Monday, December 21, 2009

Eminent Domain Abuse: The Gifts That Keep On Giving and the Gifts That Don’t

We had a psychoanalyst in our family who was very concerned with what he charged the patients he treated: He wanted to make absolutely certain that he didn’t charge them too little. It was part of his theory of treatment, one commonly encountered in that profession. Psychoanalysis takes a lot of work. The analyst’s professional services alone are not enough; much of the work must be done by the patient themselves. Hence we get to what we will call Sam’s rule:
Don’t charge patients too little because, if you do, they won’t value the services you are providing them and they won’t do the work required.
Eminent Domain Abuse: The Gift That Backfires

Why do we bring this up? We took a trip last week to 8 East Street, New London, Connecticut. That is the address of the site where Susette Kelo used to have her home. As our photographs attest, the site is now a weed lot in a neighborhood of weed lots. If Susette Kelo had gotten her druthers it wouldn’t be that way: Her home would still be sitting on that site paying taxes in the neighborhood of taxpaying owners that used to exist there.

Be Careful When “Carefully Considering”

Susette Kelo was the plaintiff in Kelo v. City of New London, the case that went before the U.S. Supreme Court in 2005 wherein the Supreme Court famously said that Susette’s home could be taken away by eminent domain because the City of New London had, in the words of Justice John Paul Stevens, “carefully formulated an economic development plan” and (quoting the Connecticut state courts) had a “carefully considered” development plan concerning what should be done with the land it wanted to take from Susette. Proof being in the pudding, the plan was not so carefully formulated considered. The plan, hatched in 1998, envisioned:
. . a waterfront conference hotel at the center of a "small urban village" . . . restaurants and shopping. . . . marinas for both recreational and commercial uses. A pedestrian "riverwalk" [to] continue down the coast . . approximately 80 new residences organized into an urban neighborhood . . . space reserved for a new U. S. Coast Guard Museum. . . office and retail space, parking, and water-dependent commercial uses.
(This is all straight from the Supreme Court opinion.)

The plan was premised upon and supposed to be anchored by development by the Pfizer pharmaceutical company. In the words of the Supreme Court:
The NLDC intended the development plan to capitalize on the arrival of the Pfizer facility and the new commerce it was expected to attract.
Twelve years later we are on the cusp of a new decade. Not only has the economic plan not gotten off the ground, but in November Pfizer announced, without even notifying city officials beforehand, that it was leaving New London and this no-longer-a-neighborhood it was supposed to be anchoring. (See: Pfizer Leaving New London, CT; Just Don't Mention 'Kelo' While Reporting It, By Tom Blumer, November 10, 2009 and Pfizer to Leave City That Won Land-Use Case, By Patrick McGeehan, November 12, 2009 )

The Focus on Pfizer

Pfizer was so central to the plan that part of the fact-finding judicial review of the plan (as noted by Supreme Court Justice Kennedy) was consideration of the extent to which the plan might have directed disproportionate benefits to Pfizer: Specifically, quoting from the trial court (emphasis supplied):
"whether, in fact, the development plan is of primary benefit to ... the developer [i.e., Corcoran Jennison], and private businesses which may eventually locate in the plan area [e.g., Pfizer], and in that regard, only of incidental benefit to the city." 2 App. to Pet. for Cert. 261.
Based on a number of factors, including the testimony of government officials and corporate officers, the trial court concluded that (Kennedy again with emphasis supplied):
. . benefiting Pfizer was not "the primary motivation or effect of this development plan"; instead, "the primary motivation for [respondents] was to take advantage of Pfizer's presence." Id., at 276. Likewise, the trial court concluded that "[t]here is nothing in the record to indicate that ... [respondents] were motivated by a desire to aid [other] particular private entities." Id., at 278. See also ante, at 7-8. Even the dissenting justices on the Connecticut Supreme Court agreed that respondents' development plan was intended to revitalize the local economy, not to serve the interests of Pfizer, Corcoran Jennison, or any other private party.
Similarly, Justice Stevens in a footnote to support his conclusion that the Connecticut courts had agreed “there was no evidence of an illegitimate purpose in this case” quotes from those lower courts:
"The record clearly demonstrates that the development plan was not intended to serve the interests of Pfizer, Inc., or any other private entity, but rather, to revitalize the local economy by creating temporary and permanent jobs, generating a significant increase in tax revenue, encouraging spin-off economic activities and maximizing public access to the waterfront".
Suspicious Synchronicity

