Corporate Welfare: For The Good of the Public

Posted: September 29th, 2009 | Author: Chris Jirau | Filed under: Current Events, Political & Social Issue | Tags: Bruce Ratner, condemnation, corporate welfare, Dana Berliner, eminent domain, Empire State Development, Forest City Ratner Companies, Goldwater Institute, Gustav Peebles, Institute of Justice, Levin College of Urban Affairs at Cleveland State University, Mark Brnovich, Mark S. Rosentraub, New Jersey Nets, New York City, New York City Economic Development Corporation, Professor Roger Noll, public use, Robert Moses, Stanford University, The New York Stock Exchange, The New York Times, urban renewal | No Comments »

Not since the days of Robert Moses has the use of eminent domain been such a relevant issue amongst residents of New York City. The controversial New York state and municipal official who determined public works projects of the 1930s, 1940s and 1950s, helped transform the urban setting of New York City, constructing such public works projects as the Triborough Bridge, the West Side Highway, Shea Stadium and Lincoln Center; but not without scrutiny.

Though Moses erected numerous important parkways, bridges, and tunnels linking the boroughs of New York City, as well as building hundreds of new playgrounds and parks that we now appreciate, by the late Fifties, there was a strong public reaction to Moses and his aggressive urban reconstruction. He resigned from his city positions in 1959. 

Through condemnation and eminent domain, planners, architects, engineers and investors are able to attain pre-occupied land in agreement that it is for “public use.”

Condemnation is the declaration of land as being exchangeable to public use under the right of eminent domain. Eminent domain is the right of a government to take private property for public use by virtue of the superior dominion of the sovereign power over all lands within its jurisdiction. In other words, the government has the ability to seize land as long as the public has the ability to benefit from it. Resistance is futile.

Though most would associate “public use” with the construction of courts, highways, bridges and prisons, over the years, the definition has taken on a broader meaning.

Mark Brnovich, director of the Center of Constitutional Arts at the Goldwater Institute in Arizona, an independent research and educational organization studying public policy, believes eminent domain is a long abused policy that’s fiscally motivated.

In his June 14, 2004 Policy Report, No. 195, he states that, “The definition of what constitutes a ‘public use’ has expanded to include privately owned economic development projects because of the supposed benefits of additional jobs and increased tax revenue…property rights advocates view eminent domain abuses as corporate handouts in the guise of economic development.”

Brnovich also says that eminent domain is being manipulated in order to transfer private property from one owner to the next, abandoning public interest.

“Although there are legitimate reasons for invoking eminent domain, the current practice of condemning private property in the name of redevelopment is rarely about building public infrastructure and regularly about turning areas that produce little tax revenue into high revenue generators.”

According to the Institute of Justice, which is the nations only libertarian public interest law firm, there is no official database of condemnations for private property. Most private condemnations go entirely unreported in public sources. 

In Connecticut, for example, court records indicate 543 redevelopment condemnations from 1998 through 2002 but only 31 cases were found reported in newspapers.

Dana Berliner, a senior attorney at the Institute of Justice who is currently lead counsel in a due process challenge to New York’s eminent domain procedure law, has written a report that documents and measures the uses of eminent domain for private parties nationwide, totaling in at over 10,000. A first of its kind, this report was compiled of published accounts and court papers covering a five-year period from January 1, 1998 through December 31, 2002.

Ms. Berliner’s report, Public Power, Private Gain, indicates that there are over 3,000 properties with condemnations filed nationwide, which signify the amount of times that the government, or private parties, filed actions in court to attain private property for the benefit of a private party.

There are over 6,000 properties nationwide threatened with condemnation, which indicate the amount of properties the government may obtain through eminent domain for the benefit of a private party.

Although 41 states have reports of actual or threatened condemnations for private parties, there are 9 states with no reports of either actual or threatened private use of condemnations.

In New York, between 1998 and 2002, there have been at least 14 private use projects, eliminating around 57 businesses.  In the past five years, numerous businesses have been condemned in order to make room for The New York Times, Costco, Stop & Shop, and the New York Stock Exchange.

A published notice is the only announcement to owners in challenging a condemnation, but Berliner says the challenge period ends before the owner receives a formal letter. 

 “The New York state legislature recently considered a number of bills that would have changed the state’s decidedly pro-condemnation eminent domain laws. Three competing bills would all have strengthened the rights of property owners by requiring delivery of written notice to owners prior to public hearings regarding condemnation of their property, and one would have required notice of the approval of the condemnation power. These bills died before any could pass the legislature.”

The State Legislature passed a bill a few years ago to modify this procedure but then Governor George Pataki vetoed it.

