses vote on a measure providing for the total elimination of redevelopment agencies by majority vote.  Stay tuned...

Redevelopment in California: Monday Report

A pretty dull Monday on the redevelopment front.  We're hearing that it's likely that the Assembly will not take up the issue again today or tomorrow, so Wednesday may be the next big day.

In the meantime, the California League of Cities has officially endorsed the CRA's alternative proposal, which is not particularly surprising since one of the "losers" if redevelopment is abolished is likely to be the cities. 

The League's summary of the CRA proposal is as follows:

  1. Local redevelopment agencies can voluntarily suspend their housing set-aside for FY 2011-12. An equivalent amount of funds must then be contributed to local school districts in project areas.
  2. In addition, or alternatively, redevelopment agencies could voluntarily contribute up to 10 percent of their non-housing tax increment revenue stream to local school districts each year for 10 years, beginning in FY 2011-12.

The CRA reports that it believes its proposal could generate $2.7 billion over its 10-year life, purportedly $1 billion more than the Governor's plan for eliminating redevelopment would generate. 

Finally, on the legal front, the posturing is already well underway.  An attorney hired by some redevelopment agencies is reported in a March 21 Bloomberg article by Michael B. Marois, "California Cities, Counties May Be Sued Under Brown Budget," as opining that the elimination of redevelopment agencies could result in claims of securities fraud by disgruntled bond holders.  According to William Marticorena, head of public finance at Rutan & Tucker, elimination of redevelopment agencies could result in a downgrade of existing bond ratings which, in turn, could damage investors in those bonds:

The market-value declines may not be small and the damages could be immense.

The Treasurer's office was quick to respond, calling predictions of securities fraud lawsuits a "fairy tale."  According to Tom Dresslar, a spokesman for Treasurer Bill Lockyer,

The notion that there is going to be securities fraud and lawsuits and all manner of legal chaos if the governor’s plan is adopted is a fairy tale.

In the end, I guess it's not quite as dull a day as I initially thought.  We'll report back if something changes, but for now, everyone can take a minute to pause and catch their breath. 

Fate of Redevelopment Remains in Limbo

Both the Senate and Assembly have adjourned for the weekend, but what a week it has been in the battle over the future of redevelopment.

The bill to kill redevelopment, SB 77, came up for multiple votes in the Assembly on Wednesday. The bill initially garnered only 50 of the 54 votes needed for the two-thirds majority. The Governor, working out of the Speakers office just off of the Assembly floor, personally lobbied and cajoled legislatures throughout the day. Eventually, he won over two wavering Democrats and one Republican, Chris Norby of Orange County. By the time of the bill’s final call late Wednesday night, the vote remained 53-23 - one vote short.

Though SB 77 was back on the Assembly's agenda for Thursday, Democrats did not take up the issue again, presumably because they are still hunting for that last vote.  Meanwhile, the Senate has yet to take any action on the parallel bill before it, AB 101. 

The Governor's main budget bill was approved Thursday on a party line vote, passing 25-15 in the Senate and 52-26 in the Assembly. You may realize that these numbers fall short of the two-thirds majority we've been discussing all week.  To get the main budget bill passed, the Democrats for invoked the first time Proposition 25, which changed the legislative vote required to pass a budget from two-thirds to a simple majority.

Having wrapped up the main budget bill with nearly $14 billion in spending reductions, the revenue side of the equation remains in limbo. The Governor must get his proposed tax extensions on the ballot and obtain voter approval in a June election. He also needs approximately $2.2 billion in redevelopment money to bridge the remaining gap for the upcoming fiscal year.

For both of those items, two Republicans in each chamber must cross over and vote with their Democratic colleagues, because the Governor needs a two-thirds majority vote. Or does he?

Some Republicans have argued that there is legal authority for placing the tax extension on the ballot by a simple majority vote of the Assembly and Senate. Democrats counter that Proposition 26, passed by the voters in November, requires a two-thirds margin for increasing taxes or fees

Abolition of redevelopment could also likely be passed on a simple majority vote if SB 77 and AB 101 were reintroduced as non-urgency legislation. However, this is not a particularly desirable solution for the Governor because rather than taking effect at the commencement of the upcoming fiscal year, they would not take effect until January 1, 2012.  Thus, a substantial portion of the $2.2 billion in redevelopment money needed to balance the Governor’s proposed budget would not be available, leaving a gap in this year’s budget.

Since there is a consensus that the constitutionality of abolishing of redevelopment agencies will ultimately be decided by the courts, such a gap may exist in any event. As we discussed in previous post, the California League of Cities and the California Redevelopment Association have already laid out their game plan for challenging these measures.

They will argue that they violate the constitutional amendment implemented by Proposition 22, which prohibits the State from directly or indirectly compelling the use of redevelopment tax increment for the benefit of the State or any agency of the State. The Governor’s proposal to divert tax increment to fund Medi-Cal and trial courts - both state programs - seems to run afoul of this prohibition.

The Governor’s office has expressed confidence that the proposal does not violate Proposition 22. With the abolition of redevelopment agencies, there are no longer any redevelopment tax increment funds. However, a lawyer from the office of the Legislative Council of California has added a cautionary note. In testimony before the Senate and Assembly Budget Conference Committee, an attorney from that office acknowledges that the proposed legislation is “problematic” because Proposition 22 “specifically prohibits the legislature from enacting a statute that requires an (redevelopment) agency to transfer tax increment money for the benefit of the State..”

Another Dramatic Legislative Session, But (So Far) Redevelopment Still Intact

The Assembly has been in session since 11:00, and as best I can tell (I haven't been able to watch the feed the entire day), it has not yet taken up SB 77 or redevelopment again today.  My understanding is that further discussion is planned before the session ends, and that SB 77 was - at least at the beginning of the session - "item #7" on the agenda. 

In the meantime, the 11:00 session started a bit late this morning, and both houses almost immediately convened in caucuses.  Later, they moved forward with a few of the budget bills, taking them up and (apparently) approving them based on a simple majority vote after some controversial procedural maneuvering. 

To add a bit of color, the relatively tame debate of yesterday has also taken a decidedly more negative tone today, as allegations of "fear mongering" resulted in demands for apologies.

Now (just after 4:00 p.m. Thursday), the Assembly is waiting for some bills from the Senate, and it still has not taken up SB 77.   In fact, it's starting to look like SB 77 may not come back to the Assembly floor today, as the Assembly speaker's office is saying the measure is still one vote short, so a floor vote may be delayed until that last vote is found.

We'll let you know if anything happens as the session progresses. 

P.S. Happy St. Patrick's Day (I wonder whether a bunch of kegs of green beer would help move the process along).

UPDATE, 5:35 p.m.  The Assembly just adjourned for the day, without further discussion of SB 77.

Bill to Eliminate Redevelopment Agencies Still One Vote Short as Assembly Adjourns for the Night

As the evening has worn on in the Assembly, SB 77 has been called to a vote several more times.  What started as 50 yes votes (four short of passage) has now become 53 "yes" votes - now a single vote away. 

Just before 7:00, the vote was 53-23, with 3 still abstaining.  Another vote was called at about 7:10, but the tally remained 53-23.  The plan at that time was to adjourn at 8:30 barring some change, but discussions continued until well past 9:00.

At about 9:20 p.m., the vote was called one more time.  It remained 53-23, one vote short.  At that point, the Assembly adjourned; it is scheduled to reconvene at 11:00 tomorrow morning. 

By the way, if you want to follow things live, The California Channel is airing the session live.  We'll see what tomorrow brings.  Stay tuned.

UPDATE,  7:30 a.m. Thursday:  For a detailed summary of yesterday's events, see John Myers' article, "Brown Cajoles, GOP Demurs."

Initial Vote on Bill to End Redevleopment Falls Short

SB 77 - the budget trailer bill to eliminate redevelopment agencies in California - has been debated on the Assembly floor much of the afternoon.  When it finally came time to vote at a little after 4:00 p.m. this afternoon, it was still unclear whether Governor Brown would receive the two-thirds vote necessary. 

As the votes came in, it became obvious that (1) the votes, as expected, would fall largely on party lines, with Democrats approving the bill and Republicans rejecting it, and (2) that the final result was going to be very close, one way or the other. 

Ultimately, the vote came in with a substantial majority voting yes - but not quite two-thirds.  Rather, Governor Brown fell four votes short, with Assemblyman Chris Norby from Orange County casting the lone "yes" vote from the Republican aisle.  The final tally:  50 yes and 21 no, with 8 abstentions.  (Apparently, there was one person missing; the Assembly contains 80 members, meaning a two-thirds majority requires 54 votes.)

UPDATE, 5:10 p.m.:  Just moments ago, the Assembly voted on several other components of the Governor's plan: SB 74, SB 80, and SB 82 all fell a few votes short, while SB 72 passed, with exactly 54 votes. 

Then, just before 5:00 p.m., SB 74 was called again.  This time, SB 74 passed, with 56 votes.  SB 80 also passed during another vote right at 5:00, with 54 votes, and SB 82 passed, also with 54 votes.

Finally, the Assembly called for another vote on SB 77, the redevelopment bill.  At 5:05 p.m., the Assembly once again failed to obtain the required two-thirds majority; it remained stuck at 50 yes votes. 

I'm guessing this isn't the end.  More to come. 

Vote on Governor's Plan to End Redevelopment Planned for Today

It looks like Governor Brown's proposal to end redevelopment as part of his overhaul of California's budget may come to a vote on both the Assembly and Senate floors today.  AB 101 and SB 77 are scheduled for a 1:00 p.m. vote, and both include within them the plan to eliminate redevelopment agencies.  They require a 2/3 vote for passage.

In the meantime, the California Redevelopment Association is promoting an alternative proposal that it hopes will be presented on the floor.  They claim that the CRA proposal will:

  • Provide significant funding to schools which could also help close the state’s budget deficit;
  • Avoid the unconstitutional provisions of the Governor’s proposal that would lead to contentious and costly legal battles; and
  • Continue local redevelopment’s contributions to reviving the state’s economy and supporting hundreds of thousands of jobs.

For more on the story, see the article in the Huffington Post, "California Legislature To Vote On Governor's Budget Proposal Wednesday."  It should be an exciting day.

A More Personal View of the Redevelopment Fight from National City

We've blogged a lot in the past two months about redevelopment issues and the Governor's plan to help right California's budget by, among other things, eliminating redevelopment agencies.  But most of what we've written has viewed redevelopment from the 30,000 foot level. 

For policy-making decisions, viewing the big picture is hugely important.  But a case making news this week out of National City reminds us that the redevelopment fight is also quite personal. 

The Community Youth Athletic Center has been fighting what it perceives as an attack on its very existence for nearly four years.  The battle began not as a right to take challenge in an eminent domain case, but as a challenge to the overall redevelopment plan for the area and, in particular, its determination that about 700 properties - including the CYAC's boxing gym - qualify as blighted. 

This week, CYAC's lawsuit is finally reaching the trial court for a decision on the merits, after years of procedural wrangling that includes a 2009 decision by the Court of Appeal in CYAC's favor.  CYAC claims that the agency failed miserably in its efforts to justify an extension of its 1995 redevelopment plan.  Part of its complaint arises from changes to California law that followed 2005's infamous Kelo decision, providing additional scrutiny and procedural hurdles to the way agencies make blight findings.  According to CYAC, in 2007 the agency simply did things the same half-hearted way it always had, ignoring completely the newly enacted requirements. 

CYAC is represented by the Institute for Justice, self-described as the "nation's only libertarian public interest law firm" - and the firm that pushed the Kelo case to the U.S. Supreme Court in 2005.  Among other things, they've prepared a short video about the CYAC, its mission to help at risk kids, and its fight with the city.  If nothing else, it's really well done:

So what's going to happen?  It depends on the outcome of the current trial.  If the CYAC prevails, it may get the agency's redevelopment plan invalidated, removing the threat of eminent domain to build planned luxury condominiums - at least until such time as the agency adopts a new, properly documented redevelopment plan. 

Moreover, regardless of whether the agency prevails in the current lawsuit, it claims that it has no plans to condemn the CYAC's property.  But if the agency wins, it could change its mind.  And if it does, it's probably safe to assume CYAC will fight the government's right to take its property.  

Turning back to the big picture, if the Governor gets his wish and abolishes redevelopment agencies, the whole issue may evaporate into thin air.  With no redevelopment agency, there's no redevelopment plan, no blight finding, and no (even hypothetical) plan to turn the CYAC's gym into condos. 