We ourselves would have been more skeptical that the that the “development plan was intended to revitalize the local economy, [which never happened] not to serve the interests of Pfizer [which did happen].” We would not easily get over the near synchronicity of the state’s authorization of $15.35 million in bonds for the project in January of 1998 and Pfizer’s announcement in February 1998 that it would build it $300 million research facility. The building of that research facility involved Pfizer’s being excused from 80% of the taxes on it. City Council approval of the plan was not until two months after the February announcement. All of this sits uncomfortably with the importance that Justice Kennedy, in order to uphold the condemnations, places on the fact that the government:
. . reviewed a variety of development plans and chose a private developer from a group of applicants rather than picking out a particular transferee beforehand, id., at 273, 278; and the fact that the other private beneficiaries of the project are still unknown because the office space proposed to be built has not yet been rented, id., at 278.
Although, the developer, Corcoran Jennison, and other private beneficiaries were ostensibly for the purposes of the official record and the Supreme Court’s opinion not known ahead of time, the relatively synchronous identification of Pfizer is a problem.

What It Means to Presume (or Assume)

Another problem is that the conclusion that the plan was not primarily to serve Pfizer was, as Justice Kennedy says, reached when the record was considered with “the presumption that the government's actions were reasonable and intended to serve a public purpose.” As we are all too familiar with the way that government officials conduct themselves, we consider this to be an unhealthy presumption when eminent domain is being used to transfer property from one private owner to another. While Justice Kennedy allowed this presumption to govern in Kelo, he considered a possible reverse “presumption of invalidity” and while opining that such a reversal was “not warranted for economic development takings in general, or for the particular takings at issue in this [Kelo] case” that “a more stringent standard of review” . . “might be appropriate for a more narrowly drawn category of takings.”

Justice Kennedy’s concurring opinion was essential to the holding of the case since without Justice Kennedy’s vote Justice Stevens’ plurality opinion representing the votes of four justices would not have upheld the Connecticut courts’ holdings. Instead the opinions of the dissenters in the 5-4 decision would have established the law of the case. (Kennedy joined in Stevens’ opinion apparently because he did not consider his own cautions and prescribed limitations on the use of eminent domain inconsistent with what Stevens wrote.)

Dissenter Skepticism About Motive to Benefit Pfizer

The dissenters were more skeptical of the degree to which conferring benefit upon Pfizer with impermissible favoritism was a primary motivating factor. Justice O’Connor wrote (emphasis supplied):
The trouble with economic development takings is that private benefit and incidental public benefit are, by definition, merged and mutually reinforcing. In this case, for example, any boon for Pfizer or the plan's developer is difficult to disaggregate from the promised public gains in taxes and jobs. See App. to Pet. for Cert. 275-277.
Justice Thomas noted that the court was holding (emphasis supplied):
. . . against all common sense, that a costly urban-renewal project whose stated purpose is a vague promise of new jobs and increased tax revenue, but which is also suspiciously agreeable to the Pfizer Corporation, is for a "public use."
Reality Outside the Courtroom

Departing the confines of the Kelo decision itself with its record based on presumptive deference to the idea that government officials were engaged in “actions were reasonable and intended to serve a public purpose,” other versions of the extent to which Pfizer was intended to be benefitted are available. Remember that the redevelopment plan described by the Supreme Court envisioned “a waterfront conference hotel at the center of a `small urban village'"? In a November article in the New London Day (linked to and criticized by Tom Blumer, in the November 10, 2009 article linked to above as being too deferential to local officaildom) we learn something more about that hotel from Michael Joplin, president of the New London Development Corp. Mr. Joplin says:
Pfizer's withdrawal from the city will likely be a setback for a proposed hotel at Fort Trumbull. While the hotel would have attracted the general public as well as those visiting the proposed U.S. Coast Guard Museum at Fort Trumbull, Joplin said Pfizer had planned to make use of it as well.
In other words, more Pfizer benefit in the equation. (See: Pfizer pulls up stakes in NL
By Lee Howard, The Day, 11/10/2009.)

