Affordable Housing Institute : US

[Continued from yesterday's Part 1.]

 

By: David A. Smith

 

Yesterday we encountered sad New London, Connecticut, whose expansionist dream has died with Pfizer’s announcement it is closing its plant and moving the jobs to nearby Groton.  Some, like The Washington Examiner, see in this a redemptive tale of brave and plucky small property owners standing athwart the powerful’s bulldozers.  Others, like the New York Times (in Times New Roman indigo), cannot make up their minds.

 

The New York Times, long a fan of eminent domain among other big-government tools (after all, the paper had recently scooped up its Times Square property through eminent domain) –

 

Touche!

 

A touch, a touch!  I do confess it.

 

– applauded the ruling as “a setback to the ‘property rights’ movement,” (note the scare quotes)

 

True enough point.

 

– and explained: “New London’s development plan may hurt a few small property owners, who will, in any case, be fully compensated.”

 

We cannot lose sight of this; eminent domain pays fair market value, and that appraisal/ condemnation process is stacked in favor of the property owner.  The issue’s not fair value, it’s displacement – an issue that resonates powerfully, by the way, in the slums of the global south.

 

“But many more residents are likely to benefit if the city can shore up its tax base and attract badly needed jobs.”

 

That too is true.  It’s why the Supreme Court deferred to NLDC’s judgment.

  

In that deferral lies the root of the Institute For Justice’s complaint.  (For much more on AHI’s perspectives, see the posts listed in the inset box.)

 

 

ED4ED is an essential tool.  It is also a powerful tool.  Being powerful, it is subject to exploitation and abuse.  Kelo shows a modern audience what Poletown showed twenty-five years ago – political power asymmetries make it too easy to dispossess the small semi-formal neighborhoods in exchange for an ethereal and often unrealized shining city on the hill. 

 

Cleared away were 16 churches, 144 businesses, 1,500 homes, and 4,200 people … and it

 

If local bodies can make these decisions and confiscate people’s property, even ‘just compensation’ may not be enough.  Uprooting the neighborhood destroys the city’s cryptobiotica, its social fabric, and provides an easy means to shove ‘those’ people to the sidelines. 

 

”We all need to sacrifice,” Ms. Gaudiani said, adding, ”If this city can become a lively, diverse hub of activity that improves life for people of color, for poor people, for middle income, for working poor and for upper-income people, then it is going to be a great American city.”

 

If we all need to sacrifice, why is it that only some are uprooted?  Who decides who is uprooted and who is not? 

 

A woman who didn’t want to be shoved: Susette Kelo

 

Opponents of ED4ED believe – and the evidence supports them – that when those in power are weighing benefits and costs, they undervalue costs on ‘those people’ and overvalue gauzy promises:

 

Conservative justices, including Clarence Thomas, dissented. Justice Thomas called New London’s plan “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.”

 

Since the harm is visible and irreversible, shouldn’t the burden of proof be high, higher still when confronted with a private beneficiary that finds the plan ’suspiciously agreeable’?

 

The decision was widely criticized, and spurred lawmakers across the country to adopt statutes to prevent similar uses of eminent domain.

 

Representative of many people’s reaction

 

Make no mistake; New London’s civic leaders were convinced that unless they did something dramatic, the town could continue to leak jobs. 

 

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

 

In December, 2000, the New London Development Corporation was within an ace of finishing its parcel assembly, having cleared the site and relocated most of the residents:

 

Already, the development corporation has bought 65 properties in the 90-acre neighborhood and is in the process of seizing 21 more from owners who have refused to sell, said Chris Riley, a spokesman. Some of those owners, like Ms. Kelo, have already received orders to move out.

 

New London’s commitment was matched by a substantial and irrevocable capital commitment by Pfizer:

 

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.

 

Bought with the promise of eminent domain: Pfizer’s research facility

 

NLDC’s promises had borne fruit: $300 million in new money, and the promise of substantial additional jobs.  They were so close, and then:

 

Seven property owners in the Fort Trumbull neighborhood, including the Cristofaros, filed a lawsuit today [December 21, 2000 – Ed.] in State Superior Court here seeking to prevent the condemnation of their homes and businesses. Their efforts are being backed by the Institute for Justice, a nonprofit public interest law firm in Washington that specializes in helping property owners fight confiscation under eminent domain.

 

Supreme Court notwithstanding, ED4ED does not have strong enough checks in place to counterbalance the power advantage held by local government and its private-beneficiary ally.

 

“It’s a fair fight, isn’t it?”

 

That also makes it a potential source of abuse:

 

New London was really another example of political cronyism and politicians using the might of government in order to benefit well-connected big business at the expense of those poorer and less influential.

 

Consider that the head of the New London Development Corporation was Claire Gaudiani, who was married to David Burnett, the Pfizer executive who wanted “a nice place to operate.”

 

According to her Web site, “Claire Gaudiani is an idealist and an activist. Her writings call on colleagues, students, and fellow citizens to leave the world a better place.”

 

Not exactly a conflict of interest, but a cozy propinquity.

