Affordable Housing Institute : US

By: David A. Smith

 

The soaring plans for New London’s revitalization finally died last week [November 11, 2009 – Ed.], and in failure’s aftermath the opponents of eminent domain for economic development (ED4ED) cannot resist gloating, as illustrated by this story in The Washington Examiner:

 

Pfizer deserts its monument to corporate welfare

 

No spin there, surely.

 

The little house that focused the ruckus:

Susette Kelo’s home in New London

 

Susette Kelo’s little, pink house in New London, Conn. – like the houses of all her neighbors – is now a pile of rubble, overgrown with weeds.

 

But the story has quite a different side, as revealed in this contemporaneous New York Times feature (in Times New Roman indigo).  The Kelo house wasn’t demolished:

 

Ms. Kelo, a nurse who works in New London and Norwich, Conn., said she was still bitter about the loss of her house, which she sold for $1 to Avner Gregory, a preservationist. Mr. Gregory dismantled the house and moved it across town.  [He also upgraded it – Ed.] It now stands as a bright-pink symbol of the divisive dispute that drew so much attention to New London.

 

I am fairly certain that it was, in fact, moved to the Fort Trumbull site previously.  So the house whose immovability figured at the center of a landmark eminent-domain case proved its movability afterwards.

 

Perched on the rock, ready to creep away?

 

But Pfizer, the company that called for the demolition in order to build a new research and development plant, announced Monday it is packing up and leaving town in order to cut costs after its merger with fellow drug-giant Wyeth.

 

Yes, because the eminent domain failed. 

 

Pfizer said it would pull 1,400 jobs out of New London within two years and move most of them a few miles away to a campus it owns in [nearby] Groton, Conn., as a cost-cutting measure.

 

New London loses; Groton wins.

 

It would leave behind the city’s biggest office complex and an adjacent swath of barren land that was cleared of dozens of homes to make room for a hotel, stores and condominiums that were never built.

 

The Examiner sees one thing; we see quite another.

 

What do you see here?

 

“I’m not surprised that they’re gone,” said Susette Kelo, who moved to Groton from New London after the city took her home near Pfizer’s property. “They didn’t get what they wanted: their development, their big plan.”

 

Jobs are mobile; cities are static.  Cities represent a massive investment in permanent infrastructure that goes to waste unless that infrastructure produces jobs.  Cities are like plants, needing the pollinating bees of employers to fertilize and propagate their economies.  Flowers compete for bee attention with bright colors and appealing scents; cities compete for employer attention with tax breaks and eminent domain offers.

 

Looks like a great place to settle, doesn’t it?

 

In fact, that’s just what New London did, luring Pfizer into settling:

 

The city had created the New London Development Corporation to buy up the nine-acre neighborhood and find a developer to replace it with an “urban village” that would draw shoppers and tourists to the area.

 

The power relationship is unbalanced and fluid.  When the economy is good, cities have the power of levy.  When the economy is bad, companies have the power of mobility.

 

Economic development officials in Connecticut used that plan — and a package of financial incentives — to lure Pfizer to build a headquarters for its research division on 26 acres nearby. With an agreement that it would pay just one-fifth of its property taxes for the first 10 years, Pfizer spent $294 million on a 750,000-square-foot complex that opened in 2001.

 

 

In terms of site appeal, Fort Trumbull is a jewel: on the Thames River, views of Long Island Sound, proximity to downtown. 

 

The redevelopment area is scraped

Pfizer’s research facility is in far low left, almost out of the picture

 

Yet it lacked accessibility or a reason to stop.  I-95, the interstate from New Haven to Providence and Boston, runs alongside, crossing the Thames on a high bridge and giving passers-by only fleeting glimpses of the waterfront.

 

If you got off the highway, you’d be home now

 

Nor is there an economic base.  Not enough jobs, not enough reasons to invest or spend money.

 

In the late 1990s, New London’s politicians were desperate to fix up their aging and ailing town.

 

Had the elected and appointed officials done nothing, Ms. Kelo’s little house would still be there, true enough, but the neighborhood around her would still have deteriorated.

 

The city revved up a private, non-profit entity called the New London Development Corporation, which went to work drawing up a plan of a new New London.

 

Imagining its future: New London City Hall

 

Was NLDC a Mission Entrepreneurial Entity?  No, because it was vested with government proxy powers, namely eminent domain for economic development.  NLDC was an instrumentality of New London.

 

Eminent domain has always existed for public-use developments – highways, bridges, parks.  ED4ED differs in that the redevelopment is intended to be a private use, undertaken by a private party.  Eminent domain is a use of government power to override normal private-property rights, and while it’s potent enough when the property taken is used publicly, when the transfer is private-to-private ED has enormous potential to favor the powerful at the expense of the powerless.