Jeff Benedict’s book “Little Pink House” is about the Kelo case and events behind it. In it he writes about how George Milne, Pfizer’s president for research, did, in fact, specify that it wanted the hotel with about two hundred rooms and a conference center, doing so in a list of requirements it wanted met. He wrote “we will use the proposed hotel and conference facility as an extension of our facility committing to 100 of those rooms on a daily basis for visiting international staff and other professionals.” He goes on to specify that “Year round quality housekeeping is also critical to recruiting top scientists.”

Here from a review of Jeff Benedict’s “Little Pink House” and incorporating facts available in it is another description of what was being done in terms of a project that was exclusively privately owned and involved no public use (you can find many others similar to this):
. . . The NLDC's [an government agency comprised of local development officials] goal was to make Pfizer happy, and Pfizer executive George Milne put his company's wish list in writing. "Our New London expansion requires the world-class redevelopment planned for the adjacent 90 acres in … Fort Trumbull," he wrote in 1999, itemizing the amenities Pfizer was looking for: "a waterfront hotel with about 200 rooms, a conference center and physical-fitness area, extended-stay residential units, and 80 units of housing." Accommodating the families already living in Fort Trumbull, however, was not a part of the Pfizer/NLDC vision. As another Pfizer executive condescendingly told the Hartford Courant: "Pfizer wants a nice place to operate. We don't want to be surrounded by tenements."
In other words, Pfizer’s benefit was not only the property that it was taking for itself or would use and benefit from; it was also getting to pick its neighbors.*

(* Apparently, the only exception to this proposition involved another bit of political favoritism: As Mr. Blumer writes, “the high-powered, politically-connected Italian Dramatic Club was allowed to remain in Fort Trumbull, while each and every home around it was leveled” . . . and then quoting the Institute of Justice, “Among the Italian Dramatic Club's patrons was former Connecticut Gov. John Rowland, who helped direct much of the State funding for the NLDC's work in New London and who resigned in June 2004 amid an ethics scandal.” The decision to selectively allow the club to stay was made by the “un-elected NLDC decision.”)

FYI: For another review of "Little Pink House" see Atlantic Yards Report's.

The Value of Wishful Giving

We are making a point of two things here: How far the societal norms were bent out of shape in order to pile benefit on Pfizer and the fact Pfizer is taking a walk nevertheless. At first blush the principal relationship between those two things may seems to be its sadness, but probably isn’t. More likely the most important relationship between these two things is that the heedless piling on of benefits to Pfizer may actually be regarded as a cause of Pfizer’s departure. That, by analogy brings us back to Sam’s rule: What you don’t charge for is likely to wind up being undervalued.

Development, like psychoanalysis, should not involve an investment of commitment or effort on only one side. What is sad is that what was bulldozed for the unappreciative Pfizer’s benefit was just the opposite: It was people like Susette Kelo and her neighbors who, having invested in their property without subsidy and fully paying their taxes, were not going to leave. The lawsuit brought by Ms. Kelo and her neighbors, in fact, reflected their tenacious fight and commitment to stay. Had they been allowed they would be there still, still paying taxes.

Precedent Encouraging Commitment That Gets None In Return

Ironically, and in an endorsement of what in retrospect seems a none-too-wise public policy, the willingness of public officials to bestow excessive largess factored into the Supreme Court’s upholding of eminent domain to give Pfizer benefits. Justice Kennedy commented favorably upon the way the Connecticut courts credited their decision in part to the government’s “substantial commitment of public funds by the State to the development project before most of the private beneficiaries were known.” Of course a second problem with this (not even in retrospect) is that Pfizer, the main private beneficiary, was already known.

Not Paying For That!

Pfizer’s departure came just when Pfizer needed to prove that it valued what it got by spending more in property taxes. As reported in the Times the deal pursuant to which Pfizer was only paying 20% of its property taxes was “scheduled to end in 2011, around the time Pfizer, which is currently the city’s biggest taxpayer, expects to complete its withdrawal.”