Finally, one might wonder why this battle is taking place now, if the agency says it has no plans to condemn the property.  Doesn't it make more sense to have this fight only when (and if) the government decides to condemn?  Probably, but that's not the way the law works. 

Under California law, if someone like CYAC wants to challenge the government's blight findings, it has to do it within a limited period of time after the plan is adopted (or, as here, amended).  Failure to challenge the blight findings now could make it difficult - or even impossible - to challenge them later as part of a right to take challenge. 

So the parties are in court this week fighting about a possible eminent domain action that may never even have happened in a dispute that may be rendered moot if the Governor's plan is adopted.

Winning Hearts and Minds

As we noted in yesterday's post, Vote on Redevelopment Agencies' Future Uncertain, the Governor's deadline of March 10th is slipping away.  How far can it slip?  Some believe that a vote on his budget proposal could slip all the way into the third week of March, unless a few Republicans break ranks before then.  Thus far, at least publicly, Republican opposition to both the tax extension and abolition of redevelopment remains unabated.  Among the demands in the now infamous March 7th open letter to the Governor from five key Republican senators is "Save but reform Redevelopment Agencies and Enterprise Zones."

In the mean time, both sides continue to battle for public support.
 
On Monday the State Controller, John Chiang, issued a report summarizing his review of 18 redevelopment agencies.  As you may remember from one of our previous posts, when he announced the review back in January he questioned "whether the RDAs are the engines of local economic job growth or are simply scams providing windfalls to political cronies at the expense of public services." Chiang's report cites numerous violations and is particularly critical of the agencies for inadequate record-keeping and reporting.  The report also found no clear methodology or data to measure job growth.  He concluded that “The lack of accountability and transparency is a breeding ground for waste, abuse, and impropriety.”  
 
Advocates of redevelopment were quick to respond.  Some downplayed the findings.  Harry Mavrogenes, Executive Director of the San Jose Redevelopment Agency, was quoted as saying that the report had little to criticize about his agency.  "I just don't think there were any major findings at all."  John Shirey, Executive Director of the California Redevelopment Association, took a harder view, accusing the Controller of issuing "a politically motivated campaign piece to support those who want to abolish redevelopment."
 
In a bit of good news for supporters of redevelopment, a Probolsky Research poll of likely California voters was just released showing fairly broad public support for redevelopment.  In a poll of 753 voters, conducted between February 21 and 24, 59% of those surveyed believe that redevelopment agencies are a good idea and 63% said that Prop 22 should not be changed to allow the state to take local funds.
 
Finally, in an 11th hour push, this week the League of California Cities and a coalition of local government leaders, business, labor and community groups announced a grass-roots campaign to try to stop the state Legislature from voting on Brown's proposal.  The My Vote Counts campaign is running statewide radio ads calling the Governor's proposal a "scheme" that will "put thousands more out of work."  Not to be outdone, the California Professional Firefighters and the California School Employees Association announced that it will air radio ads supporting Brown's proposal.  The ad says it's time to end taxpayer subsidies for developers.
 
Meanwhile, the clock is ticking.

Vote on Redevelopment Agencies' Future Uncertain

Just when it looked liked we had reached the eleventh hour in the California's redevelopment battle, redevelopment agencies appear to be getting at least a temporary stay of execution. Governor Brown had declared a March 10 deadline for a vote on his proposal to overhaul California's budget, including "disestablishing" redevelopment agencies. 

But on Monday, those efforts stalled.  In an open letter to the Governor, five key Republican senators announced:

Although it is clear that you [the Governor] engaged in our conversation seriously, it appears we have reached an impasse.

In other words, don't expect a vote by your self-imposed deadline.  Even the Governor seemed to acknowledge the setback on Monday, admitting that "it might take a few more days than (the target date) at the rate we're going." 

The behind-the-scenes political wrangling undoubtedly continues, and while we all await final word on the fate of redevelopment, the agencies whose future lies in the balance continue to work to secure funding commitments, while commentators continue to debate the issue. 

A March 8 article in the San Francisco Chronicle, Jerry Brown makes right move on redevelopment
takes the Governor's side, telling disgruntled redevelopment proponents who forecast "doomsday scenarios" if the plan is approved to "join the club," in which "no individual or public agency is immune from the effects of a disastrous economic situation."

A March 7 article in Voice of San Diego, In a World Without Redevelopment ... may sum the issue up the best:

In reality, the end of redevelopment — and it's looking likely the Legislature will sign off on it — will be a nasty mess with the climax likely to play out in a courtroom rather than an empty office building.

Finally, earlier today I had a chance to listen to one of the strategists working with the California Redevelopment Association in its efforts to save redevelopment agencies from the death chamber.  Ken Lee of Rosenow-Spevacek Group, Inc. reported today at the IRWA Chapter 67 monthly meeting that while things remain uncertain, efforts continue to try to find a less drastic solution. 

Mr. Lee also discussed some (perhaps) unintended consequences of the Governor's proposal, including a potential impact on the ability to remediate contaminated properties.  The Polanco Act is a key tool in the government's arsenal to clean up Brownfield sites, often in conjunction with eminent domain.  But the Polanco Act is part of the redevelopment law, meaning it may well get thrown out along with everything else if the Governor gets his way. 

Finally, he noted a public meeting taking place tonight at the Buena Park City Hall, a self-described "Campaign to Oppose State Budget Elimination of Redevelopment Agencies, and Urge Legislators to Respect the Will of Voters via Prop. 22."  (If you attend, please let me know how it goes.)

As always with this rapidly moving story, stay tuned.

Redevelopment: The Final Showdown?

The Legislature may deal a death blow to redevelopment in California as early as next week.  Late yesterday afternoon, on a party line vote, the members of the Budget Conference Committee voted to move the Governor's proposal to eliminate redevelopment to both houses for a vote by the Assembly and Senate members.  The Governor wants the State Legislature to send him a budget package to sign by March 10, the date by which he must secure a two-thirds vote to get a measure to extend tax increases on the June ballot.
 
Therein lies the rub.  A minimum of two Republicans are needed in the Assembly and two in the Senate for the required two-thirds vote on placing a tax issue before voters.  The tax extension is one of the cornerstones of the budget proposal and the Democratic leadership is working hard to woo at least four of their Republican colleagues to cross over and vote to place it on the ballot.  Most of the Republican legislators are strongly opposed to this aspect of the budget.    
 
Interestingly, the tax extension is not the only aspect of the budget that Republicans oppose.  GOP members also refused to support the Governor's proposal to eliminate redevelopment agencies, citing legal concerns that prevent the state from raiding local government funds.

In an ironic twist, this places many Republicans in the same camp as the California League of Cities and the California Redevelopment Association.  "There is no doubt that eliminating redevelopment agencies and using the funding for state purposes is unconstitutional," said John Shirey, Executive Director of California Redevelopment Association.  Indeed, the CRA is circulating materials outlining its strategy for a possible constitutional challenge to the Governor's proposal, based in no small part on Proposition 22.  Adopted just last November, Proposition 22 amended the California Constitution (Article XIII, § 25.5(a)(7)) to prohibit the State from directly or indirectly requiring redevelopment agencies to use redevelopment tax increment for the benefit of the State.  By eliminating redevelopment agencies so that redevelopment revenues can be used to fund such State programs as Medi-Cal and trial courts, the Governor’s redevelopment proposal seems to require redevelopment agencies to transfer their tax increment revenue for the benefit of the State, in violation of Proposition 22.

Meanwhile, San Diego Mayor Jerry Sanders, along with several other big city mayors, have come up with a compromise plan that they submitted to the Governor last week.  Their plan is for redevelopment agencies to send to the state 5% of their annual revenues, approximately $200-million.  The 1.7-billion the Governor needs could be borrowed with the 200-million covering the debt payments.  So far, they have received no response.

Will the vote go forward next week if the votes are not there to place the tax extension on the ballot?  Will there be an 11th hour compromise along the lines proposed by California's big city mayors last week?  The situation remains very fluid.

Upcoming Southern California IRWA meetings

I wanted to alert people to two meetings coming up soon that may be of interest if you're in Southern California. 

  • IRWA, Chapter 57 meeting on March 2:  Chapter 57 is holding its monthly meeting tomorrow in Riverside.  The speaker will be Chris Mazier from Lawyers Title and his subject will be “Preliminary Title Reports and their Dreaded Schedule B Items!”  As all eminent domain attorneys and right of way consultants know, navigating "Schedule B" issues is a huge part of the precondemnation planning process.  And having now spent a huge part of the last several months reviewing Schedule B items as part of our efforts to acquire the right of way necessary for the sbX E-Street Corridor Bus Rapid Transit project in San Bernardino on behalf of SANBAG, I am certainly interested in what Chris has to say. 

    The meeting will be held at the Riverside Convention Center, 3443 Orange Street, Riverside, starting at 11:30 am.  The lunch costs $18 if you RSVP or $22 at the door.  For more information or to RSVP, contact Jan Spindler.
     

Redding Redevelopment Agency Moves Forward With Eminent Domain; More on the Way?

Recently we've been reporting on redevelopment agencies' efforts to utilize redevelopment funds before they're no more under new proposed legislation.  Whether you agree or disagree with the existence of redevelopment agencies, sometimes those agencies acquire properties on behalf of other government entities for undisputed public purposes.  For example, the Redding Redevelopment Agency is currently acting on behalf of the State Administrative Office of the Courts to acquire property necessary to build a new Shasta County Courthouse.  If redevelopment agencies are abolished, these government entities will need to look elsewhere when it comes to property acquisition.

More specifically on the Redding Redevelopment Agency situation, according to the article "City's Sights on Land," the Agency agreed in a special session this week to commence eminent domain proceedings against the owners of three downtown parcels needed to build the new Courthouse.  In total, eleven parcels are needed for the Courthouse, and Agency officials are also contemplating purchasing (acquiring?) a 110,000-square-foot Costco store on Dana Drive.

The Agency has made the necessary offers, but the owners disagree on price.  One of the owner's attorneys apparently has objected to the Agency's right to take on the grounds that the offer is so low that the taking is not planned in a manner that will be compatible with the greatest public good and least private injury. An agency must find that a project is planned in a manner that is compatible with the "greatest public good and least private injury" prior to adopting a resolution of necessity to proceed with eminent domain.  Unless the offer is so far off that the agency couldn't meaningfully evauate project alternatives, I don't see how the amount of an agency's offer to purchase has anything to do with this finding

Assuming the Agency succeeds in acquiring all the necessary property, the proposed Courthouse will feature 14 courtrooms and is scheduled to be completed by the end of 2014.

Agencies Scramble to Secure Redevelopment Funds as New Legislation to Abolish Redevelopment Agencies Surfaces

Around California, agencies are scrambling to use or secure redevelopment funds in an effort to protect against anticipated legislation to abolish redevelopment agencies in California.  We've been following the story for weeks, but things are really heating up now. 

As just a few examples from the past couple of days:

While all this is going on, the Governor's proposal to abolish redevelopment agencies is moving forward.  On Wednesday, the Department of Finance posted information on the budget trailer bill language proposed to effect the Governor's proposal.  The draft, dated February 23, 2011, is entitled "Redevelopment Agency Dissolution and Succession." 

We'll have more on the proposed legislation once we've had time to analyze it. 

Infrastructure Financing Districts: Has Their Time Finally Arrived?

They have been around for over 20 years.  Established at a time when state and federal governments were withdrawing from financing infrastructure projects, Infrastructure Financing Districts (“IFDs”) were developed as an alternative vehicle for local financing of those types of projects.  However, they are difficult to establish and have limited powers.  As a result, they have rarely been seen as an alternative to redevelopment agencies.  Now, a generation later, with the possible demise of redevelopment, cities and counties are once again casting about for alternative sources of financing for public projects.  Senator Wolk (D-Davis) may have a partial solution.  She has introduced SB 214, which could allow IFDs to partially fill the void left by redevelopment’s potential demise.     

IFDs are a little bit Mello-Roos and a little bit redevelopment.  They are formed in proceedings similar to those used for Mello-Roos Community Facilities Districts.  Like redevelopment agencies, they use property tax increment to finance public projects.  Unlike redevelopment agencies, the formation of IFDs and their power to issue bonds is subject to voter approval, by a 2/3rds majority no less.  IFDs also lack the power of eminent domain.  While they use tax increment to finance projects, they do not have access to tax dollars otherwise allocable to school districts so they have significantly less revenue at their disposal than redevelopment agencies.

Senator Wolk, the Chair of the Senate Governance and Finance Committee, believes that her legislation provides a practical alternative to redevelopment agencies that will enable local governments to continue financing economic development.  Her legislation would allow the legislative bodies of cities and counties to form IFDs and issue debt without voter approval.  It would also extend the term of IFD bonds from 30 to 40 years, thereby lowering the amount of periodic debt payments.

