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Three eminent domain cases show corporatism in action

So the dialling for dollars campaign is under way in U.S. municipalities. I’m talking about the use of eminent domain laws to dispossess property owners of property in order to make way for luxury facilities. This is an ongoing process I expect to get worse as cash-strapped municipalities figure out how to close budget gaps. There are three recent cases that I want to highlight. But first, here’s some history.

I first wrote about eminent domain and luxury building in 2009 regarding an eminent domain case in the New York City metropolitan area. In the first case in November 2009, I profiled how New York was to use eminent domain to build a basketball stadium". A month later I gave a reminder about eminent domain and government power regarding eminent domain efforts by the Florida Department of Environmental Protection. Both of these cases were made vastly easier by the landmark Kelo v. City of New London case in which the Supreme Court sanctioned the seizure of privately-held property to build luxury facilities and decrease urban blight.

Robert Moses

My interest in eminent domain was first stirred when living in the Cobble Hill section of Brooklyn over a decade ago, I started reading Robert Caro’s Pulitzer Prize winning book "The Power Broker" about Robert Moses. Never elected to any public office, Moses was a master builder who used eminent domain laws to recreate both New York State and the New York City metropolitan area over a forty yar period in the mid-20th century. I happened to have lived near two of his signature eminent domain projects.

When I lived in Brooklyn, I used to roller blade a lot throughout the borough and it gave me a great appreciation for Brooklyn. It always pained me to see how Cobble Hill was artificially separated from the Red Hook area of Brooklyn by  a massive super highway, the Brooklyn-Queens Expressway. I noticed that the property on either side of the highway was identical in physical construction style. But the property in Red Hook which abutted the old Brooklyn docklands, was dilapidated and run down.

I immediately knew the reason, having looked for property in London near the A40 Westway and seen the same results of urban planning: identical housing infrastructure, but clear separation of neighbourhoods by the roadway and a massive difference in upkeep and appearance. Try walking around the two Edgware Road stations on opposite sides of the A40 to see what I mean. Red Hook has since been partially rehabilitated, but remains physically cut off from the rest of Brooklyn.

This is how the Red Hook separation was created:

"(Moses) could have run it down Van Brunt Street by the water, but he didn’t," Camille Sacco said of the Brooklyn-Queens Expressway. Instead, Moses shoved it through Hicks Street and bisected Sacco’s Red Hook neighborhood, in connecting the Brooklyn Bridge with the Brooklyn-Battery Tunnel. The story was different in nearby Brooklyn Heights, whose more affluent and influential residents were able to win design concessions from Moses that the poorer, mostly Italian-immigrant Red Hook residents could not.

Brooklyn Heights remained intact, as the expressway was moved four blocks to the west and redesigned into a bluff-hugging, double-level roadway topped by the Promenade and its magnificent Manhattan panorama. Red Hook got a below-ground, open-cut highway that still pours pollution into neighborhood streets.

"They got the Promenade and we got the shaft," said Red Hook activist Celia Cacace.

"What can you do?" said Joe Tomo, who ran a Red Hook candy store once midblock on Union Street that now stands alongside the expressway. "These were mostly immigrants here who were afraid they might get deported if they protested. You can’t fight City Hall."

And Robert Moses was City Hall.

-Brooklyn-Queens Expressway, Historic Overview – NYC Roads

This was class discrimination, of course. If you read the Caro book you will see that eminent domain cases are replete with examples of class discrimination of this sort.

A decade earlier, in the early 1990s I had lived on the Upper West Side on Columbus Avenue. Back then, the area above 86th Street between Central Park West and Broadway was still pretty dodgy but was slowly being rehabilitated. Back in the Moses days, however, this area was a slum. The beautiful town houses were so run down that Moses declared the area ‘blighted’ and demolished a huge swathe of townhouses to make way for the luxury Park West Apartments complex which abuts Central Park West.

The wonderful book on late 20th century New York architecture New York 1960 describes how this transpired:

In 1951 Robert Moses, in his capacity as City Construction Coordinator and chairman of the city’s Committee on Slum Clearance, sent to the Board of Estimate a proposal for Manhattantown, a slum clearance project for the site bounded by Central Park West, Amsterdam Avenue, West Ninety-seventh and West 100th streets… In 1952, the site, consisting of dilapidated garage structures as well as run down apartment houses, tenements and rowhouses, most of which had been converted to single-room occupancy [bedsits in the UK], was acquired under Title I of the Housing Act of 1949. The relocation problems posed by the site were vast, yet Moses made light of them, as he did in most of his slum clearance projects.