 

The central planners decided that their white knight would be Pfizer, already operating a plant across the river in Groton, but looking to build a massive research and development facility.

 

Groton, the Istanbul of this story: with Fort Trumbull the orange bulge on the Thames’s West Bank

 

Like competing apothecaries across a village green, Groton and New London face each other across the wide Thames River.  Southeastern Connecticut has long been an economic backwater, and unless the state grows its jobs broadly, there will not be enough of an employment base to support both cities.  Groton had the edge, through its US Navy connections with Electric Boat (the submarine builders), and New London needed to do something dramatic if it was to compete.

 

So the politicians picked a 24-acre lot and sold it Pfizer for $10, adding on special tax breaks.

 

Sounds like a giveaway, except that sometimes land has negative value – as in when it’s contaminated.

 

Also, state and local governments promised $26 million to clean up contamination on the lot and a nearby junkyard.

 

Without which nobody would develop anything – particularly not a pharmaceutical company, for can you imagine the headlines?

 

But Pfizer executive David Burnett thought New London needed to do some more cleaning. “Pfizer wants a nice place to operate,” the Hartford Courant quoted Burnett in 2001. “We don’t want to be surrounded by tenements.”

 

I’m sure he could have been better coached, but his point is legitimate.

 

The old Victorian houses in the Fort Trumbull neighborhood next door did not match Pfizer’s vision – a high-rise hotel or luxury condominiums would be more fitting.

 

The issue wasn’t their quality, but their density (or lack thereof) and their suitability to making Pfizer’s installation into a research campus.  If you bring people to work in your big research plant, you want a place for them to stay, and to eat out, and to tour your town.  Fort Trumbull was and is isolated; the Pfizer plant would have been an enclave.

 

The few homes sprinkled in had been excised

 

So, the development corporation, empowered with eminent domain by the city government, cleared out the Fort Trumbull neighborhood, condemning the homes of anyone who wouldn’t sell at its appraised value. Kelo, and other residents who didn’t want to move, sued to block the condemnation.

 

Nothing left but weeds and a shuttered warehouse, awaiting redevelopment

 

Eminent domain protects property owners in two ways: with just compensation for the taken property, and even before that, by requiring the government to demonstrate that this particular taken property is necessary to be taken.  When a highway is involved, necessity is geographically demonstrable.  For economic development, the finding is abstract – that the neighborhood is ‘blighted’ (a term cooked up in the mid-1950s’ cases of Berman and Midkiff), which as many commentators have pointed out, is a very slippery slope.

 

They lost, but they fought all the way to the U.S. Supreme Court.

 

There, the four liberal justices joined with moderate Anthony Kennedy to rule in favor of the developers — the takings were perfectly legal.

 

Deferring to municipal government: Kennedy

 

As I’ve discussed, it was a questionable decision, although it is the logical culmination of the line of reasoning in Berman and Midkiff and others.  Recognizing politically that ‘blight’ could be a code-word for ‘poor,’ advocacy groups kicked up a substantial political backlash that is still ongoing.

 

The Court cited the redevelopment plan’s “comprehensive character” and the politicians’ “thorough deliberation.”  

 

Reading the judicial record, I agree with critics who thought the NLDC’s approach was sketchy and roseate. 

 

Justice John Paul Stevens wrote, “The city has carefully formulated a development plan that it believes will provide appreciable benefits to the community, including, but not limited to, new jobs and increased tax revenue.”

 

And I believe the city

 

This isn’t the place to rehearse all the complexities, issues, and policy risks of eminent domain; I’ve covered them in many other blog posts [See box – Ed.].   

 

 

For Kelo, we need only that, as Poletown and similar developments have showed, and as Atlantic Yards in Brooklyn continues to demonstrate, elected officials go all dewy with visions of new jobs.  Along the way, they are dazzled by insubstantial promises, and they tend to steamroll small property holders.  This trampling on property rights they justify as incidental damage, small costs for the greater good.  ED4ED gives elected officials moral cover for using their power to benefit those pollinating bees they so desperately wish to attract.  Here’s a quote from 2000, when the Institute for Justice’s lawsuit was filed:

 

‘Going back to John Locke, the concept of private property, after due remuneration, being transferred to public benefit is a longstanding tradition in the United States,’ said Claire Gaudiani, the president of the New London Development Corporation, a private nonprofit group authorized by the city to direct the redevelopment plan.

 

Ms. Gaudiani, who will step down in June after 13 years as president of Connecticut College here, has led the economic redevelopment effort and is largely credited with persuading Pfizer to put its new research headquarters on a formerly polluted site. Her husband, David G. Burnett, is a Pfizer executive, the director of Pfizer Research University.

 

That was the hope.  What changes a decade wrings.

 

[Continued tomorrow in Part 2.]

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