IFDs lack two of the more controversial powers of redevelopment agencies:  (1) the ability to receive tax increments that would otherwise go to school districts, and (2) the power of eminent domain.  Since Senator Wolk’s bill would not grant IFDs either of these powers, it may be immune from much of the criticism levied against redevelopment agencies.  This will certainly enhance the bill’s political viability on both sides of the isle.

Of course, it would not replace one of the core functions of redevelopment:  the assemblage of blighted parcels for redevelopment by private developers.  IFDs can only provide financing for the infrastructure needed for development of blighted communities.  Cities and counties would need to look to other creative measures to attract private capital to actually develop those communities.

New Salvo in Battle Over Redevelopment

In a report issued in advance of today’s Senate Subcommittee hearing on the issue, the Legislative Analyst's Office reiterated its support for the Governor’s call for an end to redevelopment in California.  While acknowledging that redevelopment does lead to economic development within redevelopment project areas, the report asserts that there is no reliable evidence that it attracts business to the state or increases overall regional economic development. 

This may all be well and good, but analyzing the issues this way creates a subtle - but important -shift in the argument.   Redevelopment agencies' statutory charge is to eliminate blight, a cause that seems lost in the LAO's report and its focus on whether redevelopment constitutes an effective engine for statewide economic development.

Indeed, the report suggests that a redevelopment agency might attract businesses to a redevelopment project area that were previously located elsewhere in California.  While this results in an increase in property tax revenue in the project area, the report suggests that this is a zero sum game, as the project area’s gain is some other region’s loss.  Once again, the statutory purpose of redevelopment, the elimination of blight, is given short shrift in the analysis.

Interestingly, the report suggests that the Governor’s proposal does not go far enough.  While the Governor proposes to use redevelopment funds to offset state General Fund and K-12 education costs for 2011-2012, thereafter, redevelopment funds would not be used to offset the state’s payments for K-12 and junior colleges.  The LAO assessment suggests that if future revenues are treated generally as property taxes, the state’s ongoing share of costs for K-12 costs could be gradually phased out.

The LAO report acknowledges that “dissolving redevelopment will be complicated and disruptive.”  Ordinarily, it would recommend that the state phase out this program over several years or longer to minimize the disruption and abrupt ending it would likely engender.  However, given the state’s extraordinary fiscal difficulties, the report suggests that such a gradual phase out may not be the best option.

Redevelopment Agencies and Eminent Domain: Well-Reasoned Article Misses Part of the Picture

Over the weekend, Chlorinated Liberty posted a pretty good article that articulates the primary reasons people cite as the basis for abolishing redevelopment agencies.  The article, "How Eliminating California's Redevelopment Agencies Spurs Economic Growth," takes a reasoned approach to why the free market is better equipped to handle redevelopment and blight remediation than the government - and its redevelopment agencies. 

The article walks through some statistics that show that many of California's redevelopment agencies did not report any job creation generated by their projects over a multi-year period.  It talks about allegations of corruption, mismanagement, and failed projects.  It even cites data showing that strong private property rights are a key component of private investment, concluding

private property is necessary for economic growth and to achieve prosperity. Government infringement through redevelopment's use of eminent domain powers undermines private property rights in California. This distorts incentives, discourages the use of assets as collateral, and forfeits the benefits of capitalism. By eliminating redevelopment and the use of eminent domain, municipal leaders will witness the economic growth they so desperately desire.

I actually agree with much of what the article says, but it only glosses over the other side of the coin - and it's an important other side.  Before starting down the path towards articulating why we should abolish redevelopment agencies, the article concedes:

Places such as Pasadena's Old Town, Stockton's water front plaza and San Diego's Gaslamp Quarter have rightfully been touted as models of success.

The article then glosses over these to pursue its anti-redevelopment agenda.  But what about these "models of success"?  Without redevelopment agencies - and, yes, the use of eminent domain - what would have become of these areas and others like them throughout the state?

I'm all for allowing the free market to address redevelopment where possible, and I agree that the government's involvement may hinder, rather than facilitate, timely growth.  On the other hand, I believe that there are places where the market cannot, or will not, react to situations in desperate need of redevelopment.  Where that occurs, government involvement can turn miserable, blighted areas into vibrant communities.  And to do this, the government sometimes needs to use eminent domain to assemble the necessary property to make these redevelopment projects feasible.

In the end, I think the Chlorinated Liberty article serves to highlight just how complicated this issue is.  Both sides of the debate have good points to make, and no solution will be perfect.  Ultimately, a solution that provides greater oversight of the redevelopment process - generating more "models of success" and fewer corruption scandals - probably makes sense. 

But if the "solution" goes so far as to abolish redevelopment agencies (as Governor Brown proposes) or to eliminate their eminent domain powers, I imagine we'll all look back many years later and wonder why some of California's worst areas still have seen no viable market-driven redevelopment. 

Report on Possible Solution to Redevelopment Crisis

In his Tuesday column for the San Francisco Chronicle, former Mayor (Willie) Brown takes former Mayor (Jerry) Brown to task for having forgotten about all the good things that redevelopment money did for him while he was Mayor of Oakland.  The renovation of the Fox Theater, construction of 10,000 units of housing downtown, the creation of two charter schools - all undertaken with redevelopment money.
 
But here is what may be the big news.  Despite all the talk of abolishing redevelopment agencies in California, a compromise may be in the works.  According to Willie Brown, in Deal on state redevelopment agencies in the works:

My sources tell me that for all the posturing, a deal is being struck.

Jerry will tell the mayors how much money he needs. And if they come up with the golden eggs, the threat of killing the redevelopment goose will go away.

Of course, the devil is in the detail. In the mean time, Senate Budget Subcommittee No. 4 Hearing on Redevelopment kicks off Thursday morning at 9:30 with the Assembly Budget Subcommittee hearing to follow on the 7th.

Battle Over the Future of Redevelopment in California Rages On

In the wake of the Governor’s proposal to abolish all redevelopment agencies, State Controller John Chiang announced that his auditors “would be reviewing” 18 redevelopment agencies.  As he stated in his press release,

The heated debate over whether the RDAs are the engines of local economic job growth or are simply scams providing windfalls to political cronies at the expense of public services has largely been based on antidotal evidence.

These reviews, designed to “assist lawmakers in their budge debates” will therefore focus on how the targeted RDAs define a “blighted area,” whether they are appropriately paying for low-and moderate-income housing and how much RDA officials and employees are being compensated for their services. 

At the other end of the spectrum, supporters of redevelopment are gearing up for the initial legislative hearings. We can expect a vocal presence by local officials and stakeholder at the first hearings in the Senate and Assembly Budget subcommittees on February 3rd and 7th respectively. 

Meanwhile, the Legislative Analyst’s Office has identified a number of unresolved legal, financial and policy issues implicated by the Governor’s proposal:

  • Does the state have the authority to immediately dissolve all redevelopment agencies?
  • What entities will serve as the successor agencies? 
  • What happens to redevelopment agencies’ physical assets? 
  • Will there be an ongoing funding source for low-and moderate-income housing?

We will be following these issues as they unfold over the course of the next several weeks and will post regular updates here.

Article Evidences Continued Confusion Over Eminent Domain, Proposition 99

A January 27 article in California Watch, "Eminent domain battles rage on despite Prop. 99," reflects the ongoing confusion that surrounds the efforts to reform eminent domain in the aftermath of the Supreme Court's 2005 Kelo decision

The article's premise is that Proposition 99, approved by California's voters in 2008, did not stop what the author describes as "eminent domain abuse."  But the case example that underlies the article reflects a fundamental misunderstanding about what Proposition 99 does (or does not do), and what people typically mean when they talk of "eminent domain abuse." 

Proposition 99 was one of many responses to the Kelo decision, which involved a redevelopment effort by the City of New London, Connecticut, in which the city sought to condemn some single-family homes in order to redevelop them into a commercial use that would generate more tax revenue. 

What really outraged people was that the city did not even pretend that it was acting to eliminate blight (a traditional justification for condemning property for redevelopment purposes).  Instead, the city simply felt like it could generate more taxes by tearing down the houses for a more profitable use - a plan the Supreme Court said qualified as a public purpose sufficient to justify the condemnation.

Proposition 99 targeted this specific type of "abuse," limiting eminent domain authority involving (1) redevelopment, and (2) residential properties.  I've written in the past about Proposition 99's narrow scope, but the fact is that it was intended to address a Kelo-type situation - not to stop all eminent domain. 

The "abuse" example in the California Watch article misses both of the Kelo/Proposition 99 prongs:  it is not an eminent domain use involving redevelopment; and it is not a condemnation of residential property.  Instead, the City of Laguna Woods condemned a commercial property to use for its own government offices (a space the city had already been leasing for that use for years). 

Sure, the parties had a substantial dispute over the property's value, and in that case, the jury's conclusion of value was much higher than the city thought it would be.  But I have trouble seeing valuation disputes like this as "eminent domain abuse," and nobody should be surprised that Proposition 99 fails to protect against such things.   

Battle Over Redevelopment Agencies' Future Continues in California

Earlier this month, we reported on the Governor's budget proposal, which includes the bold plan to "disestablish" (my new favorite word) redevelopment agencies as part of his plan to shore up California's budget.  We then told you about how the budget proposal interacts with Proposition 22, passed last November. 

Not surprisingly, the story is far from over.  A January 21 article in the Los Angeles Times by Patrick McGreevy, "Cities may sue governor over his redevelopment proposal," reports that earlier today, more than 100 mayors and city council members came together to condemn Governor Brown's proposal,

calling it an illegal money grab and warning that they will sue the state if it is adopted.

Within a few hours, the Governor's office reacted, claiming the proposal was perfectly legal:

Redevelopment agencies were created by an act of the Legislature, and they can be eliminated by an act of the Legislature. It's time for all of us, including local government leaders, to set aside narrow perspectives and turf wars and act as Californians first to address the state’s budget deficit.

I'm guessing things are just getting started.  Be prepared for a wild ride. 

Governor's Response to Redevelopment Agencies About Proposition 22: The Nuclear Option

The large pool of tax increment revenue flowing to the state’s 400-plus redevelopment agencies has long made a tempting target for a cash strapped State.  Time and again Sacramento has dipped into this pool to offset budget deficits.  Local interests have fought back, both at the ballot box (e.g., 2004's successful Proposition 1A "Protection of Local Government Revenue"), and in the courts.  Sometimes local interests gained the upper hand and sometimes the advantage went to the State.

Proposition 22, approved by the voters in November, was intended by its backers to be the ultimate trump card:  a constitutional amendment protecting local government funding sources from State "raids."

Before Proposition 22, the State had the power to require redevelopment agencies to shift revenues to local school districts for purposes of reducing State General Fund costs for education and other programs.  Recently, this resulted in the State requiring redevelopment agencies to shift $2 billion dollars, or roughly 15% of total redevelopment revenues, to schools over a two year period.

Proposition 22 changed all of that.  It amended Section 25.5 of Article XIII of the California Constitution to limit the ability of the State to modify the allocation of ad valorem property tax funds.  With the exception of funds appropriated to fund low-to-moderate income housing, Prop. 22 imposed an absolute prohibition on the State's ability to transfer taxes allocated to redevelopment agencies to or “for the benefit of” the State, any agency of the State, or any other jurisdiction.  (Article XIII, Section 25.5(a)(7).)

To address long term systemic deficits, the Governor's proposed budget for 2011-12 "calls for a vast and historic realignment of government services in California."  At its core, the “realignment” involves the shifting of responsibility for various programs and the funding thereof, from the State to local governments.  This would remove $5.9 billion dollars in program costs from the State’s books as those costs would now be borne by counties.

This realignment is to be paid for in the short term by an extension of four temporary tax increases.  With or without a comprehensive “realignment,” tax revenues previously allocated to redevelopment agencies would be redirected to offset State Medi-Cal and court costs as well as schools and other local agencies. 

This is precisely what Proposition 22 was designed to prevent.  The Governor has a simple solution:  abolition of all redevelopment agencies.  The reasoning goes that since redevelopment agencies were created by legislative enactment (Health and Safety Code sections 3300, et seq.), they can likewise be abolished by legislative enactment.  No redevelopment agencies means no special allocation of tax increments, which in turn means tax revunes otherwise allocated to redevelopment agencies would be distributed to cities, counties, and school districts in amounts proportionate to their share of the base county wide property tax.  As explained by the Governor’s Budget Director, Anna Matosantos, “If the legislature eliminated redevelopment agencies, then it’s just property tax.”
 

