California Eminent Domain Report : a blog following condemnation, inverse condemnation, and regulatory takings written by attorneys with Nossaman LLP.

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. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last week, we sent out a blog post with a number of quick updates on right-of-way-related issues making headlines across California.  Rick thought it would be a cool idea if we made this type of post a weekly habit, so here it goes (and, if it doesn't work or happen every week, obviously blame Rick):

• City of Visalia Can't Negotiate With Property Owner:  Here's an interesting story.  According to an article in the Visalia-Delta Times, "Visalia moves to take land near St. Johns," the City of Visalia is using eminent domain to acquire property necessary for a walking trail.  So what makes the story interesting?  The property is apparently owned by a governmental agency -- the Tulare County Levee District One -- whose managing agency has been inactive since 2005.  As a result, the City has no one to negotiate with to acquire the property, and therefore intends to serve the condemnation complaint by publication and thereafter acquire the property by default judgment.
• ALI-ABA Conference This Weekend:  For those of you who are eminent domain practitioners, just a reminder that the ALI-ABA Annual Eminent Domain Conference will be taking place this Thursday through Saturday in San Diego.  I know my colleague Rick Rayl will be attending, and our friend Robert Thomas from Hawaii will also be presenting.  Check out his blog, www.inversecondemnation.com, for more details on the conference.
• Updated Appraisal Institute Book for Appraising Convenience Stores:  For our appraiser friends, just a quick note that the Appraisal Institute has finalized its second edition of the treatise, “Convenience Stores and Retail Fuel Properties: Essential Appraisal Issues.”  There's a significant focus on gas station properties, so if you have or anticipate assignments involving these issues, be sure to grab yourself a copy from the Appraisal Institute. 

If you like this type of weekly, short-story update, let us know.  We'll continue to provide more substantive posts on important topics, but if this type of update seems to go over well, stay tuned for similar weekly updates.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

With the elimination of redevelopment agencies in California, we've been spending quite a bit of time lately discussing the impacts of Proposition 13 on California's budget woes as government agencies continue to fight over a slice of the shrinking property tax budget pie.  Proposition 13 has led to another interesting property valuation battle between county tax assessors and petroleum refineries, and the California Court of Appeal recently issued a published decision, Western States Petroleum Association v. State Board of Equalization, settling the dispute.

Prop 13 Background:  By way of background, Proposition 13 -- enacted in 1978 -- provides that real property taxes shall be based on the property's acquisition price (the "base year value"), and such amount cannot be increased more than 2 percent per year.  It essentially changed our real property tax system from one based on the current market value of the property to one based on the acquisition value of the property, plus an allowable increase over time.  Shortly thereafter, Proposition 8 was adopted to amend Prop 13 and make clear that if property values decline below the taxable indexed value, the taxable value may be adjusted down to reflect the property's fair market value.

Valuation of Land, Improvements & Fixtures:  In order to implement Prop 13, the State Board of Equalization (SBE) then adopted Rule 461, which provides that land and improvements shall constitute an appraisal unit, and fixtures, equipment and other improvements pertaining to the realty shall constitute a separate appraisal unit.  Ignoring our recent real estate recession, this valuation methodology created a perfect world for industrial property owners:  on the one hand, as property values continued to rapidly increase, property taxes were subject to the Prop 13 cap; on the other hand, as fixtures and equipment continue to depreciate over time, property taxes on these items had no floor.  Thus, industrial property owners could actually see their property taxes decline despite a surging real estate market.

The Litigation:  Not too happy with this valuation approach, in 2007 (the market peak), the SBE adopted Rule 474, which directed county tax assessors to start treating land, improvements, and all fixtures and equipment as a single appraisal unit for petroleum refineries.  This would, of course, mean that all the depreciation of the fixtures and equipment would be wiped out by the increasing property tax values (meaning refineries' property taxes would increase).  Petroleum refineries fought back and filed a lawsuit challenging the SBE's new regulation.

The trial court declared that the SBE's new regulation did not pass constitutional muster, as it violated Prop 13 and contradicted the SBE's own regulations.  On appeal, the Court agreed, holding that the SBE's proposed regulation would

allow for the adoption of new valuation formulas by which the framework governing real property could be manipulated to avoid the restrictions on real property taxes imposed by the voters when they approved Prop. 13 and Prop. 8.

