1
ABSTRACT
Since the United States Supreme Court incorporated economic development into the public use definition in the Takings Clause of the Fifth Amendment (Kelo, 2005), legal scholars have critiqued the expanding interpretation of the public use requirement. Broadening this requirement curtails American citizens’ property ownership rights and expands governments’ power of condemnation. Even though the Supreme Court has set a federal precedent, state courts still debate whether transferring properties from an owner to a private developer is a valid extension of the constitutional power or an augmented interpretation of the Fifth Amendment by local government agencies.
This project sets forth a framework to quantify and analyze the economic impact condemned commercial properties have on their surrounding communities. Economic impact is defined as the financial contribution that a commercial property generates in the form of revenues, property taxes, and employees. To quantify the economic benefits, I gathered, discounted, and averaged financial data for three commercial properties before and after condemnation. By comparing these results, I found that the first property generated more employees per square foot than the second properties and the second property produced more property taxes per square foot than the first properties. I was unable to conclude whether the first or second properties produced greater revenues per square foot. Similarly, analyzing two non-transferred properties enabled me to determine that some transferred properties produce more economic benefits than non-transferred properties. These inferences signify the need for a comprehensive economic analysis to determine a proper legal definition of the public use requirement.
2
TABLE OF CONTENTS
SECTION I: INTRODUCTION…………………………………………………..…………… 6
Background…….……………………………………………………………………………..……6 Problem….…………………………………………………….…………………………….…..…6 Organization of Paper………...…………………………………………………………….….…10
SECTION II: LITERATURE REVIEW……………………………………………………...12 Hypotheses…...……………………………………………………………………...... …….13
SECTION III: METHODOLOGY……………………………………………………………15 Calculate the Average Economic Benefit of Condemned and Transferred Properties…………...15 Calculate Average Economic Benefit of Condemned, Non-Transferred Properties………….….19 Comparing Economic Benefit of Transferred and Non-Transferred Properties……………….…20
SECTION IV: CASES OF CONDEMNED TRANSFERRED PROPERTIES…………….22 Case #1: Redevelopment Agency of the City of San Diego v. Ahmad Mesdaq……………….....22 Case #2: West 41st Street Reality v. New York State Urban Development Corporation………...23
SECTION V: CASES OF CONDEMNED, NON-TRANSFERRED PROPERTIES……...25 Case #3: 99 Cent Only Stores v. Lancaster Redevelopment Agency……………………….……25 Case #4: Bailey v. City of Mesa……………………………………………………………….…26
SECTION VI: RESULTS. …………………………………………………………………….28 Condemned Transferred Properties……………………………………………………………....28 Case #1. Gran Havana Transferred to Marriott………………………………………….28 Case #2: B&J Fabrics and Arnold Hatters Transferred to New York Times Company…31 Condemned Non-Transferred Properties………………………………………………………....37 Case #3: Bailey’s Brake Service…………………………………………………………37 Case #4: 99 Cent Only Stores………………………………..…………………………..39
SECTION VII: DISCUSSION…………………………………………………………………42 Condemned Transferred Properties……………………………………………………………....42 Revenues…………………………………………………………………………………42 Property Taxes. ………………………………………………………………………….43 Employment……………………………………………………………………………...43 Summary of Condemned Transferred Properties………………………………………..44 Condemned Non-Transferred Properties……………………………………………….………...45 Revenues…………………………………………………………………………………45 Property Taxes…………………………………………………………………………...46 Employment……………………………………………………………………………...48 Summary of Comparing Transferred and Non-Transferred Properties………………….48
SECTION VIII: CONCLUSION……………………………………………………………...50 Limitations of the Study…..…………………………………………………………………..….50 Significance of the Study………………………………………………………………….……...51
WORKS CITED…………………………………………………………………………..……53 3
APPENDICES…………………………………………………………………………………..57
LIST OF TABLES
Table 1. Summary of Results for Case #1…………………………………………………….…28
Table 2. Gran Havana Revenue Calculation…………………………………………………….29
Table 3. Marriot Revenue Calculation…………………………………………………………..29
Table 4. Gran Havana Property Tax Calculations…………………………………………….…30
Table 5. Marriot Property Tax Calculations………………………………………………….….31
Table 6. Summary of Results for Case #2……………………………………………………….31
Table 7. B&J Fabrics and Arnold Hatter’s Revenue Calculations………………………………33
Table 8. New York Times Company Revenue Calculations………………………………..…..34
Table 9. B&J Fabrics and Arnold Hatter’s Property Tax Calculations……………………….…35
Table 10. New York Times Building Property Tax Calculations……………………………….36
Table 11. Summary of Results for Case #3……………………………………………………...37
Table 12. Bailey’s Brake Service Revenue Calculations……………………………………..…38
Table 13. Summary of Results for Case #4…………………………………………………...…39
Table 14. 99 Cent Only Stores Revenue Calculation……………………………………………40
Table 15. 99 Cent Only Stores Property Tax Calculations………………………………….…..40
Table 16. Comparison of Economic Impacts of Transferred Properties……………………...…45
Table 17. Comparison of Economic Impacts of Non-Transferred and Transferred Properties…49
4
SECTION I: INTRODUCTION
Legal Background
Property rights are a foundation of the American legal system. The Fifth Amendment of the United States Constitution addresses the protections and limitations of these property rights.
“No person shall be…deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation” United States Constitution, Amendment V
The Takings Clause grants private property owners protection from condemnation - the process by which private properties are taken by the federal government and federal agencies. The
Fourteenth Amendment incorporates the Fifth Amendment Takings Clause and applies the protection to property owners whose property is taken by state and local governments and agencies. The protection is established by two principal requirements - public use and compensation. The compensation principal requires the government or agency to compensate the private property owner for a proportionate fair market value of their property. The public use principal requires the government or public agency to condemn (or take) the property only if the property is for public use. These two requirements protect citizens’ ownership rights and thereby limit the government’s authority to take property from private landowners.
Current Problem
Although the Constitution imposes limits on a government’s eminent domain power, the court system has broadened the definition of “public use” over time. This evolution has severely curtailed American citizens’ property ownership rights and expanded governments’ power of condemnation (Mikkelsen, 2007; Leung, 2003; Portner, 1988; Berger, 1978). Initially, public use permitted government agencies to take private property for the purposes of building publicly used infrastructure (e.g. public schools, roads, hospitals, airports). During this time, 5 condemnation proceedings typically occurred only when necessary to build public works projects. Research shows little government abuse during this time (Eminent Domain Abuse
Nationwide, Appendix 1). However, in 1954, a city redevelopment agency challenged the limiting nature of the public use requirement. The rationale established in Berman v. Parker declared that public use now included any property use that substantially related to “public purpose” (Berman, 1954). The ruling expanded the interpretation of public use to include transferring properties to private developers. Therefore, any local community redevelopment agency could condemn and transfer land for the purpose of economic redevelopment so long as the area met the local agency’s minimum definition of “blight.” This expansion of power led to an increase in economic redevelopment condemnation proceedings throughout the nation
(DeLong, 2010).
The public use requirement then evolved from “public purpose” to property used for any
“public benefit” in Kelo v. City of New London. In 2005, the Supreme Court decided that Susan
Kelo’s residence was legally condemned by the local redevelopment agency, who partnered with the New London Development Corporation, to implement a “comprehensive redevelopment plan, which promised 3,169 new jobs and $1.2 million a year in tax revenues” (Kelo, 2005;
Nelson, 2009). After a long and bitter legal battle, Kelo’s property was condemned by the redevelopment agency and then transferred to the New London Development Corporation.
Following the compensation requirement, the government compensated Kelo for her property and moving expenses. However, the private developer’s plans never came to fruition, ultimately transforming Kelo’s property into a city dump (Nelson, 2009).
The United States Supreme Court’s ruling set a national precedent for the public use requirement (Lefcoe, 2008). The transfer of condemned properties from private landowners to 6 local redevelopment agencies and then to private developers for the purposes of economic development was now legal (Kelo, 2005). The rationale for the transfer was that “the development plan served a public purpose and therefore constituted a public use under the
Takings Clause of the Fifth Amendment” (Kelo, 2005). The Court reasoned that economic development is a traditional government function so where a city or redevelopment agency carefully determines economic development is necessary, the court must defer to the legislature.
Justices O’Connor, Rehnquist, Scalia, and Thomas dissented, arguing, “the Court has so greatly expanded the definition of public use that it now includes virtually all exercises of eminent domain” (Kelo, 2005). Mikkelsen, a legal scholar, believes that “the dissent pointed out that nearly all takings benefit the public in some way. Because large private companies could use private property in a more lucrative way, the majority’s reasoning would create a standard under which no private property would be truly safe…the Court was effectively removing any constitutional impediment to the use of eminent domain” (Mikkelsen, 2007; Kelo, 2005).
