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Wednesday, December 07, 2011

The flawed political economy of eminent domain: Lessons from today's ruling against NYC in the Willets Point litigation.

Judge Madden ruled today against New York City in the Willets Point litigation, holding that the City's changing its position regarding the need for a highway ramp undermined the factual basis for her earlier decision upholding the City's final generic environmental impact statement ("FGEIS"). In effect, she accused the City of playing a game of "bait-and-switch" -- obtaining judicial approval of an FGEIS on the basis of one set of facts and then changing those facts after securing a favorable ruling.

For those of you not mesmerized by NYC land-use issues, Willets Point is the 62-acre triangle of land in Queens next to Citi Field that is currently occupied by a tangle of junk yards and auto repair shops owned mostly by individuals operating small-scale businesses. Take a look at the place on Google Maps to get a sense of its raw "Wild West" feel: It lacks sidewalks, sewers, and reeks of oil and other chemical fumes. The City has proposed condemning the land and converting it into a mixed use retail, residential, and office complex.

No one doubts that the place ought to be cleaned up. But the City's approach has inspired fierce resistance from the few businesses that the City has not bought out through voluntary side deals. After the jump, I suggest three ways in which the Willets Point saga suggests that, contrary to the claims of Tom Merrill and others, the "eminent domain political process" works poorly as a mechanism for sorting out how to distribute the gains from land assembly. As a bit of shameless self-promotion, I also tout a solution that Michael Heller and I have been peddling for a few years now -- "land assembly districts."

First, how has the process of eminent domain misfired in Willets Point?
1. The Inadequacy of Compensation Leads to Unnecessarily Fierce Resistance from Condemnees: New York Law does not require condemnees to pay lost business good will. But the small businesses in Willets Point really need some such payment to be made whole: Willets Point is effectively a "mall" for auto parts, and scattering these businesses throughout NYC -- even assuming that they can find substitute parcels zoned for such industrial uses -- will eliminate the agglomeration effect that reduces search costs for customers and constitutes a big part of these businesses' value. Naturally, these businesses will fight savagely to save themselves from being shut down.
2. The City's Selective Buy-Outs Leads to Unnecessarily Fierce Resistance from the Businesses Left Behind: The City had been assiduously buying out the larger landowners with voluntary deals in an effort to decapitate resistance to the assembly. In theory, this approach should leave few who can afford a lawyer to fight the condemnation; In practice, this strategy has caused the remainder to dig in deeper, fearful that they are being carved out of the gains from the assembly.
3. The EIS System for Informing the Public about Land-Use Impacts is a Hoax: The City abandoned its proposal to install highway ramps after the condemnee's expert, Brian Ketcham, revealed that the City's ramp study submitted to the Federal Highway Administration, contained assumptions directly contradicting the assumptions of the EIS submitted to the City Council for the redevelopment. The contradiction in the two studies was doubly odd because the two reports were authored by the same consulting firm, AKRF, which is responsible for the lion's share of EISs in NYC. AKRF has been judicially rebuked by the appellate division for its "blight study" justifying the condemnation of "Manhattanville," an area between 125th and 135th streets in West Harlem assembled by the Empire State Development Corporation on behalf of Columbia University. After having plowed through much of these documents (the appendices amount to hundreds of thousands of pages so I skimmed those), I get the sense that these documents are simply paper barricades to genuine inquiry about the merits of the proposals, mountains of bureaucratese designed to intimidate courts but not to be read by anyone.

In short, NYC's penchant for bureaucratic secrecy, low-ball compensation measures, and informal dealings with insiders actually impedes the city's ability to clean up an area that obviously needs some serious attention. The question remains how the city can enlist neighborhoods into welcoming cleanup rather than fighting it.

Here's the shameless self-promotion. As Michael Heller and I have argued, the solution to neighborhood resistance is neighborhood government: Give the neighbors a collective right to sell their neighborhood through a "land assembly district" -- essentially, a special district by which the neighbors can, by majority vote accept an offer from the city if that offer is genuinely sufficient to compensate the neighbors. This way, the neighbors can become co-venturers with the city in the decision for land assembly, while the city can be freed from the headache of holdouts. True, the city would have to pay the neighbors' reservation price. But that price will not be inflated by holdout problems if the neighbors have to set their asking amount collectively. True, the city will probably have to give the neighbors a "piece of the action" -- some share of "after value" of the assembled land. But far better that the neighbors take a share than that the same amount be frittered away in attorneys' and experts' fees from protracted litigation.

In short, the Age of Robert Moses is dead: Using Moses' techniques does not get Moses' results. Willets Point suggests that it is in the city's own self-interest to abandon traditional eminent domain and instead develop a mechanism for bargaining in good faith with the neighbors that they'd sooner steam roll.

Posted by Rick Hills on December 7, 2011 at 10:18 AM | Permalink


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I'm sure you've thought about this more deeply than I have, but isn't there risk of gerrymandering "neighborhood" lines in ways that make the distribution of political power less than ideal and lead to inefficient deals between the cities and landowners?

Part of it comes down to how voting rights in the neighborhood are assigned: individually or in proportion to land value. (And it's not clear what "individually" means if some of the land is owned by collectives.)

Assuming voting is by land value, couldn't the city zone a "neighborhood" to include both the wealthy, well-connected homeowners and the slum a few streets away? The wealthy would completely control, and would be able to "democratically" approve the sell-out in a far more abusive way than even lax eminent domain rules can.

And if voting is by head count (assuming the various collective ownership issues are sorted out) wouldn't there be a risk of the city cheating a few owners of expensive parcels out of their land by slightly overcompensating the poorer landowners (who have the numbers, but not the land value?)

Maybe there's something I'm missing, and I'll read the proposal in more depth. After finals. :)

Posted by: Andrew MacKie-Mason | Dec 8, 2011 4:40:39 PM

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