So, petroleum refineries win.  This is good news for industrial property owners across the State; if the court had upheld this regulation, it's probably not much of a stretch to think the SBE might turn to other types of properties in another effort to collect more taxes.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 Here's a few updates on eminent domain-related issues taking place in California this week:

• City of Covina Condemnation:  According to an article in the San Gabriel Valley Tribune, Covina using eminent domain to take property from Alhassen-controlled company, the City of Covina has filed an eminent domain action to acquire a vacant, half-acre property owned by West Covina-based developer Ziad Alhassen.  The City intends to utilize the property for parking for police department employees and County firefighters.  The condemnation action was necessary after the City and the owner apparently had a "huge gap" in their appraised values for the property.  
• Pasadena Sees Impact of Elimination of Redevelopment:  Curbed Los Angeles is reporting in its article, Post-Eminent Domain Seizure, Pas Doesn't Have the Cash to Fix Up Old Julia Morgan YWCA Building, that after the City of Pasadena filed an eminent domain action to acquire the old Julia Morgan YWCA Building (see our previous post), the City is now in a quandry in deciding what to do with the property once the action is resolved.  With the elimination of redevelopment in California, the City won't have the money it needs to restore the building.
• Lake County Moves Forward with Sewer Project:  The Lake County Record-Bee is reporting in its article, Sewer pipeline project approved, that the Lake County Sanitation District has adopted a resolution of necessity to acquire property necessary for a wastewater sewer pipeline project in Clearlake.  The condemnations will involve partial acquisitions, and the construction contractor has been directed to work with property owners to minimize impacts.  
• Battle For Brooklyn Screening:  For those of you up in Nor. Cal. who haven't had a chance to catch the screening of "Battle For Brooklyn," here's your chance:  it's playing tonight at the Roxie Theater.  Check out our good friend Robert Thomas' blog, inversecondemnation.com, for details on the movie time and where to grab tickets.  Robert will actually be there to answer any questions you may have.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The California Court of Appeal recently issued an unpublished decision, Ridge Properties v. County of Riverside Flood Control and Water Conservation District, which addresses whether a government agency's failure to pay an agreed amount of compensation gives rise to a claim for inverse condemnation.  The answer is "no."

In Ridge Properties, a property owner planned to develop an industrial park in Riverside County.  The conditions of approval for the project required the owner to dedicate some of its property and construct a drainage or flood control facility to protect downstream properties.  The facility would benefit the County and other owners, so the parties entered into a reimbursement agreement so the owner would only be responsible for its fair share of the costs of construction.  Like many construction projects, plans changed and costs escalated, and the owner ended up footing a bill six times larger than initially anticipated.  The County then declined to provide reimbursement for the additional costs incurred by the owner.

Because the flood control district participated in the design of the drainage facility and ultimately took ownership and operated the facility, the owner sued the flood control district for inverse condemnation, claiming the district "took its property without just compensation" when the owner was required not only to develop the regional drainage facility but also to dedicate its property.

The trial court sustained the flood control district's demurrer to the complaint, and the Court of Appeal agreed, holding that the owner's claim is against the County for breach of contract, not against the flood control district for inverse condemnation: 

the fact that the flood control district "took" [the owner's] property when it took ownership of the storm drain facility does not . . . give rise to a claim for inverse condemnation.

The Court explained that a claim for inverse condemnation does not arise when one public entity contracts for infrastructure but fails to pay as agreed, and another public entity ultimately takes control of the infrastructure.  While it is true that the second public entity has obtained property without compensation, it was not the action of that entity which caused any damage that the owner suffered; rather, the owner's damages resulted from the contracting agency's breach of contract. Under those circumstances, the developer's recourse is against the contracting public entity, not against the public entity which ultimately took possession of the property.

The Court differentiated past cases where a government agency has extorted property or improvements without offering to pay for either, as in this case, the county offered compensation, which the owner accepted, but then refused to pay once the facility was completed.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

Here's a new one.  Imagine you have a government agency as your tenant, paying above-market rent, and the lease is set to expire.  The government tells you they're going to move to a new site, but they need to hold over for a while until the new site is built.  You figure, fine, the parties will just continue with the same rental rate until the government tenant moves.  Hey, what other option does the government have?  It would be incredibly expensive to find a temporary site and do a temporary move until the permanent relocation site is finalized.

This logic may work with any typical private-market tenant.  But this is the government.  What power does the government have that others do not?  You got it:  the power to condemn.  But could the government condemn a temporary leasehold interest in a building just because it can't negotiate a rental rate with the landlord?  This exact story is unfolding as I type in Sacramento.  

According to a News 10 story, "Feds use rare tool in Sacramento landlord dispute," the General Services Administration has been embroiled in a bitter dispute with its landlord in attempting to negotiate an eight month extension of its lease that just expired for its Military Entrance Processing Station.  The government had been paying $32 per square foot pursuant to its lease, but it doesn't want to pay more than $19 for its short-term extension as it prepares for a move.  Unable to negotiate an extension, the government has filed a federal condemnation action to acquire the needed 8 month lease.  It's made a deposit of $342,000, which it claims is the fair market value of the leasehold interest it seeks to acquire.  

You rarely see a story like this, but it appears there's a bit more behind the story.  The landlord recently sued the government, claiming its search for a relocation site had been "subversive, noncompetitive and secretive," which prevented the landlord from bidding to retain the government as a tenant.  So, perhaps the government's condemnation action is a trump card, or if nothing else, some sort of leverage to get the overall dispute resolved.

We'll see how this all shakes out.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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!).

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link