After the Court set this federal precedent, more local development agencies across the
United States used their eminent domain power to form partnerships with profitable developers
(Mihaly, 2005). These agreements seemed favorable to both parties because the private developers promised profitable, mixed-use properties, guaranteed to increase the local tax base, lower unemployment, and produce large revenues for the city. Private developers benefited by obtaining sizeable contiguous plots of land and by purchasing the land at a subsidized cost or with tax incentives. However, these two parties failed to account for the infringement upon landowners’ ownership rights. Under this new rule, government agencies had legal authority to take any private property from an individual for local economic development. This issue became 7 especially prevalent when residences were taken from long-time homeowners and replaced with private, commercial developments (e.g. Poletown, 1981).
In response to the increase in condemnation proceedings across the nation, states have either supported the Kelo rationale by using the state court system or undermined the rationale by passing legislation to protect property owners. The states derived the power to interpret the public use requirement from the Kelo opinion’s legal verbiage. This created non-uniform property rights across states, granting citizens different property protections depending upon their state of residence. In 2012, forty-three states have passed protective legislation to quell the government’s use of their eminent domain rights (Dana, 2006; 50 State Report Card; Appendix
2).
Legal scholars have critiqued the expanding scope of the public use requirement since the ruling, declaring that economic development should not fall within the scope of the public use requirement (Somin, 2006). Many scholars agree with the claim and further extrapolate negative future consequences from the expanding interpretation, specifically, socio-economic and political externalities (Kelly, 2006).
“Such condemnations allow politically powerful interests groups to capture the condemnation process for the purpose of enriching themselves at the expense of the poor and politically weak” -Ilya Somin, Controlling the Grasping Hand: Economic Development Takings After Kelo
“This reform movement privileges the stability of middle-class households relative to the stability of poor households and, in doing so, expresses the view that the interests and needs of poor households are relatively unimportant” -David A. Dana, The Law and Expansive Meaning of Condemning the Poor After Kelo
To date, many scholars have legally analyzed the Kelo decision without justifying their arguments with economic analyses. It is important to conduct economic analyses because 8 economic research will only strengthen the rationale of the law when deciding cases (Field,
1999; MacKaay, 1999). This economic reasoning applied to the law became popular in the
United States when Richard Posner theorized that “all rules of the traditional common law reflected such an efficiency logic…avoiding waste or maximizing the wealth of society”
(MacKaay, 1999). Economic scholars then realized that “rights were contingent upon economic… conditions” (MacKaay, 1999) and therefore, lawyers and economists should integrate both types of research to better support legal and economic claims.
Due to the importance and lack of economic analyses of the government’s eminent domain right, it is necessary to quantify and analyze the economic impact that condemned transferred commercial properties have on their surrounding regions. The analysis will justify or challenge whether a property, transferred using the power of eminent domain, economically benefits the property’s surrounding community more than the past commercial property. In order to justify the court’s recent Kelo decision, this study first looks at the average benefits (in the form of revenues, property taxes, and employment figures) of two commercial properties that were condemned and transferred to private developers. After determining the net economic benefits that transferred properties produce, the study compares these transferred properties to those that were condemned by the government, but not ultimately transferred to a private developer. This average economic impact will determine if courts should continue to uphold the
Kelo ruling or if courts should scrutinize condemned transferred properties on a case-by-case basis. If the economic benefit of the transferred property is greater than the economic benefit of the condemned, non-transferred property, then the courts should be predisposed to use eminent domain for public benefit. Alternatively, if the economic benefit of the transferred land is less 9 than the economic benefit of the non-transferred land, then the court should more thoughtfully transfer land in condemnation proceedings.
Organization of Analysis
This paper began with an introduction to a relevant legal problem and the lack of economic analyses of the expanding public use requirement. Next, it explores current economic research pertaining to eminent domain and posits hypotheses. Section III explains the method and procedure for the research. Section IV details the facts, issues, and holdings of condemned transferred properties. Section V describes the facts, reasoning, and holdings of condemned non- transferred properties. Section VI presents the results for each of the properties by deriving average economic impacts in the forms of revenues, property taxes, and employee count. The discussion in Section VII determines whether economic benefits of condemned transferred properties are greater than or less than the economic benefits of condemned non-transferred properties. The conclusion (Section VIII) acknowledges the limitations of the study and discusses the need for future economic legal analysis.
SECTION II: LITERATURE REVIEW
There exists a large amount of research analyzing the legal aspects of the Takings Clause, specifically the compensation principle and the public use requirement. Philip Nichols, one of the first eminent domain scholars, comprehensively synthesized condemnation principles in multiple volumes of The Law of Eminent Domain. Both historic and contemporary legal researchers cite his work. Scholars developed Nichols’ research by specifically analyzing the public use element of eminent domain. Researchers tracked the history of how courts have interpreted the requirement by analyzing legal cases dating back to the mid-1800s (Portner,
1988; Liu, 2006). Two views emerged – the broad view (public use as public benefit) and the 10 narrow view (public use as “use-by-the-public”) (Portner, 1988). Noting the evolving precedent, legal scholars focused on the consequences of the Supreme Court’s expanding interpretation of the public use requirement. (Dana, 2006; Kelly, 2006; Lefcoe, 2008; Liu, 2006; Mihaly, 2005;
Mikkelsen, 2007; Somin, 2006). More recently, scholars detail and criticize individual state courts’ holdings and rationales. For example, Suzanne LaBerge determined that Florida courts ask two questions to determine the outcome – “is the purpose of the project primarily public? If so, is this project necessary to further the public purpose?” (LaBerge 1985, p. 663). Similarly,
Jarrett Szczesney analyzed multiple ‘condemnation for the purpose of economic development’ cases, arguing that New York state courts “no longer look to the balance between public and private benefit” and instead focus on establishing a “trivial amount of public use” (Szczesney,
2012).
Building upon traditional legal eminent domain research, Patricia Munch economically analyzed the compensation requirement in 1976. She discovered that “prices paid under eminent domain may differ systematically from the ‘fair market value’” depending upon the value of the property (Munch). Yun-chien Chang specifically studied compensations paid to landowners whose properties were condemned in New York City between 1990 and 2003, finding that
“condemnees were usually overcompensated by the court, and that condemnor’s offered value is usually closer to the estimated fair market value” (Chang, 2001, p. 409). In response to these economic imbalances, researchers Lehavi and Lichet recommended alternative solutions to the unbalanced compensation. In Eminent Domain, Inc., the scholars propose compensation to condemnees in pro rata shares of the new property (Lehavi, 2007).
Due to the dynamic and fluid nature of the interpretation of the public use requirement, scholars are given many opportunities to test its application, consequences, and validity. It is 11 evident that over time scholars have shifted their studies from purely legal analyses to general economic analyses. However, current economic analyses of condemnation primarily focus upon the compensation requirement, efficient markets, and potential solutions to the financial imbalances. Therefore, it is necessary to conduct an economic analysis of a developing facet of the Fifth Amendment – the scope of the public use requirement.
HYPOTHESES
The current body of research, legal critiques, and state and federal court proceedings suggest that the economic benefits of condemned transferred properties are sometimes less valuable than the first property’s economic impacts. If sufficient economic research existed supporting a positive economic impact of properties condemned by state agencies and transferred to private developers, then the Supreme Court would have a better justification when deciding whether transferring these properties is within the scope of the public use requirement.
In terms of economic impact (the financial contribution that a commercial property generates in the form of revenues, property taxes, and employees), it is likely that revenues and property taxes are not always greater after condemnation and that the number of employees will be greater after condemnation. Revenues per square foot and property taxes per square foot may not be greater after condemnation because revenues do not solely depend upon how the owner uses the land, but rather the type, size, and popularity of the business. Moreover, property taxes heavily depend upon the value of the property (i.e. the number of square feet and levels) and therefore, the ratio per square foot of commercial space might be less than the prior property’s ratio. The number of employees per square foot will probably be greater after condemnation because local redevelopment agencies utilize their authority to transfer land to private developers typically when large, profitable businesses promise sizeable profits for the local government. 12
These large businesses generally employ more local workers and benefit the local government by paying higher corporate, sales, and income taxes. It is evident that condemning and transferring property from the government to a private developer significantly impacts the local economy in terms of revenues, taxes, and workers. Broadening the interpretation of the public use requirement becomes even more controversial with the rise in political and economic power of big-box retailers and residential real estate investment trusts in the United States.
