National City Eminent Domain On Ropes?

MARCH 21, 2011

By WAYNE LUSVARDI

Just as State Assembly Republicans were pulling their punches to keep eminent domain alive for redevelopment in California, a timely eminent domain case involving the taking of a youth boxing center has emerged in National City that may turn into a real barnburner.  The case has already attracted the same law firm that fought the famous Kelo vs. City of New London, Connecticut: the Institute for Justice. And the case has even been featured in Sports Illustrated magazine.

The trial began March 14 in San Diego County Superior Court over whether there is sufficient “public necessity” for the National City Redevelopment Agency to take a “blighted” youth boxing center owned by Carlos Barragan — as well as 700 other properties — for luxury residential condominiums and other private development.  The case has taken over three years rope-a-doping through the court system due to appeals by the property owner.

Prior Court Case

Back in 1976, no less than the California Supreme Court delivered a technical knockout (TKO) to National City by rejecting their bogus blight determinations for a proposed shopping center.

At issue then was whether the City could take the 103-acre Bonita Public Golf Course and Golf Club.  The Supreme Court ruled:

The real property subject to this action has not become an economic liability within the purview of section 33030; nor is there evidence of “social” blight.

The Court cited prior law that stated:

[O]ne man’s land cannot be seized by the Government and sold to another man merely in order that the purchaser may build upon it a better house or a house which better meets the Government’s idea of what is appropriate or well designed.

2009 Appeals Case

The California Court of Appeals in January 2009 reversed a lower court order that had blocked the boxing club’s legal challenge to the city’s determination of their property as “blighted.”  The Appeals Court sent the case back to the trial courts to determine if National City violated eminent domain law by declaring 700 properties “blighted.”

Meanwhile, other property owners have already accepted the city’s purchase offer, making the Barragans “hold outs.”  At this stage of the court proceeding, the fight isn’t over “just compensation” but over whether the city can legally throw a proverbial sucker punch at the Barragans and justify taking their property involuntarily for a so-called “public use.”

Current Case

The Institute for Justice’s case on behalf of the Barragans is:

1.    National City’s entire blight process was so slipshod and error-ridden that it violated the U.S. and California constitutions as well as California redevelopment law;

2.    National City’s blight study had literally hundreds of errors; and,

3.    National City violated the Public Records Act by failing to turn over critical public records.

According to attorney Dana Berliner of the Institute for Justice, “This will be the first case decided under the reforms passed by the [California] Legislature in response to the infamous Kelo decision, and it will decide whether those reforms offer any protection for the CYAC and property owners throughout the state.” Californians may soon find out whether so-called eminent domain law reforms have any teeth or were purely symbolic.

The Barragans’ case comes at the right time as redevelopment agencies are trying to stay in business doing “affordable housing” even if the State should shut down their primary function of assembling land to build malls and shopping centers.

Even if redevelopment is continued, the market for new retail and housing development is dead, given all the inventory of foreclosures and rising inflation that results in less spending on non-essential goods.

Does National City Need More Affordable Housing?

Perhaps one of the issues that may be brought up in the case is whether National City needs affordable housing in the first place.  As the table below shows, National City has 1,396 more housing units than the number of households. Thus housing is not in short supply.

National City, CA – Households vs. Housing Units

	2000	2009
No. Households	15,018	14,483
Families	11,802	11,297
Intact Families (2-parent households)	4,291	3,736
No. Housing Units	15,100	15,879
Source: U.S. Census Bureau

The median sales price for a single-family home is $210,000, down over 50 percent from the peak of the market when median home prices hit $450,000 in National City.

According to the U.S Census, the median household income in National City is $36,898. Assume this: a 10 percent down payment, a 4.5 percent mortgage rate, a 30-year loan term and 80 percent of the median income per HUD guidelines. Then the monthly mortgage payment for a median priced home would be $958 per month, or 31 percent of the median household income.

This meets HUD guidelines that no more than one-third of household income should go toward housing costs before any mortgage interest deductions on income taxes. What becomes apparent is that there is no compelling need for low- and moderate-income housing in National City.

Sure, the poverty rate in National City was 29.4 percent as of 2008 (CityData.com).  But that 29.4 percent of poverty households are already living in National City and presumably have already found affordable housing. According to Yahoo.com, there are 190 foreclosures currently in National City.  Homes sales were greater in number than at the peak of the market in mid-2006, presumably due to property owners wanting to go back to renting.

No Capture?

Attorney John Ryskamp, who has written his own book on eminent domain law, has left a comment on the VolokhConspiracy.com national legal website that the Institute of Justice’s response on behalf of the Barragans is mainly procedural and doesn’t even argue “capture.” Under “capture,” private purpose is substituted for government purpose. Ryskamp doesn’t believe “the case will go anywhere.” Ryskamp points out that the Institute for Justice lost the U.S. Supreme Court Kelo eminent domain case; and he believes their funding from the Olin and Scaife Foundations compromises them.

Eminent Domain is a Rigged Game

Based on my own experience with eminent domain working for several public agencies, it is a “free lunch” for redevelopment agencies.  Land acquisition costs redevelopment agencies nothing except transaction costs because they merely trade one asset — money — for land on their balance sheets.  And because California case law specifies that it is the property owner’s burden to prove if there is a higher and better use of their condemned property for commercial use in a redevelopment zone, owners are routinely undercompensated with low-ball appraisals.

Eminent domain is a legal boxing match where the rules that guide referees are loaded against the challenger.  Reforms haven’t brought much more than symbolic change to eminent domain law in California. And the Republicans in the Legislature have already thrown in the towel as far as closing down redevelopment.

About the only way to fight eminent domain now in California is through the issue of under-compensation.  But we will see what happens with the Barragans case.

State Budget Out of Control?

How can California bring its state budget under control if each city can divert a huge share of its property tax to get-rich-quick schemes to increase sales tax revenues under redevelopment while public school budgets are being cut?

It’s not that public schools are necessarily underfunded. Rather, it’s that the state Legislature’s budget allocation of 40 percent of the State budget to public schools, as required by the state constitution, can’t be met if each municipality doesn’t have to pony up its share.