Negative Political Campaigning Centers on Eminent Domain

In U.S. politics, mudslinging -- or negative political campaigning -- is "as American as Mississippi mud."  Just recently, I'm sure everyone recalls the heated back-and-forth between Governor Brown and Meg Whitman.  Usually, the attacks die down after the election is over.  And rarely do the attacks center on eminent domain issues.

That brings us to Palm Springs.  Mayor Steve Pougnet unsuccessfully challenged U.S. Representative Mary Bono Mack for the 45th Congressional District in November.  Months after the election, the debate continues between the two.  

According to a recent article in the Desert Sun, "Mayor Steve Pougnet: Rep. Mary Bono Mack backed eminent domain," Bono Mack was quoted in a December Valley Voice Column in which she criticized Palm Springs' proposal to raise taxes to help purchase the Desert Fashion Plaza and Museum Market Plaza.  Last week, Pougnet fired back, calling Bono Mack's comments audacious and arrogant, especially since Bono Mack apparently previously told Pougnet to "just eminent domain him out of there" when referring to Desert Fashion Plaza owner John Wessman of Wessman Development.

The battle did not end there.  Bono Mack has once again fired back, as her Chief of Staff, Frank Cullen, is quoted saying:  “It is appalling that Steve Pougnet, months after the election, would still be in campaign attack mode and still not tell the truth about Congresswoman Mary Bono Mack."  The eminent domain comment was also specifically addressed, with Cullen indicating it is "not the truth."  Instead, Cullen reports that Congresswoman Bono Mack does not support big government land grabs through the use of eminent domain laws."  Pougnet says he stands by his comments, saying that the eminent domain comment was Bono Mack's "quote, verbatim."

I wonder low long this debate will continue.

Governor Brown's Budget Proposes Major Changes to Redevelopment in California

It should come as no surprise that the budget proposal issued by Governor Brown today contains some painful cuts.  California remains in the midst of one of the worst economic cycles in history, and its budget shortfall has reached historic proportions.  According to the Governor, as he takes office, California's budget shortfall totals $25 billion - yes, that's Billion, with a "B." 

For me, I am particularly disturbed by proposed cuts to education; the UC system, which provided me with both my undergraduate and law degrees, may face numerous cuts, including a general, as-yet-to-be-determined expenditure reduction of $500 million.  (According to a letter from UC Regents President Mark Yudof, the proposal would mean that "the collective tuition payments made by University of California students for the first time in history would exceed what the state contributes to the system's general fund.")

But in my professional capacity, the most notable impact is almost certainly the proposal related to redevelopment and, more specifically, redevelopment agencies.  The Governor's proposed budget would effectively eliminate redevelopment agencies in California.  The plan includes:

  • "prohibit[ing] existing [redevelopment] agencies from creating new contracts or obligations effective upon enactment of urgency legislation;
  • "disestablishing" redevelopment agencies, effective July 1;
  • using huge portions of the agencies' existing revenue streams over the next few years to help pay off existing debts; and
  • creating successor agencies to manage existing debt service, which is expected to take 20 years.

The bottom line: "After 2011-12, the money available after payment of RDA debt would be distributed to schools, counties, cities, and non-enterprise special districts for general uses."

Not hard to imagine that this will be one of the hotly contested issues in the Governor's proposal.  We'll let you know what happens as the story develops. 

Rancho Cordova RDA's Eminent Domain Powers Upheld

The City of Rancho Cordova's Redevelopment Agency has been working to implement plans to eliminate blighted conditions along Folsom Boulevard.  As part of those efforts, the RDA filed an eminent domain action to acquire a 9-acre site owned by Lily Company.

Lily Company challenged the RDA's right to take on numerous grounds, including lack of proper blight findings and allegations that the RDA was colluding with the Los Rios Community College District.  We initially reported on the case in an August post, Rancho Cordova Eminent Domain Case Involves Allegations of Contractual Interference.

The court has now upheld the Rancho Cordova RDA's right to take the property.  According to an article by Helen Brewer in the Rancho Cordova Post, Superior Court Affirms Rancho Cordova Redevelopment Agency in Eminent Domain Case, the court ruled that the RDA's Resolution of Necessity:

contains ample evidence of the blighted condition of the subject property and the surrounding area, of the need to acquire the subject property in order to further the objectives of the City’s Redevelopment Plan…to lead to the greatest public good and the minimum of private injury.

This does not mean, of course, that Lily Company has lost the entire case.  In most eminent domain cases, the real fight is over the amount of just compensation to be paid; that fight is still ahead of the parties.  But with the right to take challenge defeated, the RDA should have the option of seeking prejudgment possession, which would allow it to proceed with the project while the trial on compensation is still pending. 

As one interesting side note (and a sign of the times), it appears that anyone really interested in this case can relive the entire thing on line.  The Courtroom View Network has posted links to the entire trial on its website. 

I have never actually used the CVN site; I only stumbled onto it looking for more information about this case.  And, as entertaining as it would be to watch two experts in the field, Norm Matteoni and David Skinner, battle it out in court, I'm not willing to pay the money for the video and the bucket of popcorn I'd need. 

That said, if you have used the CVN services, please let me know what you think of them.  I'm intrigued. 

Developer of Americana at Brand Shopping Center Requests Use of Eminent Domain for Expansion

The Americana at Brand center in Glendale is a large, outdoor shopping community consisting of over 75 retail shops and 300 condos and apartments.  It opened to the public in 2008.  One would think this would not have been the best time to open up a retail center.  However, apparently in the midst of the recession, the center is doing quite well, and the developer is seeking to expand onto two adjacent properties.   

According to an article in the Los Angeles Times, "Developer wants to expand Americana at Brand shopping center," the developer of Americana at Brand -- Rick Caruso -- has sent a letter to the City of Glendale's redevelopment agency indicating his interest in acquiring the Golden Key Hotel and a vacant retail building at the southern edge of Americana.  While Mr. Caruso would like to sit down and work out a deal privately, he has indicated that the redevelopment agency's use of eminent domain may be necessary.

On the two parcels, Mr. Caruso seeks to add 140,000 square feet of retail space for three additional tenants.  He believes the expansion could generate $800,000 per year in new tax revenue, along with creating new jobs.

Eminent Domain Controversy in Signal Hill

In an all-too-familiar tale these days, a redevelopment agency is seeking to acquire property as part of its efforts to alleviate blighted conditions in the city, and owners are reacting strongly to the agency's plans to utilize the power of eminent domain where owners are reluctant to sell. 

According to a November 5 article in the Signal Tribune, "Property owners condemn Signal Hill RDA’s use of eminent domain," the situation in Signal Hill pushes all the buttons on both sides of the issue:

  1. The redevelopment agency touts numerous successful projects, including converting "many contaminated oil-production and industrial sites into successful retail centers and thriving residential communities";
  2. The agency's claim of success in its redevelopment efforts have been well documented; the agency's "Las Brisas" project received the California Redevelopment Agency's 2006 Award of Excellence for turning an area "characterized by a high crime rate, vacant and boarded up buildings, and mismanagement by absentee landlords" into a " neighborhood consist[ing] of 90 attractive affordable residential units, courtyards, a park, and a community center that includes an on-site police substation, a childcare facility, a public meeting area, social services offices, and a computer lab";
  3. The redevelopment agency might not, in a perfect world, be at the stage where it really wants to condemn the properties now, but its power of eminent domain expires on November 17;
  4. One of the properties being condemned actually lies outside the redevelopment area, but (according to the city), its acquisition "will benefit housing in the city’s redevelopment project area";
  5. The properties being sought include a number of operating businesses that may not themselves appear blighted at all;
  6. The acquisitions are taking place under horrible market conditions, causing at least one owner to claim it is "unfair to offer him fair market value for the property at a time when the real estate market is depressed and causing his property to have a 50-percent diminished value"; and
  7. Even though the acquisitions will happen now, in this down market, the agency apparently does not intend to use the properties for five years or more, leaving business owners and property owners wondering why they should be forced out now (see item 2 above).

Does the agency need to acquire these properties for much-needed redevelopment?  Perhaps.

Will it use the properties to improve the city?  Hopefully. 

But for the imminent expiration of the agency's power of eminent domain, does the agency need to acquire these properties now?  Almost certainly not. 

Oakland Issues Policy Amendment to Facilitate Eminent Domain in West Oakland

Just a quick update on yesterday's post about West Oakland involving Kroger's plans to build a store there.  Last night, the City Council unanimously approved changes to its eminent domain policies to allow the city to condemn the property necessary for the planned project. 

While reports of the hearing have somewhat different tones, it is fairly clear that the meeting was well attended, and that audience members were passionate, regardless of which side of the issue they supported. 

As the Sean Maher reports it for the Contra Costa Times in "Oakland City Council changes eminent domain policy":

The issue raised a passionate debate in the crowd at the meeting, with some arguing that eminent domain is the wrong way to handle the issue, others doubting a Kroger store is the right solution to the food problem and others saying West Oakland is desperate for access to healthy food and that need should take precedence.

The response was framed somewhat differently by Evan Wagstaff of OaklandNorth in "City Council approves eminent domain option to land West Oakland grocery store":

Members of the public burst into applause at the Oakland City Council’s Tuesday meeting when council members unanimously agreed to allow use of eminent domain to bring a large grocery store to West Oakland.

Either way, it's important to note that the City's action does not mean that it plans to condemn the property; rather, the City merely amended its eminent domain policies so that it could someday condemn the property if a voluntary acquisition cannot be negotiated. 

West Oakland Contemplating Expanded Eminent Domain Powers to Aid Redevelopment

West Oakland has some notoriously tough neighborhoods, including the large ACORN project area where Black Panther co-founder Huey Newton was killed and an area known unflatteringly as "Ghost Town."  Over the years, it has been the subject of some controversial public works projects, facilitated through extensive eminent domain.  This includes the West Oakland BART station, a major postal facility, and the ACORN housing project.  

An October 4 article in the Contra Costa Times by Brian Beveridge, "'Eminent domain' draws shudders in West Oakland" describes the development of the postal facility as follows:

Hundreds of homes and at least two popular black-owned nightclubs, Slim Jenkins Club and Ester's Orbit Room, were destroyed or relocated when the Postal Service used eminent domain to acquire the land at Seventh and Willow streets.

Now, as we initially reported a few weeks ago, the City is considering expanding its eminent domain powers in an attempt to accelerate efforts to remediate blight and, in particular, in an effort to facilitate a proposed Kroger facility.  Mr. Beveridge's article explains:

[D]espite objections from both businesses and some residents, Oakland Community and Economic Development Agency staff will recommend Tuesday night that the City Council expand its eminent domain powers to accelerate redevelopment in West Oakland.

The article notes an ongoing effort to acquire property for a 72,000 square foot Kroger facility, though there appears to be some dispute as to what is actually going on.  The City claims Kroger and the property's owner are in active negotiations, and that eminent domain would only be used as a last resort.  The owner, however, claims that no negotiations are taking place.  

Current policies prohibit the use of eminent domain to acquire residential properties or for any commercial projects larger than three acres.  The Kroger project involves about five acres, meaning the policy will need to change before eminent domain could be used to acquire property for it.

The City Council is expected to vote tonight on a policy amendment specifically tailored at allowing eminent domain in a small area that includes the property Kroger wants to acquire.  According to Councilmember Nancy Nadel, "The expansion of eminent domain is only for this grocery store project and that is why I support it."

Eleventh Hour Veto Prevents AB 2531 From Becoming Law (For Now)

Just before the midnight deadline for taking action yesterday, Governor Schwarzenegger vetoed AB 2531, the bill that would increase the eminent domain authority of the Community Redevelopment Association of Los Angeles.  His late-night message to the legislature was as follows:

To the Members of the California State Assembly:

I am returning Assembly Bill 2531 without my signature.
Redevelopment funds are to be used solely for the purpose of eliminating blight in urban neighborhoods in California cities. This bill would authorize the use of redevelopment funds for projects that are not necessarily blighted as well as for projects outside the redevelopment area, and as such would violate the primary purpose of redevelopment law.

For these reasons I cannot sign this bill.

Sincerely,
Arnold Schwarzenegger

The bill now goes back to the legislature, which will have an opportunity to override the veto with a 2/3 super majority vote.  If proponents can obtain the necessary votes, AB 2531 will become law despite the veto.  (As we we reported on Wednesday, AB 2531 passed both houses with comfortable margins, but neither quite reached the 2/3 support necessary for an override vote.) 