SECTION III: METHODOLOGY
Calculate the Average Economic Benefit of Condemned and Transferred Properties
In order to find the net economic benefits that condemned properties contributed to their surrounding communities, I compiled a sample of two transfers. For purposes of comparison, the cases in the sample needed to meet the following requirements:
1. The property must have a filed, electronically accessible condemnation lawsuit.
2. The property was used for commercial purposes before condemnation.
3. The property was used for commercial purpose by a private developer after
condemnation.
4. The business had enough financial information available to estimate historical revenues,
property taxes, and employment figures.
I began researching controversial eminent domain proceedings using the LexisNexis
Academic database. After thorough review of many eminent domain cases, it became apparent that most cases dealt with the taking of residential property by the government or a public agency for commercial use by a private developer. To deduce and easily compare the economic impact of a property before and after condemnation, I chose to compare commercial properties, which produce annual revenues, pay property taxes, and hire employees regardless of the business’ 13 industry. Quantifying the economic impact of a residential property would likely produce only incomes and property taxes, which would make direct comparison to a commercial, revenue- producing property very difficult. Therefore, in order to find commercial property transfer cases,
I used the LexisNexis Academic database. I searched for ‘public use’ lawsuits by topic area. This narrowed the eminent domain cases to the public use requirement and separated all cases regarding compensation. Within the ‘public use’ results, I searched for ‘economic development.’
This further limited the cases to property takings by redevelopment agencies and then transferred the private developers. I read through the search results, selecting lawsuits that fit the aforementioned requirements and confirmed that the business had available financial data.
Finally, I narrowed the sample to two cases:
1. Redevelopment Agency of the City of San Diego v. Ahmad Mesdaq, 65 Cal. Rptr. 3d 372
(2007).
2. West 41st Street Reality v. New York State Urban Development Corporation, 744
N.Y.S.2d 121 (2002).
In order to assess the economic benefits generated by the new developments, I compared financial elements of each property before and after the transfer. These factors included:
1. Revenues ($) per square foot of property
2. Property tax revenues ($) per square foot of property
3. Number of employees per square foot of property
I chose these factors due to my limited access to historical financial information of the multiple private and public businesses chosen in this study.
I decided to compare the figures using per square foot units due to the varying sizes of properties before and after transfer. For example, the Gran Havana shop had revenues, property 14 taxes, and employees based upon 5,000 square feet of retail space, while the Marriott took the
Gran Havana’s 5,000 square feet to add to the 370,800 square feet of the neighboring hotel. The
Marriott’s annual financials were based upon the entire property, not just the 5,000 square feet of taken land. I used the entire building’s square foot total because the Marriott and the New York
Times Building produce such large revenues due to the space of the entire building. It is unlikely that these two businesses would generate such sizable revenues from a building the size of the footprint of the property. For accurate comparison, it was therefore necessary to convert all financial figures into per-square-foot-measurement.
Using Hoovers, ReferenceUSA, and MintUS databases, I collected financial information for both private and public companies. I used these databases once I realized that historical annual financial information was unavailable for many of the companies after consulting Ward’s
Business Directory, Lexis-Nexis Corporate Affiliations Book set, and multiple reference librarians. I attempted to collect financial information two years prior to the occurrence of the condemnation lawsuit, the year of the lawsuit, and two years after the new commercial property began operation. I chose the two-year time frame because it was extremely challenging to find historical financial data for each of the properties for more than two years before and after the lawsuits. Because the aforementioned sources only listed recent financial information, I completed further research to obtain the financial data. To obtain financial data for the public companies (Marriott and 99 Cent Only Store), I analyzed the 10K and annual reports, which contained limited employee, tax, and revenue information. I collected financial figures for the private, small businesses from the Lexis-Nexis legal proceedings (Gran Havana), local newspaper articles (New York Times Building), or by contacting the owners or managers of the current property (Bailey’s Brake Service LLC, Marriott). 15
Annual Revenues per square foot. I found current annual revenues of the two businesses from the ReferenceUSA, Hoovers, and MintUS databases. ReferenceUSA and MintUS sometimes listed historical revenues if the company continued to operate after completing their condemnation lawsuit. I obtained and analyzed five revenues – two annual revenues before the property was condemned, the revenue the year the property was condemned, and two annual revenues after the property was taken. Averaging the earliest three annual revenues (two years before condemnation and the year of condemnation) and dividing the average by the size of the building (the number of square feet the business operated on when it existed) generated an approximate economic impact in the form of revenues on the first property’s surrounding community. I used the two annual revenues after condemnation occurred to deduce the economic impact of revenues on the second property’s surrounding community. In some cases, the two proceeding years did not immediately follow the year of the lawsuit due to the second property’s construction timeline.
Because many owners were unwilling to provide historical annual revenue figures, I was unable to obtain certain figures for specific years. When this occurred, I discounted the figures that I was able to find to estimate annual revenues. I calculated revenue estimates using annual industry growth rates to obtain the year’s revenues needed for comparison. For example, to calculate revenues for the Marriott located in the Gaslamp District of San Diego for 2008 and
2009, I obtained 2011 revenue estimates from Hoovers, MintUS, and ReferenceUSA. I added the annual percent change to the revenue if the industry grew. Alternatively, I subtracted the annual percent change to the revenue if the industry declined. Although the data is not completely accurate, I believe that the figures are representative enough to deduce revenue inferences. After
I averaged the properties’ revenues and converted the revenues to revenues per square feet before 16 and after condemnation, I directly compared the two properties, determining if the revenues per square foot of the first property were greater than, equal to, or less than the revenues per square foot of the second property.
Annual Property Tax Revenues per square foot. To accurately assess the annual property tax revenues for the coinciding five-year period, I contacted the county assessor’s offices in the regions where the properties are or were located. Because most of the property tax databases do not show historical figures, it was difficult to acquire exact property tax figures. Therefore, I estimated property taxes by obtaining the current year’s tax amount from each property’s county assessor’s office database. Then I discounted the current total annual tax amount by the annual change in property tax rate in each county using the annual Commercial Property Price Indices
(Moodys). This information and a detailed explanation of the discounting technique are located in Section VI: Results. Then, I averaged each case’s property tax contribution and converted the taxes to taxes per square foot before and after condemnation. I directly compared the two properties, determining if the property taxes per square foot of the first property were greater than, equal to, or less than the taxes per square foot of the second property.
Number of Employees per square foot. A change in the number of employees in a local community directly impacts the economic benefits of a project. In order to assess the increase or decrease in employment after condemnation, I compared the number of employees at the old and new properties. I obtained employment figures using MintUS, ReferenceUSA, and Hoovers databases. MintUS and ReferenceUSA sometimes provided historical employee counts for specific properties. When accurate employee counts were unavailable, I used the available figure because annual employment percent changes by industry were negligible (IBIS). Lastly, I averaged the properties’ number of employees and converted the employees to employees per 17 square foot before and after condemnation, I directly compared the two properties, determining if the employees per square foot of the first property were greater than, equal to, or less than the employees per square foot of the second property.
Calculate Average Economic Benefit of Condemned, Non-Transferred Properties
In order to justify the state courts’ rulings, it was necessary to compare the net economic benefits of condemned transferred properties to properties that were condemned, but not ultimately transferred to private developers. I followed the aforementioned requirements and similar procedures to obtain the average economic benefit of each financial factor (i.e. revenues per square foot, property taxes per square foot, and employees per square foot) within this sample set. These cases in the sample also needed to meet the following characteristics:
1. The property must have a filed, electronically accessible condemnation (or inverse
condemnation) lawsuit.
2. The property was used for commercial purposes before condemnation.
3. The landowner won the lawsuit, which halted the taking.
4. The business had enough financial information available to estimate historical revenues,
property taxes, and employment figures.
After researching many condemnation proceedings using LexisNexis Academic, I narrowed down the sample to two variant properties. These properties and their respective lawsuits are described in detail in the proceeding section. The two condemned, non-transferred properties are:
1. Bailey v. City of Mesa, 76 P.3d 898 (2003).
2. 99 Cent Only Stores v. Lancaster Redevelopment Agency, 237 F. Supp. 2d 1123 (2001).
I analyzed each of these properties by obtaining revenue, tax, and employee financial figures two years before and two years after the condemnation proceeding. I followed the same 18 procedure as above to find an average economic benefit of condemned non-transferred properties.