Lack of Value Is a Two-Way Street

As unwanted as the community is by Pfizer, the building it leaves behind (built in 2001) is apparently unwanted in return. The Times quotes “Robert M. Pero, a city councilman who is scheduled to become mayor next month” to inform us that while the left-behind building may be a compensation for the loss of “a thousand jobs” . . “I don’t know who’s going to be looking for a building like that in this economy.”

A Gift That Came With Its Price Tag Removed

To fully understand how much Pfizer was given to convince it to want what it didn’t finally value one needs to understand how much of a subsidy eminent domain really is. Eminent domain is used to acquire land at a greatly reduced cost. By definition, (and this is particularly important when the forced transfer is from one private owner to another) the party being deprived of their property receives far less than they ought fairly to receive. It is integral to the economics that drive these transactions which are making these forced transfers from one private party to another popular with government officials willing to hand out political favors.

Waterfront hotels, marinas, restaurants and shopping, office space commercial uses and “riverwalks”may all sound marvelously optimistic, but the fabulous optimism is all at somebody else’s expense and when it is at somebody else’s expense it is all unlikely to happen.

Brought About By Bygoners

Pfizzer’s bye-bye may bring to mind that the talk these days about the hazard of IBGYBG economics (I’ll-Be-Gone, You’ll-Be-Gone). IBGYBG economics accounts for the failure of mortgage-backed securities packaged by originating banks who gave no thought to the risk, credit worthiness or warranties of their product because they made all their money up-front selling the product to others not planning to hold any of the portfolios themselves. That is not exactly what happens with eminent domain abuse but there is a certain cultural commonality of approach when the professionals involved are intent on what they are getting for themselves at the expense of the larger community. And, in fact, it turns out that the Pfizer story is replete with a lot of characters who did soon enough become goners.

Pfizer’s recent announced departure provides a significant addendum to the informative epilogue that Jeff Benedict includes in “Little Pink House”. We heard Mr. Benedict speak at Columbia University Law School where he supplied similar epilogue material last January at an event hosted by the Federalist Society. It is worth wondering if the reasons that eminent domain projects are themselves ill-fated is relates to the fact that those involved with perpetrating eminent domain abuse similarly often do not seem to do well.

Mr. Benedict tells us the following (compiling quotes both from “Little Pink House” and from the January Columbia event):
• Former Governor John Rowland of Connecticut “pled guilty to felony conspiracy and was sentenced to one year and a day in federal prison.” (Rowland was charged with an extensive array of schemes to get kickbacks from contractors doing business with the state. After prison he was thrown a lifeline by a political pal and became the city of Waterbury’s economic development coordinator.)

• Peter Ellef, former chief of staff to Gov. John Rowland, “was sentenced to thirty months in prison for his part in the scandal” (Mr. Ellef’s involvement with Rowland’s scandal involved taking some of his own kickbacks from contractors in the form of gold coins).

“The head of Pfizer who was behind this project is out.” The head of Pfizer from January 2001 was Hank McKinnell, who is not mentioned in Mr. Benedict’s book so Mr. Benedict was likely referring to George M. Milne (see below), president of Pfizer’s central reaserch who was very much involved. Mr. McKinnell, having come up through the Pfizer ranks where he was involved in strategic planning for the corporation, resigned in 2006 after an unpopular tenure presiding over declining stock prices that were attributed to an expansionist agenda where Pfizer acquired and merged into itself smaller companies unwisely bought for too much. Ultimately it was the board that was dissatisfied but “Yank Hank” was a refrain with employees. Ironically, while Pfizer trampled property rights in New London, Mr. McKinnell was reputedly a very aggressive defender of Pfizer’s own patents and intellectual property rights.

“The woman who ran the development agency that directed the bulldozers to knock the houses down [Claire L. Gaudiani]: Over 70% of the faculty members at Connecticut college signed a petition to have her lose her job as president, and she did.” (The New York Times ran a puff piece upon her departure full of praise, including from a Pfizer representative involved in pushing for the benefits Pfizer walked away from: “George M. Milne Jr., a college trustee who is also senior vice president at Pfizer Inc. and a member of the New London Development Corporation, of which Dr. Gaudiani is also president.” According to “Little Pink House” Mr. Milne is now a “venture capitalist and adjunct lecturer at Harvard and MIT.”

