In California, a Loss for Eminent Domain…

I've written before about the issues of eminent domain and the use of “blight” to justify redevelopment projects, so I'm typically drawn to cases in which property rights are at stake. Aside from the clear real estate aspect, there's generally a compelling story to be told. One recent example is Community Youth Athletic Center v. National City, where the government of National City, CA declared a large number of properties (692 in total!), including a youth community center focused on mentoring at-risk kids, blighted in an effort to not only effectuate condemnation, but later transfer those properties in the name of “economic development.” On the party descriptions alone, it would be easy to dismiss National City's argument as both callous and abusive. But luckily, decisions aren't based on emotion alone.

Rather, the San Diego Superior Court decision was based on California's legal reforms that were “enacted to counter the…U.S. Supreme Court Kelo decision in 2005.” Kelo, as law professor Iyla Somin accurately describes, “held that the condemnation of private property for transfer to another private party to promote “economic development” does not violate the Fifth Amendment takings-clause guarantee that property can be condemned only for a public use.”

Here, however, the Superior Court found no legal basis for the blight determination and demanded greater disclosure of economic impact and blight-determination studies. For now, it appears that the properties are safe, though National City is likely to appeal. And with nearly forty states with post-Kelo statutes on the books, expect those laws to be tested. At first blush, it may seem paradoxical for someone working in commercial real estate to support a decision where redevelopment projects are halted for seemingly inconsequential reasons. After all, construction of shopping malls, restaurants, apartments and offices serve us well.  A community outreach center on the other hand? Not so much.

Why not then support redevelopment efforts, even if they are under a pretense of fixing blight? For one, there still exists traditional and effective means for obtaining property–through private negotiation. Second, and more fundamentally, the economic growth projections cited by redevelopment officers are often inflated and misleading. This may not seem particularly troublesome, but when public and local authorities are involved, as is the case with California redevelopment officers, Courts will typically defer to their decisions/determinations. The result? A perverse incentive structure.