Comparing Economic Benefit of Transferred and Non-Transferred Properties
By comparing the average economic benefits of transferred properties with the average economic benefits of condemned non-transferred properties, it is possible to either further justify or to challenge various courts’ condemnation rulings. After averaging each financial factor
(revenues, property taxes, and number of employees), I compared the averages of the non- transferred properties with the averages of the transferred properties. Section VII details whether the transferred properties’ averages were greater than, equal to, or less than the non-transferred properties’ averages.
SECTION IV: CASES OF CONDEMNED TRANSFERRED PROPERTIES
Case #1: Redevelopment Agency of the City of San Diego v. Ahmad Mesdaq (2007)
Facts. On April 27, 2004, the Redevelopment Agency of the City of San Diego adopted
Resolution Number R03766, which condemned Ahmad Mesdaq’s business, the Gran Havana
Coffee and Cigar Lounge, located at 502 J Street in San Diego, California. The property was located “between the Convention Center and the new ballpark” (Thorsnes, 2006, p. 9) in the
Gaslamp District and produced a profit of $333,000 in 2004. His business “had a growth rate of over 40% from 2003 to 2004” (Thorsnes, 2006, p. 9).
The Agency condemned the 5,000 square foot property for their partners, GRH, the developers of the neighboring 40,000 square foot Renaissance Marriott Hotel. GRH guaranteed
“to pay the acquisition costs and litigation expenses, associated with the Agency’s taking of private property for its personal profit” (Thorsnes, 2006, p. 2). The Agency and GRH entered 19 into this “unusual, for-profit” relationship “to acquire [the] property and then essentially give it to the developer” (Thorsnes, 2006, p. 70).
Issues. In order to obtain State Court approval for the taking, the Agency had to prove three elements: “(1) that ‘the public interest and necessity require the proposed project;’ (2) that ‘the proposed project is planned or located in the manner that will be most compatible to the greatest public good and the least private injury;’ and (3) that ‘the property described is necessary for the proposed project’” (Thorsnes, 2006, p. 10). Mr. Mesdaq’s lawyers argued that “the property sought to be condemned is not necessary for the proposed project” (Thorsnes, 2006;
Redevelopment Agency of the City of San Diego, 2007).
Holding. The Court of Appeal concluded that the Agency met the legal requirements for condemnation to proceed based upon Mr. Mesdaq’s reasonable compensation amount. Then the court condemned the Gran Havana Lounge and awarded Mr. Mesdaq $7,785,131.83 for his property, much more than his desired settlement amount of $6,200,000 and the Agency’s offer of
$4,000,000 (Thorsnes, 2006, p. 79). It is evident that the court awarded Mesdaq generous compensation for his property; however the court did not justify the transfer on the rationale that the Marriott property would produce more revenues, property tax dollars, and more jobs.
Case #2: West 41st Street Reality v. New York State Urban Development Corporation
(2002)
Facts. The New York State Urban Development Corporation (NYSUDC) condemned the block where 40th and 41st Streets intersect Eighth Avenue for redevelopment on September 24, 2001.
NYSUDC justified the condemnation on the basis of the area meeting the redevelopment agency’s definition of blight. NYSUDC partnered with Forest City Ratner Companies to build the 52-story New York Times Building on the 80,000 square foot parcel at a subsidized cost of 20
$84.95 million with a $29 million tax benefit. The partnership between the agency, Forest City
Ratner, and the New York Times Company was extremely controversial because the agency abandoned an alternative pending offer from a private developer offering to build a similar building at fair market value costs. Moreover, local taxpayers assumed the burden of paying the difference between the subsidy and fair market value of the New York Times Building, estimated at $79 million. The condemnation displaced the owner of the building and six business lessees, which include B&J Fabrics and Arnold Hatters - the two businesses analyzed in this study (Dunlap, 2001; Moses, 2002; West 41st Street Reality, 2002).
Issues. Federal precedent established that the “exercise of the eminent domain power cannot be for the sole benefit of a private party” (Thompson, 1937). However, in New York, public use is
“broadly defined” and must only be “rationally related to a conceivable public purpose” (West
41st Street Reality, 2002). The state courts also have a long history of ruling in favor of big businesses (Racketa, 2010; Szczesney, 2012).
To complicate the case further, the NYSUDC decided to keep the condemned land under state ownership and offer a ground lease for 99 years to the developer, Forest City Ratner, and the New York Times Company. Because title was not unconditionally transferred to the tenants, it was more difficult to prove that the developer and the New York Times Company assumed an unsubstantiated, subsidized private gain (Dunlap, 2001; Moses, 2002).
Holding. The highest New York court confirmed that the agency had the right to condemn and take the land from 41st Street Reality and lease the land to the developer and to the New York
Times Company. The court found that the “project is rationally related to a conceivable public purpose” because the “midtown Manhattan neighborhood” met the New York State Urban
Development Corporation’s definition of blight. Additionally, the court acknowledged, “even 21 though a private entity will benefit substantially from its involvement in the project…[it] does not call into question the use of eminent domain” (West 41st Street Reality, 2002).
SECTION V: CASES OF CONDEMNED, NON-TRANSFERRED PROPERTIES
Case #3: 99 Cent Only Stores v. Lancaster Redevelopment Agency (2001)
Facts. On June 25, 2001, the Lancaster Redevelopment Agency filed a petition to acquire the 99
Cent Only Store’s remaining lease. Costco, the 99 Cent Only Store’s neighbor, approached the agency in attempt to expand their current property in the Power Center, located on Central
Valley Road in Lancaster, California. Prior to the condemnation, 99 Cent Only store signed a five-year lease with an option to enter into a fifteen-year lease with the Center’s owner, Burnham
Pacific, at the end of the initial five-year lease. Costco, an additional anchor tenant in the retail center, threatened to leave the center and the city of Lancaster if the redevelopment agency could not acquire 99 Cent Only Store’s land for Costco’s future expansion. The sizeable sales and property tax revenues of Costco enticed Burnham Pacific and the Redevelopment Agency to persuade Costco to stay in the center and within the city limits (99 Cent Only Stores, 2001).
In order to obtain the 99 Cent Only Store’s property, Lancaster Redevelopment Agency offered $130,000 and relocation expenses to 99 Cent Only Stores to purchase the remainder of the lease in May 2000. After 99 Cent Only Stores refused to sell its leasehold interest, the
Agency filed a “Resolution of Necessity, which authorized the condemnation of the real property in which 99 Cents held its leasehold interests” (99 Cent Only Stores, 2001). The Agency derived its power to condemn properties that met the requirements of blight from California Community
Redevelopment Law and the local plan, entitled the Amargosa Plan. Thereafter, “Lancaster proposed to purchase from Burnham Pacific the property on which 99 Cents was located for approximately $3.8 million, relocate 99 Cents, and then sell the property to Costco for the 22 nominal price of $1.00” (99 Cent Only Stores, 2001). Although the Agency rescinded this proposal, 99 Cents Only Stores asked the court for enjoinment from Lancaster Redevelopment
Agency to protect the property from future condemnation proceedings by the agency (99 Cent
Only Stores, 2001).
Issues. The District Court had to determine (1) whether 99 Cent Only Stores could prohibit future condemnation proceedings filed by the Lancaster Redevelopment Agency and (2) whether taking the 99 Cent Only Store’s property was a valid extension of the public use requirement. At the time of this decision, the California Constitution mandated that “the State and local governments are prohibited from acquiring by eminent domain an owner-occupied residence for the purpose of conveying it to a private person” (Cal. Const., art. I, § 19b, 2012). At that time,
California courts had decided cases that sided with private developers (Lefcoe, 2008); therefore, the District Court had persuasive precedent to condemn the property.
Holding. The court sided with 99 Cent Only Stores and prohibited present and future condemnation by the Agency. Lancaster’s actions violated the Fifth Amendment’s public use clause because it did not serve a public purpose “other than to appease a purely private entity”
(99 Cent Only Stores, 2001). The court reasoned, “the evidence is clear beyond dispute that Lancaster's condemnation efforts rest on nothing more than the desire to achieve the naked transfer of property from one private party to another” (99 Cent Only Stores, 2001).
Case #4: Bailey v. City of Mesa (2003)
Facts. Randall Bailey filed an inverse condemnation lawsuit against the City of Mesa in
Maricopa County, Arizona to halt the development agency’s eminent domain proceedings against his family-owned business, Bailey’s Brake Service. The property was located between
County Club Drive and Main Street. The condemnation proceeding began on October 2002, 23 when Ken Lenhart, owner of Ace Hardware store, approached the city’s redevelopment agency to acquire the property. The agency derived its eminent domain power from the City Council’s
1996 proposal establishing the Mesa Town Center Redevelopment Area. Under these powers, the agency could condemn any property within the boundaries of the area. The agency granted the
5.22-acre plot to Lenhart and Palm Court Investments to construct a commercial retail center.