The detailed report also cites specific cases in New York in which eminent domain and condemnation have been used to displace families and businesses.

Empire State Development (ESDC) condemned an entire Time Square city block on Eighth Avenue between 40^th and 42nd Streets for the new 52-story office tower for The New York Times.  The project required demolishing and condemning 10 properties and a parking lot.

William and Stratford Wallace, whose family has owned the property at 620 Eighth Avenue since the turn of the 20^th century, recently spent over $3 million refurbishing the six-story building.  Along with other residents, flourishing businesses and the Sussex House dormitory, the Wallace property was eliminated for the Times.

The New York Stock Exchange (NYSE) enlisted the help of the New York City Economic Development Corporation (NYCEDC) in acquiring a new location in lower Manhattan.

NYSE considered leaving New York if the city did not accommodate their needs.  They eventually decided on a location across the street from its current location, although two J.P. Morgan buildings occupied it, along with a Rockrose Development building and two properties owned by the Wilf Family.

The New York City Economic Development Corporation claimed that the departure of NYSE would be damaging to the city and state and that erecting a new building would augment Manhattan’s position as a worldwide financial center.

The EDC eventually began the process of condemning an apartment building at 45 Wall St in January 2001.  The tenants association of 45 Wall St. challenged the agency’s construction plans, but in October 2001, a states appeals court agreed that this project would largely benefit the public.

Since September 11, 2001 though, the NYSE project has been halted. The past administration was unable to find a developer to build a huge skyscraper in lower Manhattan. 

The City still owns the property requested by NYSE but while they decide what they want to do, the EDC has returned ownership back to the original owners, although the City will pay $1 million a month in rent until 45 Wall St. is fully leased.

The city and state have also agreed to contribute $200 million, collectively, in infrastructure towards the proposed Brooklyn Nets basketball arena, although most economic studies indicate that sports facilities lose money and eventually have to be subsidized, in which tax-payers are left with the hefty tab.

Gustav Peebles, a Columbia University researcher, co-authored a report with Jung Kim, an urban planner from the London School of Economics, on the possible impacts of the arena.

“The developer will utilize the threat of eminent domain from the state in order to obtain land that he could readily buy on the open market.  For the remaining land, we will receive a no-bid contract for the state property in the form of the MTA rail yards, again bypassing the market at taxpayer expense.”

Peebles and Kim foresee the project causing a net loss to New York City and State taxpayers of up to anywhere from $115.2 million to $506.2 million, despite Forest City Ratner Companies’, headed by developer & New Jersey Nets owner Bruce Ratner, claim that the project will bring the city and state $812.7 million. 

Peebles, a Fort Greene resident, believes that the real matter at hand is the issue of corporate welfare. 

“The ways in which a small handful of America’s most wealthy people have managed to hold cities hostage for inordinate funds, and if you look at the processes throughout America, this always occurs by subverting normal democratic processes and safeguards against governmental abuse that are in place to protect the citizenry.”    

Professor Roger Noll, a professional economist from Stanford University, says that the approach of urban renewal is a two-step process. 

One, condemnation lowers the acquisition cost and allows all of the land to be taken at once, rather than through a large number of dealings over a long period of time. Secondly, tax breaks are given when a more valuable development is to be built on an area in ruins, while possibly decreasing public services necessary. 

“If the city condemns the land, it vastly reduces the costs of acquiring it…and it allows all of the land to be acquired at once. The tax breaks are premised on the notion that replacing a dilapidated area with a far more valuable development would, all else equal, increase the tax base while perhaps lowering the public services required.”

“Hence, inducing the development by promising a period of lower taxes can be a win-win for the city and the developer,” said Noll.  “Thus, the answer is not so much predictability as total cost to the developer and the city.”

Urban renewal has given way to economic development and now focuses on small areas of a neighborhood in hopes of bringing in new businesses, while also relying on significant taxpayer subsidies to supplement land acquisition. 

Though condemnation has the potential to revitalize a neighborhood, the question has to be asked whether the construction of the arena will ultimately benefit the neighborhood or just the businesses involved.

Condemnation is either viewed as being more predictable than forcing companies to buy property on the open market, for that there are no bidding disputes or difficulties, or just expensive and time consuming, in which tax-payers wind up paying the ultimate price over long periods of time.

“There is a chicken and egg issue here, as always,” says Mark S. Rosentraub, dean of the Levin College of Urban Affairs at Cleveland State University.  “How do you pay fair market price but not speculative prices as people seek to force up the price knowing that the development is coming?”

“Balance is the key,” says Rosentraub. “There has to be sufficient economic space to build both market rate and affordable housing so that neighborhoods remain just that, neighborhoods for everyone.”

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