That’s how it went down in the 1950s. Park West, which was developed after the slum clearance, is built on the now out-dated and bombastic scale of large scale apartment projects of the mid-20th century. It is completely at odds with the construction style of everything around it, a monument to government power and corporatism.

Here’s Moses’ New York Times obituary for you history buffs.

So what’s happening in the three cases today?

National City, California

Ilya Shapiro at Cato writes:

First, National City, California, is ground zero for eminent domain abuse.  City officials declared several hundred properties blighted even before conducting a blight study that was riddled with problems. The city wants to seize and bulldoze a youth community center (CYAC) that has transformed the lives of hundreds of low-income kids, so a wealthy developer can build high-rise luxury condos

We can look to the Park West incident 60 years ago to know how this one will end.

Mount Holly, New Jersey

Shapiro goes on to point out another case in New Jersey, writing:

Mount Holly is another classic case of "Robin Hood-in-Reverse."  Officials have been dismantling a close-knit community known as the Gardens for the last decade so a Philadelphia developer can bulldoze the area and build more expensive residential properties.

Homeowners in the Gardens are primarily minorities and the elderly.  The row-style houses are being torn down while still attached to occupied homes, and officials refuse to offer the remaining homeowners replacement housing in the new redevelopment.  Further, owners are being offered less than half the amount it would cost to buy a similar home blocks away.

Here, IJ just launched a billboard campaign and did a study that concludes the eminent domain abuse project may result in a loss of a million taxpayer dollars a year, or one-tenth of the Township’s budget.

-March Madness: Eminent Domain Abuse Goes Coast-to-Coast | Cato @ Liberty

These cases seem like classic examples of government’s abuse of power now institutionalized by Kelo. The uncontested beneficiaries are the developers. The municipalities actually may not benefit. Take the Kelo case which set off this land grab, for example:

In September 2009, the land where Susette Kelo’s home had once stood was an empty lot, and the promised 3,169 new jobs and $1.2 million a year in tax revenues had not materialized. The land was never deeded back to the original homeowners, most of whom have left New London for nearby communities.[2]

In addition, in September 2009, Pfizer, whose upscale employees were supposed to be the clientele of the Fort Trumbull redevelopment project, completed its merger with Wyeth, resulting in a consolidation of research facilities of the two companies; both companies had a major presence in southeastern Connecticut for many years, meaning that only one facility would likely survive the merger. Ultimately, Pfizer chose to retain the Groton campus on the east side of the Thames River inherited from Wyeth, closing its New London facility in late 2010 coinciding with the expiration of tax breaks on the New London site that would have increased Pfizer’s property tax bill by almost 400 percent.

-The promised economic benefits fail to materialize, Kelo v. City of New London – Wikipedia

Atlantic Yards

And going back to the Atlantic Yards case which was the first one I wrote about in 2009, we now have evidence of alleged corruption. And again, the municipality may not benefit as the developer has  yet to secure financing for the luxury project.

The wide-ranging federal complaint that accused state Sen. Carl Kruger and others of corruption on Thursday also shed light on the persistent attempts by one of New York City’s biggest real-estate developers to secure more government subsidies for its signature project.

In a December 2010 conversation caught on wiretap, Mr. Kruger told a staff member that an executive at Forest City Ratner Cos. had asked him for $9 million in additional state aid for the Atlantic Yards project in Brooklyn, where a Nets basketball arena is under construction.

The request for the money—which would help fulfill Forest City Ratner’s obligation to rebuild the Carlton Avenue Bridge—was not fulfilled, according to the complaint filed in Manhattan Federal Court.

But it illustrated the company’s scramble to round up money for the project, even as construction of the centerpiece arena is under way.

Forest City Ratner was not accused of wrongdoing in the complaint.

In November, Forest City Ratner asked the city for an additional subsidy for its first residential tower in the project, citing a tough lending market that prevented the company from starting construction, according to multiple people familiar with the discussions.

More upfront equity was needed, the firm said, requesting $10 million in direct aid.

The request was denied in an email sent by the city’s housing commissioner, Rafael Cestero, the people said.

The 400-unit tower has fallen behind schedule.

Initially pledged to start construction by late 2010 or early 2011, the firm now has selected an architect, and it says it aims to start construction by the end of the year, though it still has yet to secure necessary financing.

-Atlantic Yards Efforts in View In Kruger Case, WSJ

That’s a good round-up of what eminent domain is all about. As with the landmark corporatist Supreme Court decision in the Citizens United case, Kelo will have far-reaching consequences for decades to come.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.