The agreement between the Agency and the private developers encouraged the agency to file a condemnation proceeding for Mr. Randall Bailey’s property (Bailey, 2003).
Issues. The Superior Court had to determine if the condemnation of Bailey’s property violated the Arizona State Constitution, “which provides: private property shall not be taken for private use, except for private ways of necessity” (Ariz. Const., art. II, § 17, 2003). The City of Mesa rebutted Bailey’s private use claim by stating that the property provided “substantial aesthetic enhancement…property values will increase; jobs will be created; and tax and utility revenues will increase. These public benefits are sufficient to satisfy the ‘public use’ requirement.”
(Bailey, 2003).
Holding. The Court of Appeals decided that the redevelopment agency’s action to condemn violated Article 2, Section 17 of the Arizona Constitution. Therefore, Bailey’s Brake Service could not be transferred to the agency and then to Costco. The court reasoned, “[T]he intended use of the property is fundamentally for private development. The developers and other private parties would be the primary beneficiaries rather than the public. The anticipated benefits to the public do not outweigh the private nature of the intended use” (Bailey, 2003). Moreover, this taking was not necessary “for the provision of public services or for reasons of public safety or health” (Bailey, 2003).
24
SECTION VI: RESULTS
CONDEMNED TRANSFERRED PROPERTIES
Case #1: Gran Havana Transferred to Marriott
Table 1. Summary of Results for Case #1
Revenues. The Gran Havana’s revenues averaged $768,207.80 before transfer. The lounge was profitable and produced $153.64 per square foot of retail space. This number is far larger than the Marriott’s $18.76 per square foot of hotel space (Table 1). The Marriott’s enormous size explains this large difference.
Revenue Calculations. Because the Gran Havana is a private business and the Marriott’s financial advisor refused to release financial data, it was difficult to obtain historical annual revenue figures. Therefore, I estimated Gran Havana’s annual revenues by discounting the 25 revenues that I was able to obtain (Thorsnes, 2006). To obtain an estimate for 2002, I simply discounted the 2003 revenue figure by the annual percent change in revenue from specialty retail store industry data (IBIS, Example of Industry Data in Appendix 3, Table 2). I implemented a similar discounting technique to estimate the Marriott’s annual revenues but instead used hotel industry data (Table 3).
Table 2. Gran Havana Revenue Calculations
Table 3. Marriot Revenue Calculations
26
Property Taxes. The Gran Havana’s property tax revenues averaged $0.47 per square feet. The
Marriott paid $2.93 property tax per square foot, which is greater than the Gran Havana’s economic contribution (Table 1).
Tax Calculations. Historical property tax statements are not available for non-property owners from the San Diego County Assessor (Unsecured Property Tax Details, 2011). Because only current property tax statements are available on the County Assessor’s website, I estimated historical property tax amounts multiplying the Commercial Property Price Index (for April of each year), which measures the price change of “U.S. commercial investment property market”
(Moodys; Green Street Advisors, 2012; Appendix 4) with the 2011/2012 property tax amount
(Tables 4 and 5). I assumed yearly assessments and proportional adjustments in value and tax payments.
Table 4. Gran Havana Property Tax Calculations
27
Table 5. Marriot Property Tax Calculations
Employment. The Gran Havana employed 0.0010 employees per square foot of space, which is greater than the Marriott’s number of employees per square foot, 0.0006. The reason for this is probably because the Gran Havana was a single-level commercial space and the Marriott is multi-leveled, which accounts for its large number of square feet (Table 1).
Case #2: B&J Fabrics and Arnold Hatters Transferred to New York Times Company
Table 6. Summary of Results for Case #2
28
Revenues. Two retail stores of 41st Street Reality, B&J Fabrics and Arnold Hatters, had reasonably profitable per square foot sales ($212.15) prior to the transfer to the New York Times
Company. Due to the massive physical size of the building and revenues produced by the various tenants in the New York Times Building, the revenues per square foot ($2,146.92) far surpass the two tenants’ revenues per square foot (Table 6).
Revenue Calculations. Again, it was difficult to obtain annual historical revenue data from the private businesses (B&J Fabrics and Arnold Hatters). Therefore, I estimated annual revenues by discounting the revenues that I found on MintUS and Hoover databases by the annual percent change in revenue in the industry. For B&J’s Fabrics, I used figures from the Fabric, Craft &
Sewing Supplies Stores industry and for Arnold Hatters I used figures from the Hat & Cap Stores industry (IBIS, Business & Company, Example of Annual Percent Change in Revenue in
Appendix 3, Table 7).
To estimate the New York Times Building annual revenues, I used a similar discounting procedure using the Newspaper and Commercial Real Estate industry guides. I used the
Newspaper industry revenue table to estimate the New York Times Company’s (52% property owner) historical annual revenues. I used the Commercial Real Estate industry revenue table to estimate the Forest Runner Company’s (48% property owner) annual revenues. I summed the revenues for the final estimate (Table 8).
29
Table 7. B&J Fabrics and Arnold Hatter’s Revenue Calculations
30
Table 8. New York Times Company Revenue Calculations
Property Taxes. The New York Times Building generated $16.72 per square foot of property taxes for its government. This figure is much larger than the $0.23 that B&J Fabrics and Arnold
Hatters used to produce (Table 6).
Tax Calculations. I was unable to access property tax records for my specific parcels in New
York County. Therefore, for B&J Fabrics, I estimated the historical annual tax revenues by first finding the pro-rata share that B&J Fabrics paid for its property compared to the entire building.
I found that B&J Fabrics occupied 17,000 out of 411,074 square feet of the building, which means that B&J Fabrics takes up about 4.14% of the property. I located the assessments for the entire building and discounted the 2005 taxable value (NYCServ eService Center, 2005) by the annual change in taxable values (Property Assessment Roll Archives) in New York City. This calculation generated the taxable value of the entire building for the years 2002, 2001, and 2000.
Multiplying these annual figures by the B&J Fabric’s pro-rata share produced the taxable income for B&J Fabrics, which was then multiplied by the New York City tax rate (Property Tax Rates and Charges) to yield the annual payment. I used the exact same procedure for Arnold Hatters
(Table 9). 31
Because the assessor website did not have a tax statement for the New York Times
Building, I used a comparable property, 666 Fifth Avenue to estimate annual property tax data. I chose the building at 666 Fifth Avenue because both buildings have approximately 1,500,000 square feet and the Property Assessment Roll provided the value of the property in 2011. I discounted this value by the annual change in market value for the years 2010, 2009, and 2008. I then multiplied these market value estimates by 0.45, which is the ratio of market value that New
York City incorporates into the tax figure (Property Tax Rates and Charges) and then I multiplied that by the New York City tax rate (Property Tax Rates and Charges, Appendix 5,
Table 10).
Table 9. B&J Fabrics and Arnold Hatter’s Property Tax Calculations
32
Table 10. New York Times Building Property Tax Calculations
Employees. The two retail stores employed more workers per square foot (0.0015) than the New
York Times Building employed (0.0003) due to the massive square footage of the New York
Times Building (Table 6).
33
CONDEMNED NON-TRANSFERRED PROPERTIES
Case #3: Bailey’s Brake Service
Table 11. Summary of Results for Case #3
Revenues. Bailey’s Brake Service generates $64.49 of revenues per square foot of space (Table
11).
Revenue Calculations. I discounted the 2011 revenue (Hoovers, MintUS) for Bailey’s Brake
Service by the annual change in revenues for the U.S. Auto Mechanics industry (IBIS, Table 12).
34
Table 12. Bailey’s Brake Service Revenue Calculations
Property Taxes. Bailey Brake Service annually pays approximate $0.82 per square foot of retail space (Table 11).
Tax Calculations. The Maricopa County Tax Assessor website listed historical annual property taxes for Randall Bailey’s property from 2011 to 2000 (Tax Summary, 2011). The figures in the table are accurate payments, not estimates (Table 11).
Employees. Bailey’s Brake Service employs 0.0013 workers per square feet of space. The amount of employees has remained constant since 2001 at 3 employees (Randall Bailey, 2012;
Table 11).
35
Case #4: 99 Cent Only Store
Table 13. Summary of Results for Case #4
Revenues. The 99 Cent Only Store in Lancaster is profitable, generating nearly $6 million in sales per year. Typical profits per square foot of retail store average $300 (Groover, 2005), therefore the 99 Cent Only Store is a valuable property for Lancaster (Table 13).
