There Is a CRA Scandal, But Not the One Tuttle Thinks

City Controller Rick Tuttle is on the right track--but driving the wrong train--when he criticizes the appraisal practices of the Los Angeles Community Redevelopment Agency. The CRA may indeed be paying more for land it acquires than its in-house appraisals show, but that isn’t a scandal. It’s market reality--and perhaps even justice.

Urban redevelopment was sold to the country in the 1950s as “slum clearance.” The theory was that to rescue blighted cities, the government had to acquire slums through eminent domain and raze them. The vacant land would then be turned over to private builders for redevelopment.

The problem with this vision was that the Constitution forbids condemnation of private property except for “public use.” Letting redevelopers make a pretty penny from land wrested from its lawful owners sure doesn’t sound like a public endeavor.

But in 1954, the U.S. Supreme Court allowed such taking of private land, reasoning that slum clearance alone was a public use that satisfied the constitutional mandate, regardless of the private use that would be made of the taken land.

As it turned out, this was the first step down a slippery slope. Before long, the term “slum clearance” gave way to “blight elimination,” and “blight” was defined as virtually anything a city redevelopment agency wanted to get rid of. Urban redevelopment has become just another tool of private pursuit of profits. Now, redevelopment agencies routinely take privately owned land, turn it over to favored private parties for the latter’s profit and call it “public use.” With a couple of recent exceptions, the courts largely have gone along with this scam, so that virtually anything goes.

But though the constitutional “public use” limitation may have gone by the boards, it still is constitutionally necessary for redevelopment agencies to pay just compensation for what they take. On this issue, land owners are entitled to a trial by jury and a judgment of the fair market value of what is taken from them.

Understandably, condemning agencies want to pay as little as they can, while land owners seek to maximize their recovery, because fair market value is all they get under eminent domain. They do not get reimbursed for all sorts of losses that are suffered when people are forcibly displaced from their land. Thus, it is common that when redevelopment agencies’ evidence of land worth is scrutinized in court, it falls short, and juries routinely return verdicts higher than the agencies’ penurious appraisals.

But the people who run the agencies are no fools. When facing determined and well-represented property owners, they realize that compromise is preferable to an adverse verdict (which may also require them to pay the owners’ attorneys’ fees), so they frequently settle at figures substantially above their original stingy appraisals. There is nothing unusual or dishonest about that; if anything, the dishonesty lies in agencies’ initial low-ball appraisals. In fact, though the state of California requires condemning agencies to offer the full amount of their approved appraisals, at times they ignore the law and offer less, secure in the knowledge that California courts won’t do anything about their prelitigation low-ball offers.

Tuttle’s accusation that the CRA paid some land owners for business goodwill also is true, but equally misguided. Until 1975, the law failed to provide compensation for the value of businesses conducted on land taken by eminent domain. But now, though California law requires that compensation be paid for the destroyed or damaged goodwill of businesses displaced by condemnation, condemning agencies take the position that their prelitigation offers still need not include anything for goodwill. Thus, when a condemnation of business property is settled out of court, that value has to be added to the settlement amount.

So though Tuttle’s facts are correct, his conclusion is not. This is not to say that these agency practices are commendable. On the contrary, they are abusive. The California Law Revision Commission has recommended legislative changes that would put an end to the practice of failing to include goodwill values in agency offers to purchase business properties.

Last but not least, though not touched on by the city controller’s outbursts, there is a real scandal going on here. In recent years, the process of redevelopment, particularly its freewheeling use of eminent domain to take property from one person and give it to another for the latter’s private profit, has reached grotesque proportions. High-rise buildings, shopping and automobile malls, professional sports stadiums and even race tracks and gambling casinos are being built on land forcibly taken from citizens who are abused and undercompensated in the process. This is no “public use,” but private enrichment of well-connected insiders who are able to build their own businesses using tax-free municipal bond financing and thus enrich themselves at public expense.

Whatever that is, “public use” it isn’t, notwithstanding the tiresome assurances that a trickle-down effect will cause the community to prosper. All too often, those who prosper are mall developers and operators, not minimum-wage store clerks and janitors. Worse, at times redevelopment projects fail, as they have in Hawthorne, Redondo Beach and Pasadena, and then the public is left holding the bag.

Eminent domain--the government’s ability to wrest private land from its lawful owners by force--is an awesome power that can be and frequently is abused. The scandal lies in the frequency with which this happens, not in the fact that some displaced property owners have to be paid full market value for their land and fair compensation for their destroyed business goodwill. *