In this respect, note that it is highly unusual for the legislature to override a veto.   In fact, there has not been a successful veto override in California since July 1979, and there have only been a small handful of efforts to override a veto in the last decade.  The last serious attempt was in 2009, when an effort was made to override the Governor's veto of AB 264, which was a bill honoring Vietnam War veterans. 

Thus, while there is always a chance that there will be some organized effort to gather the necessary votes, the likelihood is exceedingly small.  If we hear any rumblings about an override effort, we'll let you know.

Fate of Eminent Domain Bill to Be Decided Tomorrow

Proposed changes to California's redevelopment law have been quietly making their way through the California legislature.  With little publicity, AB 2531, authored by Assemblyman Felipe Fuentes, made its way through the process this summer.  After a series of amendments, AB 2531 was passed by California's Senate on August 12 by a vote of 22-13.  On August 27, it passed California's Assembly, 50-26.

On September 10, the bill was presented to Governor Arnold Schwarzenegger for signature.  Under the California legislative process, the Governor has until September 30 to sign or veto the bill.  If he signs (or takes no action at all), AB 2531 becomes law.  If he vetoes, the bill goes back to the legislature for a possible vote to override the veto.  (Overriding the veto would require a 2/3 vote, meaning AB 2531 would fall just short in both houses unless the votes change.)   

I'll get into more details about AB 2531 if it passes, but the basic premise is that it would:

  1. Expand the ability of the Los Angeles Community Redevelopment Association to acquire property through eminent domain by removing the restriction that the CRA can only exercise its eminent domain authority within designated redevelopment areas.  In other words, if AB 2531 becomes law, the CRA could condemn property anywhere within the City of Los Angeles. 
  2. Expand the CRA's bases for asserting eminent domain to include eminent domain motivated by pure economic motives (essentially, the very conduct that created all the controversy when the Kelo opinion came down in 2005). 

If you think this sounds like a significant change in the law, you're not alone.  Several commentators have reacted negatively to AB 2531, including:

On the other hand, the California Redevelopment Association (not surprisingly) urges support for the bill:  "AB 2531 will give redevelopment agencies clear authority to use their resources for economic development–activities that will create and support jobs, assist industrial and manufacturing businesses, and investments to grow California’s green economy."

One of the interesting things about AB 2531 is that as initially proposed, it would have applied throughout California.  But during the course of the legislative process, the bill was amended and narrowed.  As passed, AB 2531 expressly applies only to the CRA in Los Angeles. 

More tomorrow once we know what happens. 

Imperial Beach Continues With Eminent Domain for Miracle Shopping Center

We've previously reported on the City of Imperial Beach's use of eminent domain to displace tenants in the Miracle Shopping Center.  According to a recent  San Diego Union Tribune article, "Eminent domain to begin soon against IB merchant," the City is continuing down that path -- this time with the business South Bay Drugs.  The owner has operated the business in the shopping center for 28 years. 

The City Council voted on Wednesday to move forward with the adoption of a Resolution of Necessity so the eminent domain process could begin.  But the case has a bit of an interesting twist.  

Specifically, the business owner stopped paying rent several months ago based on a City consultant's telling the business that the rent payments would be offset against the business' relocation benefits.  When the City sued to evict the business for non-payment of rent, a San Diego Superior Court judge sided with the business.  The City is now appealing that ruling, apparently hoping that if the business is evicted, it may not be entitled to any eminent domain proceeds.

If the tenant had a reasonable belief -- based on a statement by a City consultant -- that rent payments would be offset against the payment of future relocation benefits, it is difficult to understand the City's basis for trying to evict the tenant.  And if the City is not trying to avoid the payment of just compensation and business goodwill losses, why is it continuing to attempt to evict the tenant when the City can simply take possession through the upcoming eminent domain proceeding?

Talk of Eminent Domain in West Oakland

According to a Bay Area Biz Talk blog post for the San Francisco Business Times, "Talk of Eminent Domain Stirs Fears in West Oakland," the City of Oakland is contemplating reinstituting its redevelopment agency's power of eminent domain in order to acquire a site for a new Foods Co. (Kroger) grocery store.  

The five-acre site in question is located at the corner of West Grand Avenue and Filbert Street, and is currently home to an industrial warehouse and an autobody shop.  While the proposed grocery store has done much of the negotiating and acquisition itself, it has been unsuccessful in reaching an agreement with a property owner that controls .9 acres of the site.  The store has therefore turned to the redevelopment agency for help.

The city council's economic development committee has approved the policy amendment to allow the redevelopment agency to reinstitute its eminent domain powers, and the matter will therefore go to a vote before the city council.  

The article also notes that over the last several decades, city officials have turned to eminent domain in West Oakland to acquire land for a BART station, for Interstate 980, and for a U.S Post Office branch.  

San Luis Obispo County Reconsiders Creation of Redevelopment Agency

The County of San Luis Obispo is considering a new way to finance infrastructure improvements -- the creation of a redevelopment agency.  According to a San Luis Obispo Tribune Article, "Redevelopment agency reconsidered," County supervisors have instructed their planning staff to investigate the pros and cons of instituting such an agency.  

County planners noted that a redevelopment agency could be set up to cover most rural communities, and specifically singled out San Miguel and Oceano as areas that could benefit from redevelopment.  While several individuals noted the positive aspects of redevelopment, others voiced concerns about the implementation of eminent domain to accomplish the redevelopment agency's purposes.

If the County decides to proceed with creating a redevelopment agency, it will likely take one to two years to get it up and running.

Rancho Cordova Eminent Domain Case Involves Allegations of Contractual Interference

On its face, the City of Rancho Cordova's eminent domain action to acquire a vacant parcel for redevelopment purposes is a familiar story. The government wants to seize private property in order to turn the property over to a third party for redevelopment.  This is the basic fact pattern that caused the national eminent domain uproar that started when the Supreme Court issued its 2005 Kelo decision.

Unlike in Kelo, however, in California the government typically cannot take such steps without making appropriate findings that the property being condemned is "blighted."  This requirement may not actually apply here, as the property's intended use may qualify as a public use.   But in any event, the property exists as a vacant, overgrown weed patch, so a blight finding doesn't seem to be much of a stretch.

Why, then, is the case getting so much media attention?  The controversy lies in the fact that the city intends to turn the property over to the Los Rios Community College District for construction of a satellite campus.  And even that might not raise eyebrows were it not for the fact that the property's owner had a signed contract to sell the property to Los Rios for the very same purpose. 

Specifically, Los Rios entered into a contract to buy the property for $8.6 million.  Then, allegedly just weeks after Los Rios walked away from the deal, the City moved forward with its plans to acquire the property in order to turn it over to Los Rios.  And (here's the important part), the city offered only about $4 million -- less than half the contract price. 

According to an August 10 Sacramento-area CBS news story by Mike Luery, On The Money: Land Grab?: Multi-Million Dollar Fight in Rancho Cordova, the courts will now need to sort out whether the city meets the requirements to condemn the property in light of the underlying facts. 

Not surprisingly, the property's owner is crying foul: 

"I had a contract with Los Rios," said Sam Fong. "And they (Rancho Cordova) interfered with the contract and they're taking the property for half the contract price."

I don't know nearly enough about the real facts here to offer a meaningful prediction about what might happen, but I do know that if the city in fact induced Los Rios to walk from its deal under a promise to get them the property for less than half the price, the owner may well have a legitimate complaint.

That said, even if the owner's allegations prove true, I'm not convinced it trumps the city's right to take the property.  Assuming that (1) the area is in fact blighted, (2) the city made a proper offer at the property's current fair market value, and (3) the city met the other procedural requirements for initiating an eminent domain action, they should get to proceed with the eminent domain action. 

And, unless the owner can prove a precondemnation damages claim, no reason exists that the city should have to pay more than the property's fair market value on the date of value.  (Note that a precondemnation damages claim is not out of the question here.  If the owner can prove the city's conduct qualifies as "unreasonable precondemnation conduct," this could support a precondemnation damages claim, even though the facts are not what one generally thinks of when analyzing precondemnation damages.) 

Apart from all of that, the city's potential liability outside the context of eminent domain is an entirely different question.  I see no reason the city could not be liable for tortious interference, for example, even if the court upholds its right to take.   In such case, the damages are pretty easy to identify:  the difference between the compensation awarded in the eminent domain case and the $8.6 million contract price.

And what about Los Rios?  I haven't seen any discussion about whether the owner might possess a breach of contract claim, but one could easily surmise that if Los Rios backed out of the deal simply because it knew the city would condemn it at a lower price, any stated basis for canceling the deal could be viewed as an ineffective pretext. 

On the other hand, Los Rios will presumably offer an explanation for why it was justified in backing out of the deal that has nothing to do with the city or eminent domain, and the city will argue that it is taking the property for unquestionably legitimate purposes, and that it should not penalized because it happens to be condemning at a time when market conditions have deteriorated. 

This will be a fun one to follow.

Glendale Plans to Extend Eminent Domain Authority

The City of Glendale plans to vote tonight on a plan that would extend eminent domain authority in its central redevelopment area for an additional 12 years.  According to an August 10 article in the Glendale-News Press, "City Set to Extend Eminent Domain," the agency's eminent domain authority is currently set to expire next month. 

According to the Director of the Community Redevelopment & Housing Department, Philip Lanzafame, eminent domain is a key tool if redevelopment projects are to succeed:  "If you didn't have this, some property owners could hold the community hostage."

This action comes as Glendale is in the midst of efforts to acquire a key property needed for a planned expansion of the Museum of Neon Art.  So far, those efforts have been unsuccessful, and a representative of the property's owner has asked the city to hold off while he completes efforts to bring a national retail tenant to the space.  

Assuming Glendale does indeed extend its eminent domain authority, whether the property's owner is able to secure a major tenant may become moot, as the city's authority to condemn will trump any other plans the owner may have for the property.

Eminent Domain Authority Reinstated for Parts of Barstow

We've been following the City of Barstow's potential reinstatement of its redevelopment agency's power of eminent domain, most recently noting that a special hearing was set for August 5.  According to a Desert Dispatch article from over the weekend, "Eminent domain power reinstated for parts Riverside Drive and east Barstow," the reinstatement was only partly successful:  the redevelopment agency can now use eminent domain on commercial property in Project Area 1 (the eastern part of the City at the end of Riverside Drive near the sewer plant), but a deadlocked vote caused the City's reinstatement of its eminent domain power for Project Area 2 (the area near Home Depot) to fail.

This means that the redevelopment agency can use the power of eminent domain for non-residential properties lying in the area between Interstate 15 and the BNSF railroad along Interstate 40, as well as land surrounding Walmart.  Whether the remaining Project Area 1 land will be potentially subject to eminent domain is still under consideration, as several council members had potential conflicts of interest, as they either worked or lived within the project area.  The City hired an appraiser and economist to determine whether the reinstatement of eminent domain in Project Area 1 would impact the council members' homes or businesses, and the expert's opinion came back negative.  The council will re-vote on the issue at the August 16th meeting.

Barstow Seeks to Appease Concerned Residents Regarding Eminent Domain Issues

We have reported several times on the City of Barstow's efforts to renew its Redevelopment Agency's eminent domain authority, but Barstow residents apparently remain skeptical.  A public meeting in April left many dissatisfied with the City's efforts, and the City's Council's effort to address the issue in May led to a deadlock

Now, the City has scheduled an additional public meeting for this week in anticipation of the City Council's August 5 special meeting on the issue. 

According to a July 25 article in the Desert Dispatch, "City to attempt second eminent domain meeting Wednesday," the City seeks to renew eminent domain authority

for the area encompassing the outlet malls, the area south of Rimrock Road between Barstow Road and Montara Road and the area west of Avenue L on West Main Street. The agency also seeks to reinstate eminent domain powers for the area between Interstates 15 and 40 near Walmart.

Residents want assurances, in writing, that the Redevelopment Agency will not use eminent domain to condemn residences or churches.   Others want a better understanding of how the City defines blight before supporting additional eminent domain rights. 

The meeting will be held at 6:00 p.m. on Wednesday, July 28, at the Barstow Church of God in Christ at 1375 Sage Dr.

Salinas Considering Expansion of Redevelopment Area

According to an article in the Californian, "Salinas mayor: Beat blight, grow tax base," the City of Salinas is slated to vote tonight on whether to expand three Salinas redevelopment zones.  The city is considering such a move in order to grow property tax revenues as assessed property values in the area rise.