Revenue Calculations. I calculated revenues for 1999 to 2003 were by obtaining the averages revenues per square foot of retail space (10-K, 2003; Annual Report, 2011) and multiplying these numbers by the total square feet of the Lancaster store (Table 14).
36
Table 14. 99 Cent Only Stores Revenue Calculation
Property Taxes. The 99 Cent Only Store’s property in Lancaster appreciated between 1999 and
2003. This is evident in the increase in property taxes from $59,775 to $68,741.25 (Table 13;
2011 Roll Values, 2011).
Tax Calculations. The Los Angeles County Assessor only provided the 2011 tax assessment for the 99 Cent Only Store property. Therefore, I approximated the annual property taxes for 1999,
2000, 2001, 2002, and 2003 by multiplying the current property tax by the annual CPPI. Again, I assumed that the property was reassessed each year at the new CPPI levels and tax rates did not significantly change (Table 15).
37
Table 15. 99 Cent Only Stores Property Tax Calculations
Employment. To find out the number of workers at the 99 Cent Only Lancaster Store, I spoke with the store manager via telephone. He stated that employee numbers do not fluctuate greatly per year. Therefore, I assumed an employee count of 47 for all years.
SECTION VII: DISCUSSION
CONDEMNED TRANSFERRED PROPERTIES
Revenues
Because the results of Case #1 produced higher revenues per square foot before condemnation and the results of Case #2 produced higher revenues per square foot after condemnation, it is difficult to determine whether condemned transferred properties generate larger revenues per square foot before or after transfer. The Gran Havana generated $153 per square foot, which is much greater than the Marriott’s revenues per square foot of $18.76.
Because the Marriott is a multi-story hotel, I assume the large number of square feet deflated the revenue figure. This is probable because the estimated annual revenues generated by the Marriott
Hotel are much greater than the approximated annual revenues produced by tenants like B&J
Fabrics and Arnold Hatters. Regardless of the amount of revenues generated per square foot of 38 commercial space, the San Diego Redevelopment Agency still condemned the Gran Havana and transferred the property to the Marriott, assuming that the Marriott’s land use would produce a more significant economic impact on the community.
Alternatively, 41st Street Reality (consisting of B&J Fabrics and Arnold Hatters) did not produce as much revenue per square foot of retail space as the New York Times Building. B&J
Fabrics and Arnold Hatters generated approximately $212.15 per square foot, while the New
York Times and Forest City Ratner produced about $2,146.92 in revenues per square foot.
Because the second building produced greater revenues per square foot than the condemned building, the agency’s condemnation seems more economically justified than Case #1. Similar to the previous case, it would seem as though the much larger size (1,500,000 square feet) of the
New York Times Building would deflate the revenues per square foot. However, the revenues after condemnation are still greater than the smaller building. This difference leads me to believe that alternative factors such as scarcity, price, and land use play a larger role in condemning and transferring property and therefore influenced the New York State Urban Development
Corporation to transfer the property. To more accurately measure the economic contributions of condemned properties in the form of revenues, I will choose a greater number of and more equivalently sized properties in future studies.
Property Taxes
In both Case #1 and Case #2, the second properties (properties built by private developers) paid more property tax revenues per square foot than the first properties (properties occupied by businesses that were condemned and transferred). The Marriott paid $2.46 more property tax dollars per square foot of property than the Gran Havana ($0.47). The New York
Times Building paid $11.54 more than the average property tax for B&J Fabrics and Arnold 39
Hatters ($5.18). These figures lead me to infer that condemned properties, transferred to private developers, will produce greater property tax revenues for the local government than the non- transferred properties. Therefore, it is beneficial for the redevelopment agency to partner and transfer land to private developers to increase the size of its tax base. Furthermore, courts could use this property tax contribution data to further justify the inclusion of economic redevelopment within the public use requirement.
Employment
The first properties (Gran Havana and 41st Street Reality) employed more workers per square foot than the properties constructed after condemnation (Marriott and New York Times
Building). These results show that condemned properties (prior to transfer) have a more significant economic impact in the form of employees per square foot of commercial space than the second properties. Due to the greater number of workers per square foot employed at the first commercial businesses, agencies and courts need to reevaluate how much public benefit (in the form of employment) is actually created when transferring property to businesses with a smaller number of workers per square foot.
Theoretically, the more employees per square foot, the more of an economic impact the commercial property should have on its community. However, it is also necessary to acknowledge the total employee count and the size of the building. The Gran Havana employed
5 workers, while B&J Fabrics and Arnold Hatters employed 25 workers in total. These employee figures are much less than the Marriott’s 210 employees and the New York Times Company’s
412 workers. Assuming that the employees working at the commercial establishment live in the community, the Marriott and the New York Times Company employed many more individuals on the same footprint of land and therefore might have a greater economic impact on the 40 community in the form of number of employees and income taxes. Because the number of employees per square foot was greater for the first condemned properties than the transferred properties, it is likely that the employee per square foot ratio heavily depends upon the square feet of the building. A better indicator of the economic benefit for employees in the area would be changes in annual salaries and wages, worker supply and demand, and income taxes before and after condemnation and transfer.
Summary of Condemned Transferred Properties
Revenues per square foot are not significant enough to conclude whether the first or second property generated a more substantial economic benefit. In terms of property tax dollars, the properties built after condemnation generated a larger annual property tax value for the community. Lastly, the number of employees per square foot of commercial land was greater for the first property than the second transferred property (Table 16).
Table 16. Comparison of Economic Impacts of Transferred Properties
CONDEMNED NON-TRANSFERRED PROPERTIES
Revenues
Bailey’s Brake Service and the 99 Cent Only Store show positive economic impacts on their surrounding communities. Bailey’s Brakes generates $64.49 of revenues per square foot on average, while the 99 Cent Only Store produces approximately $316.80 of revenues per square foot. Bailey’s Brake Service generates a positive impact because his revenues and property tax contributions have increased annually. Additionally, since the 99 Cent Only Store produces 41 approximately $316.80 of revenue for every square foot of retail space, it is considered a profitable store in the discount retail industry (Groover, 2005). Although the 99 Cent Only
Store’s revenues have decreased over the five-year time frame of the study, it is likely due to natural fluctuations in the economy rather than a misuse of property.
The results show a large variance in revenues per square foot of commercial space.
Compared with the results from the condemned transferred properties, Bailey’s Brake Service revenues ($64.49) are far below the Gran Havana’s ($153) and the average of B&J Fabrics and
Arnold Hatters’ revenue figures ($212.15). Therefore, it is arguably senseless to condemn and transfer properties that produce larger revenues per square foot and not transfer commercial properties that generate low revenues. It is likely that Bailey’s Brake Service was not transferred because it was a profitable enough use of land in Mesa, Arizona. Moreover, the difference between these figures shows revenues greatly vary depending upon region, type of commercial use, and industry (e.g. service or retail).
The 99 Cent Only Store’s revenues per square foot ($316.80) are much larger than both the Gran Havana’s revenues ($153) and the 41st Street Reality stores’ revenue results ($212.15).
Because the 99 Cent Only Store was not transferred, it is likely that the Lancaster
Redevelopment Agency considered the large revenues generated by the anchor-tenant before fully condemning the property and creating an alliance with Costco.
Property Taxes
The 99 Cent Only Store and Bailey’s Brake Service also make contributions to the community in the form of property tax payments. Both businesses paid increasing annual property taxes due to the appreciation in property value from 1999 to 2005 (Moodys). Bailey’s
Brake Service paid approximately $0.82 in property taxes per square foot, which is much less 42 than the 99 Cent Only Store’s $3.32 per square foot annual payment. Although the property tax payments differ, it is evident that both stores contribute to local government revenues.
Comparing the non-transferred properties’ taxes (Bailey’s Brake Service and 99 Cent
Only Store) to the first condemned properties’ taxes (Gran Havana and 41st Street Reality), the results show that non-transferred properties sometimes produce less property taxes per square foot of space than transferred properties. Bailey’s Brakes’ and 99 Cent Only Store’s property taxes per square foot are greater than the Gran Havana’s taxes per square foot. However, the two non-transferred properties’ taxes are less than B&J Fabric and Arnold Hatter’s averaged property taxes per square foot. Therefore, condemned transferred properties are taken even when they produce more property tax revenues per square foot of land than non-transferred properties
(Table 17).