• As Mr. Benedict makes the point, “So all the power brokers behind this case are out by the time the Supreme Court decision comes down.” He noted that the new governor of Connecticut, Jodi Rell, who replaced Rowland when he was forced to resign ultimately “takes the policy of open-checkbook” to clean up after her predecessor and reach a settlement with the homeowners . Not included in Mr. Benedict’s formal epilogue is information Tom Blumer provides about why that the 2006 deal was brokered:
“. . . infuriated city residents mounted what from all appearances was a successful petition drive to put the question of the city property takeover of the Kelo and Cristofaro properties on the ballot in just three weeks.”

“. . . a new party, One New London, whose express purpose was to prevent the New London Development Corporation from carrying out its Supreme Court-sanctioned actions, came out of nowhere and won two seats on the seven-seat City Council, losing out on a third seat by 19 votes”
• At Columbia Mr. Benedict did make this related point: “But perhaps the most important thing in all of this is that if they hadn’t have stood up and lost the case you wouldn’t have the situation you have today which is that 44 states have either passed legislation or constitutional amendments to ban the kind of taking that was upheld by the Supreme Court in 2005. Now if that’s not victory, I don’t know what is. If they had won the case that wouldn’t happen. . . . That’s what happens when one person stands up.”

“Every plaintiff from the eminent-domain lawsuit has left New London, vowing not to return.”

“Their houses get knocked down all except for the Pink House which is saved, is taken down board by board, and moved to another part of the city and rebuilt. It sits there today as a landmark and a testament to the case.”

• Mr. Benedict ends where we began: “The former Fort Trumbull neighborhood is a barren wasteland of weeds, litter, and rubble.”
(Above, pictures of Susette Kelo's Little Pink House relocated at 36 Franklin Street as a monument to the case. Below, the bulldozed site where it no longer stands.) Gifts That Keep Giving and Those That Don’t

The moral is that eminent domain is a gift to developers that doesn’t keep giving (or ever give) to the public. This holiday season we are therefore giving some thought to gifts that really could keep giving. We suggest that making gifts to fight eminent domain exactly fits the bill.

We are reading about how easily other gifts may fall short. Gift cards? Consider the Consumer Reports warnings and that the New York Times recently reported that: “Experience shows that 5-15% of gift card values are never redeemed.” The Daily News warns about the high likelihood that gifted “gizmos” will go unused. There is even a new book “Scroogenomics,” whose author is estimating that the 20 percent of what is spent on holiday gifts, or $13 billion, winds up being lost value spent on gifts that are not appreciated, that overall are valued “20 percent less” than the gift-givers “actually spent on them.”

Special For New York

But every dollar given to fight eminent domain will get used and will provide a more vibrant economy as a result. If you want to fight the fight nationally you can donate to the Institute of Justice’s Castle Coalition. Since Noticing New York’s stomping grounds are New York and since, as expressed by Institute of Justice staff attorney Bob McNamara, New York State is “the worst abuser of eminent domain in the United States and believe me, that is a difficult race” you might want to consider donating that money closer to home. There is the Columbia University Expansion (Nick Sprayregen has spent somewhere between $1 and $2 million to defend himself against eminent domain) and then there is Willets Point. At the moment Atlantic Yards opponents are particularly in the thick of things and in the need of resources to outlast their adversaries.

The Bye-Bye Goners of Atlantic Yards

The good thing is that Atlantic Yards, like Pfizer, has a growing list of eminent domain perpetrators dropping into the dustbin of history. Here is the list of the not-so-dear departed that continually needs to be updated:
• Starchitect Frank Gehry
• Landscape architect Laurie Olin

• Governors:
• George Pataki
• Eliot Spitzer (He departed rather ignominiously- including the way he acquitted himself on Atlantic Yards)
• Governor Paterson’s favorable poll numbers
• Roger Green

• ESDC Heads:
• Charles Gargano
• Patrick Foye
• Avi Schick
• Marisa Lago
• Bob Wilmers
• PACB Approval member Joe Bruno (convicted on similar criminal counts to those on which Governor Rowland was convicted)
• PACB State Comptroller Alan Hevesi who was forced out in scandal two days after he reviewed and accepted the PACB’s approval of Atlantic Yards. (That means that two out of four of the state officials involved with the original PACB approval of Atlantic Yards left in scandal. Spitzer, a supporter on the PACB who also left in scandal took office after the initial PACB approval. Assembly Speaker Sheldon Silver is the only one not yet booted.)