 

Pfizer vice president George Milne also sat on the development corporation’s board.

 

So he should have!  Pfizer is an enormous employer and there was nothing hidden about Pfizer’s interest in expanding the site. 

 

In the courtroom, former development consultant Jimmy Hicks called Pfizer the “10,000-pound gorilla” in the planning process, and said “the entire municipal development plan – it was related back to Pfizer.”

 

Color me unimpressed by that.

 

The connections may be fishy but I’m still unimpressed

 

So Pfizer got its loot – free land, special tax breaks, and government-funded cleanup of the neighborhood (including clearing out the unsightly neighbors) – and the area prepared for economic “rejuvenation,” as Justice Stevens put it.

 

What loot did Pfizer get?

 

It didn’t work out that way.

 

Why not?  Because it took so long to assemble the sites and clear away the legal roadblocks that by the time they had done so, the economic case for expansion was gone, and Pfizer did what it had always feared it would have to do – it consolidated away from New London.

 

Those delays were occasioned by the plaintiffs’ invocation of their right to challenge the eminent domain, a challenge they could not have mounted on their own (money asymmetry leads to power asymmetry).  Instead, the Institute For Justice, primus inter pares, picked Kelo as the ideal test-case to challenge the expansion of ED4ED and litigated it cleverly, ferociously, and protractedly, all the way to the Supreme Court:

 

They’re my lawyers, and they worked for free

 

The litigation totaled five years from filing to decision and another two years to complete site clearance, during which time the ice cream cone melted, as Dharavi’s ice cream cone is melting. 

 

After Pfizer completed its $67 billion acquisition of Wyeth, another drug giant, in October, [Pfizer spokeswoman Liz]. Power said, “We had a lot of real estate that we had to make strategic decisions about.”

 

Can there be much doubt that, had New London completed its redevelopment, Pfizer’s decision would have been different?  Imagine that waterfront area with retail shops, a hotel, apartments, and high-end condos?  Even if we assume that the condos would be partially unsold, the apartments cutting rents, and the hotel struggling with occupancy, there would have been all that massive co-investment, and the visual and physical landscape of shoreline New London would have been permanently altered for the better.  Now Pfizer’s facility stands as lonely as unoccupied Fort Trumbull:

 

Another monument to an outdated mission

 

She said Pfizer would try to sell or lease its buildings in New London and would “continue to pay our taxes to the city as scheduled.”

 

ED4ED depends on economic circumstance.  It is premised on the judgment – right or wrong – that a neighborhood is in decline, and that unless something dramatic is done to revive the neighborhood, it will sink into profound blight.  Delay the relief for nearly a decade and you stop the revitalization, but you do not stop the decay – and you allow the business cycle to swing against you.  You don’t get the co-investment.

 

Nobody has built the high-rise hotel or the luxury condos the city’s planners had envisioned. The credit crunch and housing collapse took the air of out of that grand plan.

 

Correct.  Also the delays added costs.

 

Pfizer’s sparkling R&D facility that was supposed to anchor the city’s “rejuvenation?”  It’s being shuttered as a cost-saving measure following Pfizer’s merger with Wyeth. Some of the 1,400 jobs there will move across the river to Groton. Some will be terminated.

 

After the merger, Pfizer called the shots

 

Had NLDC done it, then the merger might have brought Wyeth jobs to New London.  Cities compete on their business-friendliness, and New London lost – in large part because it was unable to use ED4ED.

 

The best-laid plans of central planners, it seems, have once again gone awry – unless you look at it from Pfizer’s perspective.

 

Nonsense.  Pfizer’s no winner either.

 

The complex is currently assessed at $220 million, said Robert M. Pero, a city councilman who is scheduled to become mayor next month. The company pays tax on 20% of that value and the state pays an additional 40%, Mr. Pero said. That arrangement is scheduled to end in 2011 [When Pfizer will have to pay 100% taxes – Ed.], around the time Pfizer, which is currently the city’s biggest taxpayer, expects to complete its withdrawal.

 

New London is no winner:

 

But for New London? No more R&D jobs. No development of Fort Trumbull. Just some rubble where families once lived.

 

New London now has a wasteland where a neighborhood once stood, and no jobs or business to show for it. It’s another travesty of central planning.

 

Or just as much a travesty of litigation.  No medicine works if it is withheld from the patient for a decade.  No redevelopment strategy can survive a decade’s delays.

 

Crossing the legal no-man’s land is expensive

 

So who won in New London?  As far as I can tell, nobody.  New London lost: the jobs crossed the river to Groton.  Pfizer lost: it spent $294 million on a property that is now vacant and on which it will lost $75 million or more.  Ms. Kelo lost:

 

“In all honesty, I’m not happy about what happened to me,” Ms. Kelo said. 

 

Financially, she would have been better off selling when NLDC came calling.

 

But, she added, “With 43 states changing their laws, in that sense I feel we did some good for people across the country.”

 

Everybody lost.

 

The little house that became a symbol: relocated and refurbished

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