Cities Grab Land for Revenue, but Judges Are Slapping Their Hands

A stinging federal court decision that rebuked Cypress earlier this month for trying to take a church’s land for a Costco store is only the latest signal that judges are losing patience with cities they suspect of taking over private property just to increase tax revenue.

State law allows cities to force landowners to sell property in redevelopment areas, but not if the only goal is to accommodate businesses that will boost tax revenue. “The whole purpose of redevelopment law is to get rid of urban blight,” said Mike Berger, an attorney who battled the city of Lancaster in a similar case. “It is not supposed to be used just to make a buck.”

The decisions come as cities grow increasingly desperate to raise revenue through sales taxes. Proposition 13, the landmark tax reform initiative passed by voters in 1978, restricts cities from raising property taxes, so many see bringing a big retailer--such as Costco or Wal-Mart--to town as the only way to increase their budget. And that often means assembling a large property by forcing owners of several small parcels to sell their land.

“The whole problem is cities are in a mad race for revenues,” said George Lefcoe, professor of real estate law at USC. “But redevelopment is not supposed to be used for that. So in redevelopment, it is always Halloween. Cities wear a ‘blight’ costume to hide the ugly face of tax dollars.”

The Cypress ruling on Aug. 6 was the latest in a long-running battle between the city and Cottonwood Christian Center. Cottonwood bought an 18-acre property in 1999 with plans to build a new church, but the city--using its powers under redevelopment law to fight blight--sought to use the land for a Costco instead. The church sued, setting off a struggle that became a nationally watched test case of a 2000 law that exempts churches from most local zoning regulations.

U.S. District Court Judge David O. Carter called Cypress’ concerns about blight “suspect.” He made a simple point: If the city wants to erase blight on the vacant asphalt lot, it should simply allow Cottonwood to build its 300,000-square-foot church and community center there.

As for the city’s claim that it needs Cottonwood’s land to build a retail center that would generate much-needed sales tax dollars? “Revenue generation is not the type of activity that is needed to protect public health or safety,” Carter wrote, and therefore does not justify forcing private property owners to sell their land. Carter ordered Cypress to halt eminent domain action against the church until the case can be tried--a trial over which he would preside.

The ruling follows a similar decision in Lancaster, where a judge ruled that the city could not force a 99 Cents Only store off its land so Costco could expand. Lancaster argued that keeping Costco in town represented a legitimate “public use” worthy of taking land away from another business. U.S. District Court Judge Stephen J. Wilson called that a “naked transfer of property from one private party to another” in striking down the city’s plan.

“There are a number of courts recently that are looking much more skeptically at what government agencies say is a valid public use,” said Berger, the attorney who represented the 99 Cents Only chain

Paul Shigley, managing editor for California Planning and Development Report, tracks redevelopment disputes in the courts. One fact, he said, is undeniable: “Cities keep getting crushed. They aren’t proving their redevelopment areas are blighted.”

Legal experts say cities’ problems are rooted in a 1993 state law that requires local officials to prove that areas they are trying to redevelop show such intense physical and economic blight that they burden the whole community. No longer can an area be designated as blighted merely because a city says it is.

Among the most notable examples has been Diamond Bar. City leaders felt they were losing revenue to other communities by confining their retail district to strip malls and small retail centers with a high vacancy rate and little parking. A 1995 city study concluded that 86% of residents did most of their shopping outside Diamond Bar.

The city adopted a redevelopment plan in 1997 intended to lure retail “power centers” and major retailers to town. The plan was challenged by a group of residents who presented a videotape of the supposedly blighted area. A state appeals court ruled that the tape showed the project area lacked “anything remotely resembling blight.” The decision had an even wider impact than just striking down Diamond Bar’s plan: It also chipped away much of the flexibility cities once had in creating redevelopment zones.

A case in Mammoth Lakes in the Sierra Nevada further eroded that flexibility. In trying to transform itself from a quiet ski town to a year-round destination resort, the city created a redevelopment zone that included an airport, resort area and retail center. Yet a state appeals court was unconvinced there was sufficient blight on a local golf course, community college campus and other parts of town included in the plan and killed the proposal.

Redevelopment advocates caution against making too much of recent court decisions. They say redevelopment has always been messy, and such disputes are not necessarily new.

“This is not an exact process,” said John Shirey, executive director of the California Redevelopment Assn. “I look at these things philosophically and point out that the controversy is proof the process works. It shows people are able to have a say, raise challenges, and get things moving in a different direction.”

He cites Cypress as a perfect example. After all the controversy, the city and the church appear close to a land-swap settlement in which the church would get a suitable site and the city could work toward building the retail center it envisioned.

USC’s Lefcoe is more cynical. He says many cities push ahead with legally questionable plans hoping they won’t get challenged. Opponents have only 30 days to sue after a redevelopment zone is established, and Lefcoe says cities often try to move swiftly and quietly enough to go unnoticed.

“It’s like making an illegal U-turn,” he said. “The cop isn’t always there to pull you over.”