Non-transferred properties’ taxes (Bailey’s Brake Service and 99 Cent Only Store) were both greater than and less than the second transferred properties’ taxes (Marriott and New York
Times Building). Bailey’s Brake Service property taxes per square foot ($0.82) were less than both second properties’ taxes per square foot (Marriott $2.93; New York Times Building
$16.72). Alternatively, the 99 Cent Only Store’s property taxes per square foot were greater than the Marriott’s property taxes per square foot by $0.39, while the 99 Cent Only Store’s property taxes per square foot were less than the New York Times Building’s property taxes per square foot by $13.40. These results further support the inference that second transferred properties
(Marriott) do not always produce more property taxes per square foot of space than non- transferred properties (99 Cent Only Store). It is evident that second transferred properties do not always produce a larger economic impact in the form of property tax revenues after transfer
(Table 17). 43
This inference brings about various legal and economic implications. Because the non- transferred properties’ taxes per square foot of land (99 Cent Only Store and Bailey’s Brake
Service) are both greater than one of the transferred property’s taxes per square foot (Gran
Havana), redevelopment agencies sometimes are incentivized to condemn and transfer land that would increase their local government budget. However, since B&J Fabrics and Arnold Hatters produced greater property tax revenues per square foot of land than both of the non-transferred properties, it seems that redevelopment agencies do not always consider increasing the property tax base when condemning and transferring land to private developers. Because property taxes may not increase after transferring the property, I believe that the redevelopment agencies do not fully satisfy their goal of economic development unless other substantial economic impacts outweigh lower property tax payments.
Employment
Both Bailey’s Brake Service and 99 Cent Only Store economically impact their communities by supplying labor to local individuals. The 99 Cent Only Store employs many more people than Bailey’s Brake Service (47 versus 5 employees respectively), however their ratios fall within the higher range (0.0025 to 0.0010) of the employees to square foot samples used in this study. Bailey’s Brake Service has an employment ratio of 0.0013 works per square foot of commercial space, which is greater than the Gran Havana’s ratio and slightly less than the
B&J Fabrics and Arnold Hatter’s ratio. The 99 Cent Only Store has an employment ratio of
0.0025, which is significantly greater than both the Gran Havana and B&J Fabrics and Arnold
Hatter’s ratios (Table 17).
The fact that B&J Fabrics and Arnold Hatters’ ratio is greater than Bailey’s Brake
Service ratio shows that properties are condemned and transferred even if their economic impact 44 in the form of employment is greater than both the transferred second properties (New York
Times Building) and other non-transferred properties (Bailey Brakes Service). Because the 99
Cent Only Store ratio is also large, it is likely that non-transferred properties have higher employees per square foot of commercial space than second transferred properties. It is also necessary to acknowledge that the 99 Cent Only Store’s employment ratio is much larger than the New York Times Building’s and the Marriott’s ratios although the 99 Cent Only Store is also large in size. Therefore, the aforementioned inference regarding the dependence of square feet on the employment ratio might not always hold.
Summary of Comparing Transferred and Non-Transferred Properties
The constant (and predominantly increasing) returns in the terms of revenues, property tax dollars, and employee count show the stability and positive economic impact of the firms on their communities. It is important for courts to acknowledge the different types of economic impacts of transferred and non-transferred properties, especially when first condemned properties and non-transferred properties generate larger revenues, property taxes, and employee ratios per square foot of commercial space (Table 17). The courts should also acknowledge how external factors such as regional land values, scarcity of land, and varying land uses by different industries economically impact the business’ surrounding community. I advise state courts to create a threshold that determines the minimum amount of economic impact necessary to transfer a condemned property. This threshold should fluctuate in different regions depending upon the aforementioned external factors. Furthermore, the threshold will create a uniform rule for transferring property within that state. Due to the variance in the ratios when comparing transferred and non-transferred properties, it would be best for the state courts to decide if the 45 transferred property would create a greater economic impact than non-transferred properties.
This economic analysis would better justify the current heterogeneous state court rulings.
Table 17. Comparison of Economic Impacts of Non-Transferred and Transferred Properties
SECTION VIII: CONCLUSION
Limitations of the Study
This study establishes a general framework for future economic analyses of eminent domain due to the sample size and estimated figures. In order to create a more accurate study, I would invite more firms to participate, obtain the historical property assessments from the assessors, and test more economic impact variables. Testing a larger number of public and private companies would provide more accurate financial data and therefore more precise comparisons regarding the economic validity of expanding the public use requirement. Also, I would choose firms that are willing to participate and supply historical financial data. Due to the financial cost ($63 per hour of research and $1 per page) of obtaining historical property tax assessments from each county assessor, I was forced to estimate historical data. Obtaining the actual historical property tax assessments would definitely enhance the accuracy of the averaged property taxes per square foot of commercial space. In addition, I would include more variables in the study such as sales tax, income tax, salaries of employees, and local unemployment rates before and after condemnation. Furthermore, analyzing specific regions within the United States 46 or by type of property would lead to more supported inferences. Lastly, constructing a formula that quantifies a property’s economic impact by weighing the different variables would create a better framework for comparison.
Although the data is not perfectly accurate, the findings still quantify the general economic impact of commercial condemned properties on their communities. A study with more precise information would economically justify or challenge the current federal precedent, influencing state governments to increase economic redevelopment efforts or to pass legislation that protects individual business owner’s property rights. This preliminary analysis should prompt scholars to further investigate the expanding scope of the public use requirement. With more accurate figures, I could economically justify whether transferring properties from an owner to a private developer is a valid extension of the constitutional power or an augmented interpretation of the Fifth Amendment by local government agencies.
Significance of the Study
The economic impact a commercial property has on its surrounding community in the forms of revenues, property taxes, and employment varies before and after transfer. Regarding revenues, it is difficult to determine if the first or second property generates a greater economic impact. On the other hand, it is likely that property taxes of the second property and employment figures of the first property produce more significant economic impacts. Juxtaposing Case #1 and
Case #2 with condemned non-transferred properties (Case #3 and Case #4), it seems that the revenues, property taxes, and employee per square foot of commercial space of non-transferred properties are both greater and less than first transferred properties. Therefore, the results did not undoubtedly show whether first or second properties more significantly impact their surrounding communities. 47
Although only some of the results challenge portions of prior court rulings, it is important for courts and agencies to acknowledge the economic and legal ramifications of their decisions to condemn and transfer property. It seems as though the local agencies and the state courts only take into account certain economic impacts (e.g. property taxes) when choosing to redevelop blighted areas. This analysis will inform redevelopment agencies of the economic repercussions of their power to condemn (e.g. higher property tax payments at the expense of lower employment figures). Furthermore, a more precise study could justify or challenge certain rulings and perhaps set a new federal precedent based upon economic analysis. Without economic justification, private property owners’ legal rights might continue to erode as the interpretation of economic redevelopment within the public use requirement becomes more elastic over time.
48
REFERENCES
10-K 99 Cent Only Stores 2003. (2003). 99 Cent Only Stores. Retrieved February 20, 2012, from http://www.sec.gov/Archives/edgar/data/1011290/000101540204001016/doc1.txt
2011 Roll Values. (2011). Los Angeles County Office of the Assessor. Retrieved April 20, 2012, from http://maps.assessor.lacounty.gov/mapping/viewer.asp
50 State Report Card: Tracking Eminent Domain Reform Legislation Since Kelo. (2012). The Castle Coalition. Retrieved April 20, 2012, from http://castlecoalition.org/component/content/article/25-standalone/2414-grades-of-states- that-failed
99 Cents Only Stores v. Lancaster Redevelopment Agency. 237 F. Supp. 2d 1123 (2001). Retrieved from LexisNexis Academic.
Annual Report: 99 Cent Only Stores. (2011). SEC. Retrieved February 20, 2012, from http://www.sec.gov/Archives/edgar/data/1011290/000114036111030040/form10k.htm
Ariz. Const., art. II, § 17 (2003). Retrieved from LexisNexis Academic database.
Bailey v. City of Mesa, 76 P.3d 898 (2003). Retrieved from LexisNexis Academic.
Berman v. Parker, 348 US 26, (1954). Retrieved from LexisNexis Academic.
Berger, L. (1978). Public Use Requirement in Eminent Domain. Oregon Law Review, 57. Retrieved April 20, 2012, from the HeinOnline database.
Business & Company Resource Center. USC. Retrieved February 20, 2012, from http://www.usc.edu/libraries/databases/list_az.php?nav=B
Cal. Const., art. I, § 19b (2012). Retrieved from LexisNexis Academic database.
Chang, Y. (2011). An Empirical Study of Court-Adjudicated Takings Compensation in New York City: 1990-2003. Journal of Empirical Legal Studies, 8(2), 384-412.