The Mayor of Salinas, Dennis Donohue, believes business created in the redevelopment zones could bring an influx of between $5 million and $15 million annually in sales and occupancy taxes.  He is quoted as saying:  "We have to expand our tax base, and this is a possible tool to do it."  He goes on:  "This is an opportunity to attract investment into the community and then take part of the tax base that's created, put it back in the community and create a cycle of growth." 

Community members, on the other hand, are skeptical.  The President of the Salinas United Business Association said certain areas hadn't benefited enough from the program's dollars, and other city council members believe too few projects have been completed.

A feasibility study commissioned by the city also recommends reinstituting the power of eminent domain for some of the redevelopment areas, which has not been allowed since 2003.  Expansion of the zones' areas would require official blight findings and environmental reviews.  If the city decides to go down that route, it better make sure its blight findings are sufficient so as to avoid having them struck down, as was recently the case with the City of Glendora.

Tenant Reaches Deal with Oxnard to Avoid Eminent Domain

With plans to demolish the old Carriage Square shopping center and rebuild it with a Lowe's, the City of Oxnard was on the verge of passing a resolution of necessity to acquire by eminent domain the leasehold interests of one of the few remaining tenants of the center.  However, according to an article by Scott Hadly, "Oxnard, credit union likely to avoid eminent domain clash," the City's threat of eminent domain appears to have resulted in a deal with that tenant, Pacific Oaks Credit Union.

In order to force the tenant to relocate and give up its rights under its lease, the City would normally be required to institute eminent domain proceedings and thereafter compensate the tenant for relocation expenses, lost business goodwill, and other forms of damages, such as leasehold "bonus value" (the difference between the tenant's contract rent and the market rent the tenant would be required to pay at the new location).  Here, for example, the tenant believed there would be a $500,000 difference between its rent under its lease and current market rents.

The shopping center property is owned by a private developer, and the City is therefore seeking to acquire the leasehold interests of the tenant on behalf of the developer in order to prompt the property's redevelopment.  The developer would typically be on the hook for any expenses the City incurs through the eminent domain process.  However, in order to avoid such expenses, it appears the developer of the new shopping center and the tenant are putting the finishing touches on a new lease agreement that will relocate the tenant at a reasonable rental rate at a satisfactory location.

Local Businesses Urging City to Reinstate Eminent Domain Authority

Most of the media surrounding eminent domain -- and eminent domain for redevelopment purposes in particular -- involves claims of eminent domain abuse and grass roots efforts to limit the government's ability to condemn property. 

In the City of Ukiah, however, local business owners are apparently taking the opposite stance, urging the City to reinstate its eminent domain powers that lapsed in 2001 to deal with a blight situation that business owners believe are hurting them.  We initially reported on the issues with the Palace Hotel back in Februrary, but a July 9 article in The Ukiah Daily Journal, "Residents plea for city to take action on 'black-hole' Palace Hotel," explains that the public is the driving force behind the current efforts:

Several downtown business owners, frustrated by the long vacant Palace Hotel, urged the Ukiah City Council to reinstate powers of eminent domain for the city's redevelopment agency during a special meeting Wednesday night.

The problem is that the old hotel property is apparently in a serious state of disrepair, and efforts to cause the property's owner to rehabilitate it have failed.  One resident summed up the public's mood as follows:

"When I moved here 20 years ago, I heard the Palace Hotel would be rehabilitated, but ever since then, it's just been more and more blight," said Richard Gardiner, describing eminent domain as a good motivating tool. "A cop rarely has to use his gun, but knowing he has it keeps people in line."

I'll admit that I've never been to Ukiah and I know nothing about the Palace Hotel, its history, or the efforts to rehabilitate it.  I do know, however, that since 2005's Kelo decision, I have rarely seen a news report evidencing such overwhelming support to condemn property for redevelopment.

Tempers Rise Over Potential Use of Eminent Domain in Fresno

According to an ABC news story, "Threat of Eminent Domain Raises Tempers at City Hall," residents of downtown Fresno are up in arms about the City's effort to extend its redevelopment rights.  While City Council members tried to assure residents that the use of eminent domain would be a "last resort," those in attendance at the council meeting were unappeased. 

In particular, residents complained that the City's plans are actually limiting efforts to improve the area because no one wants to spend money on a property or business when it is unclear what the City is going to do with the property.  One local property owner was quoted as saying

"I see this quite honestly, as a land grab. I don't think it's a proper use of eminent doman. You just want to take our land for ten cents on the dollar."

This is a typical problem government agencies face.  On the one hand, state and federal regulations usually require significant time and efforts before certain projects (including redevelopment projects) are approved and agencies can commit to anything concrete.  On the other hand, during that time-consuming approval process, potentially impacted property and business owners are in a state of flux, not knowing what is going to happen with their properties. 

As to the City Council's comment that eminent domain would only be a "last resort," shouldn't that always be the case?  California Government Code section 7267.1 requires public entities to "make every reasonable effort to acquire expeditiously real property by negotiation." 

New Published Decision Strikes Down Blight Findings

One of the big issues in eminent domain over the past five years has been the role of blight in justifying eminent domain for redevelopment purposes.  The seminal decision (that started all the ruckus) -- Kelo v. City of New London -- involved the use of eminent domain for redevelopment purposes where the city did not even pretend it was acting to eliminate blight.

Kelo had little direct impact on California's eminent domain law, because even before the Supreme Court issued its opinion in 2005, California's law allowed eminent domain for redevelopment purposes only upon a proper showing of blight.  In other words, California law did not allow eminent domain for pure economic development. 

Following Kelo, however, public scrutiny on eminent domain and, in particular, eminent domain for redevelopment purposes, created a nationwide backlash.  Most states enacted some form of eminent domain reform.  In California, the reforms included SB 1206, which contained some tweaks to the law involving blight findings.  More importantly, however, it seemed clear that courts would be way more likely to examine critically an agency's blight findings in the wake of the Kelo backlash. 

Yesterday, the Sixth District California Court of Appeal issued its decision in County of Los Angeles v. Glendora Redevelopment Project.  There, the county sued Glendora, claiming that Glendora had not made proper blight findings in enacting its redevelopment plan.  The opinion describes the trial court's ruling as follows:

“Glendora’s findings of blight are not supported by substantial evidence” in the administrative record. Furthermore, the court concluded, given the absence of blight, “Glendora is without eminent domain authority in this instance.”

The Court of Appeal examined the four requisites for a proper blight finding:

  1. The area must be “predominantly urbanized";
  2. The area must be “characterized by” one or more conditions of physical blight;
  3. The area must be “characterized by” one or more conditions of economic blight; and
  4. These “blighting conditions must predominate in such a way as to affect the utilization of the area, causing a physical and economic burden on the community.”

In a painstaking analysis, the Court held that Glendora had not met the "physical blight" test.  The court analyzed each of four statutory bases for a physical blight determination:  (1) unsafe or unhealthy buildings; (2) code violations; (3) dilapidation and deterioration; and/or (4) defective design or construction.  Finding no substantial evidence in the record of any of these conditions, the court invalidated the redevelopment plan. 

The significance of this opinion lies not just in the holding itself, but in the court's willingness to scrutinize the blight findings, rather than merely deferring to the agency's determination.  This is precisely the type of analysis that seemed likely in Kelo's wake.  Whether this is the start of a trend remains to be seen. 

Vista Redevelopment Agency Acquires Additional Property

We've previously reported on the City of Vista's moving forward with the use of eminent domain to acquire the Riviera Motel and other properties in order to assemble property for an auto mall.  It appears that the eminent domain dispute has now reached a resolution, as the North County Times is reporting that Vista city council approved a settlement with the motel owner and another nearby property owner.

According to the article, "VISTA: City approves $3.2 million in property purchases," the Riviera Motel owner is receiving compensation of $1.65 million for the .71-acre property, plus $345,000 for fixtures and equipment, business goodwill, and relocation (since the owner lived at the motel).  The owner had previously been offered $1.65 million, so it appears he did not receive any additional compensation for the property's value.  He did, however, receive the additional $345,000 for the other items of compensation.  The owner is also being provided an additional $5,000 for the costs of obtaining an independent appraisal, and the redevelopment agency's promise to contribute $155,000 if the owner decides to open up a new hotel in Vista in the future.

Other property appears to still be needed for the redevelopment agency's plans.

City of Lodi Struggling with Redevleopment Issues in the Face of Eminent Domain Opposition

The City of Lodi held a special meeting of its City Council this week to talk about options for a revised Redevelopment Agency.  And, even though (1) the City has already enacted protections against using eminent domain for redevelopment purposes, and (2) the proposal includes no eminent domain authority, it appears residents are still up in arms over the issue. 

According to a June 10 article by Maggie Creamer of the Lodi News-Sentinel, "Eminent domain a major concern at Lodi City Council's redevelopment meeting," the public appears more concerned with the threat of eminent domain than the need for redevelopment.  One speaker explained that residents want even more assurances that eminent domain will not be used:

"It's a fundamental concern, and no amount of logic will convince people otherwise. It's an emotional issue," she said.

Despite this, it appears the fears may be largely unfounded, at least in this case:

Councilman Larry Hansen said the council decided to not include eminent domain in any form in its redevelopment agency, and that the city has a strict eminent domain ordinance.

That said, he acknowledges that people remain concerned about what might happen "20 years from now" if the redevelopment plan moves forward.  

I'm all for the public's right to oppose eminent domain, especially for redevelopment purposes.  But I think the pendulum swings too far when a city apparently in bad need of redevelopment is potentially thwarted by an anti-eminent domain agenda even where the city has taken steps to craft a redevelopment plan that, on its face, does not allow for the use of eminent domain. 

It will be interesting to see what happens. 

Public Outcry Derails Renewal of Eminent Domain for Redevelopment in San Pablo and Barstow

We've previously reported on several cities contemplating the renewal of their redevelopment agencies' powers of eminent domain.  In the cities of San Pablo and Barstow, it appears that public outcry may have derailed those renewal efforts, at least for now.  Here's a brief update:

  • We previously reported that the City of San Pablo was contemplating renewing its eminent domain powers for an additional 12 years.  According to a Mercury News article, "San Pablo dumps eminent domain plans," the City has dropped its redevelopment renewal plans after residents turned up with "a racous groundswell of mistrust and resentment of city government that included threats of a recall."  While City officials attempted to demonstrate the accomplishments of the redevelopment agency, such as the development of shopping centers, athletic fields and parks, commercial corridors and new housing developments, the citizens were not buying it.  After a study declared 90-percent of the City blighted, one resident went so far as to describe giving the redevelopment agency the power of eminent domain would be like "having your chicken house guarded by a pack of very hungry wolves."
  • We also previously reported that the City of Barstow was deciding whether to reinstate its redevelopment agency's power of eminent domain.  According to a Desert Dispatch article, "Barstow Council deadlocks over eminent domain," the City has been unable to reach a decision, with its council members currently deadlocked on the issue.  Citizens voiced concerns, and complained that their questions regarding redevelopment and blight had not been answered.  So what happens next?  Apparently, no future meeting has been scheduled, as the council remained deadlocked on whether to table the issue indefinitely or whether to bring the item back for discussion at a future meeting.  However, one council member was absent, and his vote will ultimately break the deadlock.  It will be interesting to see how that council member votes, especially if there is strong public opposition.

If nothing else, these examples demonstrate that public opposition can influence government decision-making. 

The City of Bellflower Contemplates Expanding Redevelopment Area

According to a Contra Costa Times article, "Bellflower may expand redevelopment area, hopes to add $42 million to city coffers," the City of Bellflower has approved proceeding with a study to potentially expand its redevelopment area to include an additional 271 acres.  The City hopes that the proposed redevelopment -- through increased property tax revenues -- could generate over $40 million for the City over the next 45 years.

The article reports that a number of hurdles must be cleared before the expansion area is approved.  For example, the City would need to obtain approval from the County of Los Angeles, and the City would also need to make certain blight findings.   With respect to blight, the article notes:

The county's conditions of blight can include depreciated or stagnant property values, abnormally high business vacancies, a high number of abandoned buildings, an excess of bars and liquor stores, a high crime rate and overcrowding.

If the redevelopment expansion occurs, will eminent domain be involved?  Perhaps, but it may be limited:  the City of Bellflower has adopted an ordinance that restricts acquiring residential property for redevelopment purposes through the use of eminent domain.

Dispute Brewing Between County of Santa Clara and City of Milpitas Regarding Redevelopment Expansion

The City of Milpitas plans to expand its redevelopment area to encompass more than 600 additional acres.  The County of Santa Clara, however, claims that the proposed expansion area has very little "blight."  Because of the potential for diversion of tax dollars and the significant financial impact the expansion may cause, this apparently has led to a brewing dispute between the County and the CIty.

