Realty Reality — Eminent Domain and Redevelopment Activity: Realty Times, 1/12/06

By Bob Hunt

With the possible exception of some of my Libertarian friends and Ayn Rand devotees, the idea that government may exercise its power of eminent domain in order to provide for some public use – such as a freeway on-ramp or a public utility right of way – is pretty well accepted. More controversy arises, however, when the taking of private property, even though compensated, is required in order to accomplish some public benefit such as increasing economic activity by means of redevelopment.

It was a "taking" for the purposes of redevelopment that caused such a stir when the U.S. Supreme Court upheld eminent domain procedures in the case of Kelo v. City of New London. In the Kelo situation, no claim or showing was made that the properties or the area in question were run down or a burden to the public. The point was simply that the area had been targeted for a redevelopment that, it was claimed, would be highly beneficial to the city as a whole.

But what happened in New London, Connecticut, we are told, couldn't happen in California. That is because, under California law (Health and Safety Code, beginning at Section 33000), an area designated by a government agency for redevelopment must be blighted. "Blight" consists of various adverse physical and/or economic conditions that are, albeit generally, defined in the code. Some examples of conditions that lead to or constitute blight are serious building code violations, dilapidation and deterioration, adjacent incompatible uses that prevent improvement of the overall area, lot sizes and shapes that prevent viable economic development, residential overcrowding, high business vacancies, an excess of bars and liquor stores, and high crime rates.

To be sure, a particular property located in an area targeted for redevelopment does not, itself, have to be blighted in order to be a candidate for government taking, but the overall area must have been shown to be blighted.

Redevelopment is very big business in the state of California. And if you don't believe me, check out the Community Redevelopment Association (RDA). According to a study from the Center for Economic Development at Cal State Chico, redevelopment contributed almost $32 billion to California's economy in 2003. It accounted for the creation of more than 310,000 jobs in Fiscal Year 2002 – 2003, and increased state and local tax revenues by $1.58 billion. Eighty percent of California cities have redevelopment agencies, 45 percent of the counties. They administer over 700 project areas.

Government-sponsored redevelopment is not only good for economic activity, it also plays an extremely important role in California's attempt to provide affordable housing for its low and moderate income earning citizens. At least 30 percent of any residential units built or rehabilitated by an agency must be available at affordable housing costs to persons of low or moderate income. Moreover, California redevelopment law requires that no less than 20 percent of tax increment revenue derived from a project must be used to increase, improve, and preserve the supply of housing available to low and moderate income households. (The "tax increment" is the difference between the old property taxes that were generated when the area was blighted and the new property taxes collected from the redeveloped properties. It can be huge.)

More than 63,000 affordable housing units have been built or rehabilitated by redevelopment agencies since 1994. It is expected that another 20,000 units will come on line through redevelopment activity in the next two years. Redevelopment agencies spent $818 million on housing funds last year, and deposited $1.1 billion to housing fund accounts.

We mention all this to note that when the legislature and the public begin to give serious consideration to the plethora of proposals that are and will be offered in reaction to the Kelo decision, it will be important to focus on more than one issue. That is because many of the suggestions being floated could result in a major diminishment of redevelopment activity. Preserving private property rights is an extremely important goal, and that will be central to the reactions and over-reactions to Kelo. But there are other important goals at stake as well. They will need to be kept in mind as well. Something about throwing out the baby with the bath water.

Realty Times: http://realtytimes.com

Bob Hunt is a director of the National Association of Realtors