Green Street Advisors (2012). Commercial Property Values Plod Along. Retrieved April 20, 2012, from http://www.greenstreetadvisors.com/pdf/press/cppi/GSACPPI040512.pdf
Dana, D. (2006). The Law and Expansive Meaning of Condemning the Poor After Kelo. Northwestern University Law Review, 101. Retrieved April 20, 2012, from http://www.law.northwestern.edu/lawreview/colloquy/2006/2/lrcoll2006n2dana.pdf
49
DeLong, J. (2010, December 18). Eminent Domain (at a Price). The American. Retrieved April 20, 2012, from http://american.com/archive/2010/december/eminent-domain-at-a- price/?searcht
Determining Your Assessed Value. New York City Finance. Retrieved April 20, 2012, from http://www.nyc.gov/html/dof/html/property/property_val_assessment.shtml
Dunlap, D. (2001, October 25). Blight to Some Is Home to Others; Concern Over Displacement by a New Times Building. The New York Times. Retrieved April 20, 2012, from http://www.nytimes.com/2001/10/25/nyregion/blight-some-home-others-concern-over- displacement-new-times-building.html
Eminent Domain Abuse Nationwide. Castle Coalition. Retrieved April 20, 2012, from http://one- simple-idea.com/EminentDomainAbuseNationWide.gif
Field, A. (1999). New Economic History and Law and Economics. FindLaw. Retrieved April 20, 2012, from http://encyclo.findlaw.com/0650book.pdf
Groover, J. (2005). Sure Bet. ICSC. Retrieved April 20, 2012, from http://archive.is/JIyWY
Hoovers. USC. Retrieved February 20, 2012, from http://www.usc.edu/libraries/databases/list_az.php?nav=H
IBISWorld. Retrieved February 20, 2012, from http://www.usc.edu/libraries/databases/list_az.php?nav=I
Kelly, D. (2006). The Public Use Requirement in Eminent Domain Law: A Rationale Based on Secret Purchases and Private Influence. Cornell Law Review, 91. Retrieved April 20, 2012, from http://cornelllawreview.org/files/2013/02/Kelly-final.pdf
Kelo v. City of New London. 545 U.S. 469, (2005). Retrieved from LexisNexis Academic.
LaBerge, S. (1985). Public Use Requirement in Eminent Domain: A Constantly Evolving Doctrine. Stetson Law Review, 14. Retrieved April 20, 2012, from the HeinOnline database.
Lefcoe, G. (2008). Redevelopment Takings After Kelo: What's Blight Got to Do With It?. USC Law. Retrieved April 20, 2012, from http://lawweb.usc.edu/why/students/orgs/rlsj/assets/docs/issue_17/03_Lefcoe_macro.pdf
Lehavi, A., & Licht, A. (2007). Eminent Domain, Inc.. Columbia Law Review, 107. Retrieved April 20, 2012, from http://www.jstor.org/discover/10.2307/40041733?uid=2&uid=4&sid=21103477600581 50
Leung, R. (2003, September 26). Eminent Domain: Being Abused?. CBS News. Retrieved April 20, 2012, from http://www.cbsnews.com/news/eminent-domain-being-abused/
Liu, C. (2006). Re-Defining Public Use: Kelo v. City of New London. University of Hawaii Law Review , 28. Retrieved April 20, 2012, from LexisNexis Academic.
MacKaay, E. (1999). History of Law and Economics. FindLaw. Retrieved April 20, 2012, from http://encyclo.findlaw.com/0200book.pdf
Mihaly, M. (2005). Public-Private Redevelopment Partnerships and the Supreme Court: Kelo v. City of New London. Vermont Journal of Environmental Law. Retrieved April 20, 2012, from http://vjel.vermontlaw.edu/files/2013/05/The-Supreme-Court-and-Takings.pdf
Mikkelsen, S. (2007). Eminent Domain After Kelo v. City of New London: Compensating for the Supreme Court's Refusal to Enforce the Fifth Amendment. Duke Law. Retrieved April 20, 2012, from http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1006&context=djclpp_sideba r
MintUS Database. USC. Retrieved February 20, 2012, from http://www.usc.edu/libraries/databases/list_az.php?nav=M
Moodys/REAL Commercial Property Price Index (CPPI). MIT CRE. Retrieved April 20, 2012, from https://mitcre.mit.edu/research-publications/cred
Moses, P. (2002, June 18). The Paper of Wreckage. The Village Voice. Retrieved April 20, 2012, from http://www.villagevoice.com/2002-06-18/news/the-paper-of-wreckage/
Munch, P. (1976). An Economic Analysis of Eminent Domain. Journal of Political Economy, 84. Retrieved April 20, 2012, from http://www.jstor.org/discover/10.2307/1829865?uid=2&uid=4&sid=21103477600581
NYCServ EService Center. (2005). NYC.gov. Retrieved April 20, 2012, from http://nycserv.nyc.gov/NYCServWeb/NYCSERVMain
Nelson, K. (2009, September 25). Conn. Land Taken from Homeowners Still Undeveloped. The Seattle Times. Retrieved April 20, 2012, from http://seattletimes.nwsource.com/html/nationworld/2009939321_apuseminentdomain.ht ml
Nichols, Philip. The Law of Eminent Domain: A Treatise on the Principles Which Affect the Taking of Property for the Public Use. New York: Matthew Bender & Company, 1917. 51
Print.
Poletown Neighborhood Council v. City of Detroit, 410 Mich. 616 (1981). Retrieved from LexisNexis Academic.
Portner, J. (1988). The Continued Expansion of the Public Use Requirement in Eminent Domain. University of Baltimore Law Review, 17. Retrieved April 20, 2012, from http://heinonline.org/HOL/LandingPage?handle=hein.journals/ublr17&div=33&id=&page =
Property Assessment Roll Archives. NYC Finance. Retrieved January 19, 2012, from http://www.nyc.gov/html/dof/html/property/property_val_valuation_archive.shtml
Property Tax Rates and Charges. NYC Finance. Retrieved April 20, 2012, from http://www.nyc.gov/html/dof/html/property/property_rates_rates.shtml
Racketa, A. (2010, October 25). Exercising Eminent Domain for Economic Development in New York. The Cornell Journal of Law Public Policy: Blog. Retrieved April 20, 2012, from http://www.jlpp.org/2010/10/25/exercising-eminent-domain-for-economic-development- in-new-york-by-alex-racketa-2/
Randall Bailey, telephone call to owner of Bailey’s Brake Service, 2012.
Redevelopment Agency of the City of San Diego v. Ahmad Mesdaq. 65 Cal. Rptr. 3d 372 (2007). Retrieved from LexisNexis Academic.
ReferenceUSA. USC. Retrieved February 20, 2012, from http://www.usc.edu/libraries/databases/list_az.php?nav=R
Somin, I. (2006). Controlling the Grasping Hand: Economic Development Takings After Kelo. Social Science Research Network. Retrieved April 20, 2012, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=874865
Szczesney, J. (2012). What's Mine is Yours: Takings After Kelo. Illinois Business Law Journal. Retrieved April 20, 2012, from http://www.law.illinois.edu/bljournal/post/2012/02/09/- Whats-Mine-is-Yours-Takings-After-Kelo.aspx
Tax Summary - Parcel 135-60-073D 5. (2011). Maricopa County Treasurer's Office. Retrieved April 20, 2012, from http://treasurer.maricopa.gov/
Thompson v. Consolidated Gas Utils. Corp., 300 U.S. 55 (1937). Retrieved from LexisNexis Academic.
52
Thorsnes, Bartolotta & McGuire, and Higgs, Fletcher & Mack LLP. Combined Respondents / Cross-Appelant’s Opening Brief (2006).
Unsecured Property Tax Details. (2011). County of San Diego Treasurer-Tax Collector. Retrieved April 20, 2012, from https://www.sdctreastax.com/ebpp3/(tcmxlu55akibd2nitft3htzm)/Search.Aspx
U.S. Const. amend. V.
West 41st Street Reality v. New York State Urban Development Corporation. 744 N.Y.S.2d 121 (2002). Retrieved from LexisNexis Academic database.
53
APPENDICES Appendix 1.
Courtesy of: http://one-simple-idea.com/EminentDomainAbuseNationWide.gif “This map plots instances of eminent domain abuse across the United States…”
Appendix 2.
Courtesy of: http://www.castlecoalition.org/legislativecenter 54
Appendix 3.
Courtesy of: http://clients.ibisworld.com.libproxy.usc.edu/industryus/keystatistics.aspx?indid=1916
Appendix 4.
Courtesy of: http://web.mit.edu/cre/research/credl/rca.html
55
Appendix 5.
Courtesy of: http://www.nyc.gov/html/dof/html/property/property_rates_rates.shtml