According to a Milpitas Post article, "County to Milpitas: revisit RDA expansion plan or face lawsuit," the County has threatened the City with a lawsuit if the City moves forward with its planned expansion of its redevelopment area.  The County claims that the City's proposed expansion violates redevelopment laws and the California Environmental Quality Act in that the City has not sufficiently supported its "blight" findings in the proposed expansion area.  Thus, the County feels there has been no showing as to why the City needs to extend its eminent domain powers.

Apparently, the County has become involved because the City's proposed redevelopment area expansion would "divert an estimated $343 million away from the County over a more than 50-year period," and it would also "divert about $1.23 billion over the same period away from Milpitas public schools."  The County claims that the City is proposing this expansion in order to justify the need for more tax monies.  The City, on the other hand, points out that any tax revnue collected would not be a tax increase, but instead would divert collected property tax revenues toward greater redevelopment activities.

The City's proposed expansion will be decided at its April 20 City Council meeting.  If it is approved, the County has between 30 and 90 days to challenge the decision depending on whether it sues under the redevelopment laws or CEQA.  Stay tuned.

San Pablo Alleviates Residents' Fears of Eminent Domain, Promises to Comply with Proposition 99

According to a Contra Costa Times article, "San Pablo tries to quell eminent domain fears with promise to residents," the City of San Pablo has promised residents that it will not use the power of eminent domain to acquire owner-occupied residences for purposes of private development.  The promise is a bit odd, given the fact that  Proposition 99, which Caifornia voters passed in 2008, is intended to prohibit exactly that use of eminent domain.  (We'll leave aside for the moment whether Proposition 99 really does effectively prohibit the taking of residential property for redevleopment.)

The article notes that over 100 individuals showed up at a recent city council meeting to oppose a proposal to renew the redevelopment agency's eminent domain powers for another 12 years.  In an effort to calm the residents' fears, the City took a symbolic step and pledged to sign agreements with any homeowner-in-residence, "promising not to use eminent domain improperly."

Notably, citizens correctly pointed out that the proposal does nothing to protect business owners, and given the fact that more than 90 percent of the City of San Pablo is within a redevelopment area, one can imagine it is difficult for such owners to feel secure.

Redevelopment in Vista Gets Political

There is an interesting story in today's North County Times about a political dispute brewing between members of a sub-committe of the Vista Redevelopment Agency.  The story by Cigi Ross, titled "VISTA: Member breaks rank with Vista redevelopment panel," explains that one of Vista's project area committee members, Jerome Hymes, has distributed a letter to about 35 downtown businesses warning that the agency may seize their property by eminent domain.  The other members are chastising Hymes, claiming the letter is filled with a "total laundry list of all the urban myths of redevelopment."

Whether Hymes' letter is true or not, the redevelopment agency has not come across in the best light.  For example, Hymes claims that some committee members have an insensitive attitude towards property owners not interested in selling their property, citing a remark by one member about wanting to "bulldoze" a property.  That committee member admits making the statement, but explains that he "didn't really mean it."   Hymes also cites to the agency's authorizing the use of eminent domain to acquire the Vista Riviera Motel and lease the property to a nearby car dealership, a story we have previously reported on.

According to the article, Vista has plans to acquire property on the Paseo Santa Fe Corridor and sell the property to private developers for construction of mixed-use buildings comprised of retail, office, and condos.  The agency sold $36 million in bonds last month to begin purchasing the properties that stretch along South Santa Fe Avenue from Monte Vista Drive to Orange Avenue.  The agency also apparently has plans to borrow an additional $103.5 million over the next five years for the property acquisitions. 

In order to give property and business owners more information about the redevelopment, the agency plans to begin unrolling a communication plan in May or June.  Ultimately, public support plays a significant role in the redevelopment process, and if the Vista Redevelopment Agency intends to go forward with its redevelopment plans, it will need to ensure the community is on board.

An Interesting Argument Concerning Whether Eminent Domain for Economic Development Makes Economic Sense

Marc Scribner of the Competitive Enterprise Institute published this week an article about the economics of eminent domain for economic development (i.e., for redevelopment purposes) entitled "This Land Ain’t your Land; this Land Is my Land."  I found the piece interesting, despite the fact that it seemed the author started from the conclusion "eminent domain is bad" and worked backwards crafting an analysis to get there. 

Ultimately, however, Mr. Scribner does provide some interesting insight.  He does not simply come out and say eminent domain for economic development is unconstitutional or that it qualifies as eminent domain abuse (though it seems clear that is how he really feels about it).  Instead, his article purports to analyze whether using eminent domain for economic development makes economic sense in the long run.  And this is where the piece creates some interest. 

Mr. Scribner claims that the mere fact that eminent domain for economic development is possible has a chilling effect on entrepreneurship, especially in lower income areas where an entrepreneurial spirit may be most needed.  The reasoning behind this is somewhat complicated, but relies in large part on the idea that the government is simply incapable in most cases of accurately assessing the various economic forces at play:

An increase in the discretionary use of eminent domain for economic development would lead to a decrease in entrepreneurship. As local officials lack the knowledge and expertise to effectively promote private development, their political missteps can keep their localities in poverty by undermining entrepreneurship, and forgo the wealth it would have created.

In the end, Mr. Scribner and I part ways on his conclusion that eminent domain should never be used for redevelopment purposes.  I think that in some cases, the open market simply cannot adequately address truly blighted situations, and having the government step in -- even when eminent domain is required -- can trigger revitalization and economic growth. 

That said, the forces Mr. Scribner identifies no doubt exist, and suggest the government should go down such a path only after careful thought and analysis.  Had local officials in New London, Connecticut, viewed the issue as Mr. Scribner views it, the string of events leading to the infamous Kelo decision might have played out differently.  

Marin County's Historic Palace Hotel May Face Condemnation

In the past, we've reported on the San Francisco Redevelopment Agency's condemnation of the historic Hugo Hotel.  It now appears that city officials in Ukiah may utilize a similar playbook and reinstate the redevelopment agency's power of eminent domain in order to acquire the historic 119-year old Palace Hotel.  According to a Press Democrat article, "Ukiah seeks new life for Palace Hotel," the city may turn to eminent domain after decades of unsuccessfully nudging the hotel's Marin County owners to rehabilitate the historic vine-covered building in the heart of downtown. 

Nearby residents recall the Palace Hotel serving as a hub of activity in the 1970's and 1980's when it housed a restaurant, a bar, and a popular music venue attracting well known acts.  But the Hotel has been sitting vacant since 1988.  According to the article, in 1994, more than 200 downtown merchants and customers signed a petition demanding that the city have the building either cleaned up or torn down.

The property appraised in 2006 for $309,000, but the owners purportedly want over $1 million.  A study commissioned by the city concluded it would cost $4.5 million just to tear the Palace Hotel down.  Like any redevelopment, the proposed use of eminent domain is drawing a wide range of opinions.

False Fear of Eminent Domain Claimed to Impact Property Value

The City of Placentia has a large redevelopment area, and ambitious plans to redevelop an industrial neighborhood in south Placentia.  But the City has responded to the outrage over eminent domain and, in particular, eminent domain for redevelopment purposes.  The City apparently has no power to condemn property for private redevelopment. 

Yet, this lack of authority has not stopped some property owners in the redevelopment area from complaining that the "threat" of eminent domain has decimated their property's value.  According to a February 17 Orange County Register article by Adam Townsend, "Businessman: City plans could scare land buyers," at least one owner complained to the City Council on Tuesday that "stymied redevelopment plans and past mentions of eminent domain by city officials have decimated the industrial real estate market in south Placentia." 

Mayor Joe Aguirre responded:

"I just want to make clear that I was at the forefront of opposing eminent domain for [re]development." Aguirre said. "This city does not have that power, and we're not attempting to get that power."

The City believes that the hope of future redevelopment (presumably accomplished without the use of eminent domain) actually enhances the value of properties in the redevelopment area, and that the downturn in the real estate market -- not any "threat" of eminent domain -- is to blame for any problems owners are facing. 

Which side is right?  Probably both.  On the one hand, the public is in such fear of eminent domain these days that the mere mention of redevelopment plans and a redevelopment area is likely to evoke images of Mrs. Kelo's quaint pink house being run over by a bulldozer.  This could impact at least some market participants, regardless of whether that ever happened (it didn't; the house is now a historic building) or whether there is any real risk of it happening in Placentia (apparently, there isn't).

On the other hand, if the area truly does suffer from blight, the hope that it may someday be redeveloped to a better use may well have a positive impact on other market participants. 

In the meantime, getting beyond the current economic crisis and seeing real estate prices rising should help, regardless of which of the two competing forces one believes is really at play. 

San Diego Shopping Center Tenants Refuse Relocation Offer -- Eminent Domain Next

I mentioned in an article last week that many redevelopment agencies are facing budget issues; the city of Imperial Beach is facing a similar, but slightly different, problem:  after investing over $8 million in bond money for redevelopment of the Miracle Shopping Center, the economic climate has made it impossible for the city to find an interested developer. 

Nevertheless, the city decided to raise more funds, and purchase the shopping center anyway, hoping the city's ownership would make the site more attractive to developers.  With city ownership now in place, the eminent domain process begins.

According to a San Diego Union Tribune article, "2 shopping center tenants won’t budge," two tenants of the Miracle Shopping Center have refused the city's $63,357 offer, which is meant to cover relocation costs, along with the value of fixtures and equipment in the stores.  The owners, meanwhile, have demanded $1.4 million.  The city council this week voted to approve the adoption of a resolution of necessity, the first step in filing the condemnation lawsuit. 

Four shops have already relocated, one plans to close down, and the city believes it can work out deals with the other eight tenants. 

Cathedral City Approves Eminent Domain Land Deal for Redevelopment Plan

For years, Cathedral City has been acquiring property by eminent domain as part of its 23-acre Eastside Downtown Area redevelopment plan, which seeks to redevelop downtown Cathedral City into a 39-unit commercial center.  Our firm has also been involved in the project for years, having assisted several property owners impacted by the redevelopment agency's plans. 

According to a January 26 Desert Sun article, "Cathedral City council votes to pay $535,000 in eminent domain land deal," Cathedral City recently approved a $535,000 settlement with one of the final remaining landowners whose property is being condemned (the property consists of two parcels housing an apartment complex).  Two eminent domain actions remain pending.

While Cathedral City has been busily acquiring property for several years, anyone looking forward to the new redevelopment project should not get too excited.  Many redevelopment agencies are facing budget issues, and Cathedral City is no different.  According to the article:

The city is a long way from seeing the 23-acre project planned for the area come to fruition because of an $11.45 million loss of redevelopment funds to the state to help balance the state budget . . . .

Despite the fact that no actual redevelopment is imminent, the City apparently intends to evict tenants from the recently acquired apartment building.  This is unusual, as condemning agencies routinely allow tenants to remain on acquired property until construction is ready to proceed. 

If the City does evict the tenants now, it will have to pay them relocation assistance, but that will likely be of little comfort to some, including "the owner's 93-year-old mother, who's lived at the same apartment for 35 years."   One can only wonder how the public interest would be served by evicting a 93-year old woman so that her apartment of 35 years can sit vacant while the City waits for funds to move forward with its project . . . someday. 

Follow-up on Barstow's use of Eminent Domain for Redevelopment

In November, we reported that the Barstow City Council would be deciding whether to reinstate the redevelopment agency's power of eminent domain.  According to a January 20 Desert Dispatch article, "Eminent domain issue sparks fear among residents," the City Council has decided to table the issue until May. 

According to the article, the redevelopment agency sees its eminent domain power as a necessary tool to remove blight in the area northwest of Interstate 15 near the outlet malls.  But like most redevelopment efforts, the issue is drawing much public debate.

At the City Council meeting this month, at least 16 residents spoke against the Council's reinstituting the redevelopment agency's ability to utilize eminent domain.  While the City Council pointed out the redevelopment agency could not use eminent domain to acquire owner-occupied homes (a result of the passage of Proposition 99), residents were also concerned about the use of eminent domain on churches

In order to address the residents' concerns, the City Council plans to hold a public forum on eminent domain issues within 30 days. 