• MTA heads:
• Peter Kalikow
• Katherine Lapp
• Eliot Sander
• H. Dale Hemmerdinger (shortly after an ignominious Atlantic Yards approval)
• Jim Stuckey
• Loren Riegelhaupt
• Randall Toure

• “Team Nets”:
• Vince Carter
• Jason Kidd
• Richard Jefferson
Growing List of Plaintiffs Against Atlantic Yards

Meanwhile, the list of those who are plaintiff parties in lawsuits against Atlantic Yards is an ever-growing one. In particular, we note that more and more politicians have been added to it. If this post wasn’t already more than long enough we would start listing the entire universe of plaintiffs. (The growing list of Atlantic Yards political adversaries also sounds a bit like the “afterward” of the Pfizer Kelo debacle.”)

Gifts That Don’t Take a Holiday From Giving
The perfect holiday gift? Make a donation to Develop Don’t Destroy Brooklyn, the lead opponents against Atlantic Yards. Or you might want to consider purchasing lots of these very handsome and convenient Develop Don’t Destroy Brooklyn tote bags which will support the cause. (See: Gift Idea: Develop Don't Destroy Bag.) Give the gift that keeps giving to fight he gifts that keep taking. One way in which none of us would like the Atlantic Yards epilogue to sound like the Pfizer epilogue is for it to end with a blight-delivering loss.
(Above, New London. Below, what Brooklyn's Prospect Heights/Fort Greene will look like if Atlantic Yards opponents lose. Rendering updated by us was done by by the Municipal Art Society for its Atlantic Lots. Original Aerial Photograph by Jonathan Barkey )


Unknown said...

Excellent blog post on eminent domain -- good on analysis and background detail.

Eminent domain is a sobering experience. Private property owners facing the threat of eminent domain quickly learn that they are not standing on a level playing field legally, economically or politically.

Among other lessons, there is a lot of play in the “just” of “just compensation.” The power of eminent domain brings with it a sense of entitlement.

At that point, property owners are merely an obstacle to be swept aside — when, in fact, they possess the key asset coveted by government and the corporation.

But property owners can fight back. Our two-year battle against Houston-based Spectra Energy which seized our property rights for an underground gas storage field led to the development of a website which has begun to attract whistle blowers inside the energy industry. We are collaborating and helping property owners in many states. For info, visit the site:

By the way, our new neighbor, Spectra Energy, has received two Notice of Violations for “unlawful conduct” related to emergency shutdowns and emissions at its storage field in Bedford County, PA. Reports of contaminated water supplies are on the rise since they began operations.

Like Kelo -- and now Atlantic Yards -- the ripple effects of eminent domain are never over.

Racherach said...

This is a fine example of government racketeering. Our founding fathers are rolling over in their graves as the words in The Constitution of The United States of America has been perverted by skuzzy judges, politicans and developers that to me should be doing time in jail rather than someone who jacked someone's car at a redlight.

The skuzzy county workers in the permit & zoning department KNEW Susette Kelo's home was in the way of future developement and stole tens of thousands of dollars in permits to remodel her house in the months before they stole the neighborhood for a corporation's empty promises.

In the county where I live in California, I have met people who had their homes "taken for enviornmental reasons" who were never paid anything and left with the balance of their mortgages. Victims that were promised "fair market value" were conveniently never paid or paid less than 10% of it's actual value. A hotel chain bought and developed the land in this one neighborhood at a high price. One victim was a woman and small daughter who was living paycheck to paycheck and was reduced to living in her car and showering at a local junior college. CPS wanted to take her child away from her. The money she was saving from work to pay her mortgage on her stolen house, and save up for an apartment had to go towards a hotel room so her child would not be further traumatized by governmental abuse. Welcome to the America who does not care about your family or whether you have a roof over your head!