 

 

City of Rosemead's Strategic Plan Calls for Renewed Eminent Domain Authority

The City of Rosemead has a vision of its future that transforms the city into "a small town in the heart of a metropolis."  That, according to San Gabriel Valley Tribune reporter Rebecca Kimitch, is the goal of the city's new strategic plan.  Ms. Kimitch's article, "Rosemead defines itself as small town in the big city," explains:

The to-do list is ambitious: landscape medians and plant trees along sidewalks; demolish dilapidated vacant buildings; develop new neighborhood parks; remove graffiti; expand community classes and develop a community computer lab; create a civic center at City Hall and the surrounding city facilities.

To accomplish its ambitious goals, the City plans to reinstate its power of eminent domain -- at least with respect to commercial properties -- in its "redevelopment project area 1."  That redevleopment area was adopted initially in 1972, and it consists of more than 500 acres located generally along the Garvey Avenue and San Gabriel Boulevard corridors. 

As is often the case in the current political climate, the City apparently has no immediate plans to wield its newly reinstated eminent domain authority, but believes that having the power to condemn is key to the plan's success:  "City officials say they need the power as a negotiating tool to redevelop blighted areas of the city."

Time will tell whether Rosemead realizes its vision of the future -- and whether Rosemead resorts to condemnation in an effot to make that vision a reality. 

Chula Vista Seeks Public Opinion for Expansion of Redevelopment Plan

I previously reported on a political discussion taking place in a San Diego community, San Ysidro, with respect to whether the city should reinstitute its expired power of eminent domain.  While San Ysidro contemplates this issue, another San Diego community -- this time Chula Vista -- is in the process of drafting its five-year redevelopment plan, which could include expansion.

Like San Ysidro, Chula Vista recognizes the public concern over the city's wielding its condemnation power, especially for redevelopment purposes.  Chula Vista, therefore, has sought public input before it drafts the new redevelopment plan.  

According to a San Diego Union Tribune article by Tanya Sierra titled "Public opinion sought on redevelopment plan -- Subject has been a sore one in past," the redevelopment area in Chula Vista currently encompasses Third Avenue, Broadway, Main Street, and the bayfront, but city officials do not know what the expansion area will include until they hash it out with residents.

Despite seeking public input, the city's announcement of potential expansion of the redevelopment area did not go over too well with community members that turned up at the council meeting to oppose the proposal.  Part of the anger stems from how the redevelopment agency is being run, including the amount of funds devoted to administrative costs and salaries.  The city has responded by stating only three professional staff remain at the agency.

A concluding comment by councilmember Rudy Ramirez likely sums up the problem for most residents:

I’m convinced we’re falling far short of what we could be doing,” he said. “For me, redevelopment is a political, public process because you’re moving into neighborhoods and effecting change and changing people’s lives. We haven’t yet developed that sensitivity.”

Stay tuned in the coming months for how Chula Vista addresses these issues.

Sierra Madre Lets Voters Decide Breadth of Eminent Domain Power

Sierra Madre will allow its citizens to decide whether the city can use the power of eminent domain for private purposes.  According to a Pasadena Star-News article, "Sierra Madre resident[s] will vote on eminent domain," the city council agreed to put a proposed measure on the April 2010 ballot which would prevent the city from (1) condemning property and turning it over to a private developer, and (2) funding or cooperating with any other city agency using eminent domain (such as the Redevelopment Agency).

According to the article, City councilman John Buchanan is quoted as saying:

Taking one person's private property to hand it to another is morally questionable, to say the least.

Wondering why the city does not simply pass an ordinance prohibiting the use of eminent domain for private purposes if the board members are against such use?  The answer, apparently, is that the board considered doing so in reaction to Kelo, but ultimately determined such an ordinance could be overturned by future city councils.  If the measure is passed by the voters, it would be much harder to overturn.

Sierra Madre is not the first city to consider prohibiting the use of eminent domain for private purposes.  In fact, its proposed measure is modelled after the City of Yorba Linda's 2008 Measure BB, which was passed with nearly 80 percent approval.  And in 2007, Arcadia voters banned the use of eminent domain in the city's downtown redevelopment area.

City of Vista May File Eminent Domain Action to Assemble Auto Mall

Everyone knows the sad tale of America's automotive industry:  companies operating only through government subsidies and dealerships shutting their doors across the country.  So when the City of Vista came up with a plan to "create a second downtown car dealership and boost sales tax revenue," one would think the public would embrace it. 

But like many bold plans, this one has a wrinkle.  While most of the property needed to facilitate the plan is available for purchase, including the existing North County Ford site, one additional parcel is needed.  

According to North County Times reporter Cigi Ross, in her December 5 article, "VISTA: City plans to buy North County Ford property,"  the plan requires the acquisition of the Riviera Motel, whose owner does not want to sell.  In fact,

[the owner] accused the city of trying to steal his land and give it to the rich.

Last month, we told you the City was seeking to purchase the motel property.  Having apparently failed in those efforts, the City Council plans to vote today on whether to proceed with the purchase of the other properties needed at a cost of around $15 million -- and on "whether to try to seize the motel through eminent domain."  

For anyone who thinks this is just the kind of thing the post-Kelo eminent domain reform was designed to protect against, it is worth noting that California's primary reform act -- 2008's Proposition 99 -- deals only with protecting certain single-family residences.  Assuming the City of Vista demonstrates that the public interest and necessity require the project -- and that the motel property is necessary for that project -- it is unlkely any significant barriers will exist to the City's exercise of eminent domain to acquire the property should the City choose to proceed.

City of Claremont Extends Eminent Domain Authority for Redevelopment

The City of Claremont voted 4-1 to extend its redevelopment agency's eminent domain authority for another 12 years.  In a November 29 Inland Valley Daily Bulletin article, Claremont renews its eminent domain power, reporter Wes Woods, II writes that the the City's redevelopment agency amended its redevelopment plan to prevent its eminent domain authority from lapsing in December. 

The use of eminent domain is often controversial, but especially so when it is for redevelopment purposes.  And, when redevelopment requires condemnation of residential property, the public tends to express real outrage.  In this case, however, residential properties are not at risk.  According to Councilman Sam Pedroza, "there are no residential units that are within our eminent domain powers." 

Also of significance is that the extension does not guarantee that any eminent domain will occur; it just preserves eminent domain as an option for 12 more years:

Councilwoman Linda Elderkin said she felt eminent domain was an important tool to have for redevelopment and economic development in Claremont.

Though some apparently object to the extension itself, perhaps we should wait to condemn Claremont for its condemnation authority until such time as it actually condemns. 

Contrary to What Most Partisans Believe, the Use of Eminent Domain for Redevelopment Purposes is not a "Black and White" Issue

It seems most commentators on eminent domain generally, and on the use of eminent domain for redevelopment purposes in particular, adopt an extreme stance.  The loudest voices, especially in the "post-Kelo" world, tend to be property-rights advocates who denounce virtually any use of eminent domain, especially for redevelopment purposes. 

A good example of this appears in a recent San Diego News Network article by Brian Peterson, president of the Grantville Action Group:  "What we Learned at a Redevelopment Conference:  Don't do E-mail."  The article summarizes two "redevelopment conferences" hosted by the Municipal Officials for Redevelopment Reform, an organization described as a "state-wide, anti-redevelopment abuse organization[]."   The article contains some very good advice regarding making a record of potential abuses and, specifically, advises owners facing condemnation to present their arguments to the condemning agency in writing. 

The article correctly notes that detailed written comments will typically have greater impact than oral comments, made under the constraints of a public hearing -- which may allow a speaker only about three minutes to state his or her case. 

Though the article does not expressly state it, I would strongly advise any landowner facing eminent domain who wants to challenge the project to make sure he or she has an experienced eminent domain attorney participate in preparing the written submission.  It is far too easy to make a procedural error even at this early stage that could impact the likely success of a subsequent right-to-take challenge

The article also warns that emails are suspect, citing anecdotal evidence that emails may routinely go unread:

For a while now, there has been the suspicion, and some evidence, that City Council offices are not opening all constituent e-mails.

It is the article's "big picture," however, that causes me concern.  The article claims "there have been 346 abuses of eminent domain in California" since the Kelo decision, and it implies that a primary reason for this is because "California is one of the few states to not reform eminent domain in any meaningful way following Kelo." 

I don't know what the 346 examples of "abuse" are, though I am confident that many of them would qualify as abuse under any reasonable definition.  I am equally confident, however, that many examples of eminent domain -- including eminent domain for redevelopment purposes -- yield massive benefits for the public, and should be applauded, not condemned.  

In the end, we would all be better off if those with extreme viewpoints on this issue (on both sides of the debate) would step back and analyze each individual situation on its own merits: 

  • Redevelopment agencies would be well served to examine more closely whether eminent domain is really necessary, and whether the public benefit to be gained really is substantial enough to warrant throwing someone out of their home or business; AND
  • Property rights advocates should pause to examine the benefits a redevelopment project will generate and decide whether those benefits could be obtained without the use of eminent domain (often, they cannot) before claiming another "abuse" has occurred. 

Ultimately, if redevelopment agencies choose their projects wisely, and use eminent domain only when truly necessary, the real debate should focus on ensuring owners receive proper compensation for their properties and businesses, not on trying to stop the projects.  And, to the extent California requires more eminent domain reform, the place to look may well be in the rules regarding how compensation is derived, not in the circumstances in which the government can condemn. 

Corona Seeking to Extend Eminent Domain Authority for Downtown Redevelopment Area

The City of Corona has announced plans to extend its eminent domain authority in a downtown area which Corona feels is blighted.  The planned extension could impact businesses in the area, but Corona is carving out residential properties.  According to Riverside Press-Enterprise reporter Leslie Parrilla, in her November 16 article, "Public hearing on eminent domain area":

Hundreds of businesses are in the Main and Sixth Street area covered by the action. Not included would be residential properties within the Merged Redevelopment Project Areas.

Corona's current plans do not involve any immediate plans to condemn property, even if the extension is approved.  A public hearing is set for November 18 [PDF] (the hearing is item 7.A., on page 3 of the agenda). 

The only opposition to the extension noted by Ms. Parrilla was by Bridgestone Tires, which sought an exemption from the project area, claiming that the area is not predominantly blighted -- and, therefore, is ineligible for inclusion in a redevelopment planning area.  The City denied Bridgestone's request. 

Barstow Redevelopment Agency Contemplates Reinstatement of Eminent Domain Powers

According to the November 13, 2009, Desert Dispatch article "City seeks to reinstate eminent domain powers," the Barstow city council will decide next month whether the Barstow Redevelopment Agency's power of eminent domain should be reinstated after expiring last year.  The Redevelopment Agency believes the use of eminent domain may be necessary to remove blight in the area along East Main Street bordering the Marine Corps Logistics Base

The article reports that the Redevelopment Agency's chair, Tim Silva, believes eminent domain is a valuable tool, although he'd hate to see it used frequently by the government.  Silva comments:

There’s many things we can and can’t do, but we’ve got to keep those laws there so they can be used.  I would never approve eminent domain, which isn’t going to be (used for) the public benefit.

Reinstating the Redevelopment Agency's eminent domain power may simply be form over substance, as the Agency has never resorted to such use since it was established in 1973.

City of Vista Seeking to Acquire Motel Property for Redevelopment Project

 In an October 31 article for the North County Times, "VISTA: City wants to redevelop motel property," reporter Cigi Ross writes about the City of Vista's plans to acquire a motel property as part of a plan to redevelop the area:

The owner of a downtown Vista motel is accusing the city of trying to kick him out of his business and his home.

City officials announced Monday they're trying to purchase the Vista Riviera Motel as part of a redevelopment project along Vista Village Drive and Vista Way that could include a new car dealership. 

While the City's efforts currently involve a voluntary acquisition, the owner has already said that he does not want to sell, raising the possibility that the City could acquire the property through eminent domain.   Though this situation raises the specter of the often criticized Kelo decision, the situation is different, in that Vista's stated motivation in acquiring the property is to eliminate blight, a motivation missing in the Kelo case

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San Francisco Redevelopment Agency Condemns Historic Hugo Hotel

SanAttribution: Whole Wheat Toast/Flickr Francisco's 99-year-old, historic Hugo Hotel, famed for furniture hanging off its outside walls, has been acquired by eminent domain by the San Francisco Redevelopment Agency.  

Kaleene Kenning's October 3, 2009 article, "Furniture on the Outside," explains that the historic site was purchased by the Patels in 1964 for $400,000, but when the Redevelopment Agency came knocking, they wouldn't sell for less than $7 million.  The Redevelopment Agency's $3.25 million offer was not accepted and an eminent domain action was filed.  The owners were eventually awarded $4.6 million for the property.

Kenning reports that:

the historic site is slated to be demolished and replaced with low-cost housing units with stores at street level.

Photo Credit:  Flickr, Whole Wheat Toast