The agency — which has 500-plus employees and a $97 million annual budget to oversee maritime cargo and cruise ship facilities in a coastal area covering San Diego and four smaller cities — has turned the permitting process into a way to pad its coffers and ease its financial woes. The U-T San Diego Watchdog team had the rationale and the amazing details:

Amid budget problems last June, the port decided to impose fees to cover staff time spent processing paperwork and issuing approvals for new developments, improvement projects and lease negotiations.

The agency is charging up to $300 an hour or more for some staffers’ time, including salary, benefits and an apportionment of port overhead costs.

This adds up quickly. It’s like lawyers scavenging for billable hours:

Navy ship repairer BAE Systems was told it would cost $30,000 in port approval fees for a project that was only going to cost $50,000.

BAE wanted to replace two underground diesel storage tanks with one that was smaller and less environmentally above ground on its leased port property. After removing the older tanks, BAE decided not to put the new tank on port land after getting the bill in September. …

Mitsubishi Cement Corporation received a $586,385 bill on July 8 for its project to convert an old transit shed at the Tenth Avenue Marine Terminal into a cement import facility.

The overall estimate was later reduced to $446,000 to correct an error, port officials said.

San Diego port collects 15 times as much as Oakland port

The “cost recovery” program has no parallel at other California ports, the U-T noted.

The fees are more far-reaching than those at other ports in the state, according to an agency consultant. San Diego budgeted $1.5 million of revenue per year from such fees, compared to $100,000 typically collected for similar services at the Oakland port.

And the results are predictable.

GB Capital refused to pay at least $303,000 in port “cost recovery” fees and backed away from its plans to build shops, restaurants, a luxury RV resort and eventually a hotel at the National City marina.

“Cost recovery did influence our decision to back away from the project,” said Greg Boeh, general manager of GB Capital. “We believe in the project that we proposed and certainly would be willing to move forward if we could resolve the entitlement concerns.”

National City is a struggling blue-collar town with sky-high unemployment and a dearth of economic prospects. It could have used the GB Capital project.

But the port is sticking with the story that what it’s doing is reasonable.

Feel free to snicker. At least after you feel sorry for the businesses in the San Diego area that have to put up with this lunacy.

By WAYNE LUSVARDI

Chalk up one knockout punch for the little guys who oppose eminent-domain abuse.

National City in San Diego County blew a $2 million hole in its General Fund budget due to a $7 million decline in sales taxes mainly as a result of declining auto and lumber sales.

To fix its structural budget deficit, it wanted to to create a sales tax incubator called a redevelopment project by demolishing 692 properties, that would also divert property taxes away from public schools to city hall.

A redevelopment project isn’t so much private commercial development that needs legal assistance with land assemblage as it is a Potemkin village for tax generation.  The term Potemkin village comes from Russian minister Grigori Potemkin who supposedly built impressive fake idyllic villages along a route Czar Catherine the Great was to travel in 1783.  In modern day language, we would say redevelopment is a Hollywood stage set for collecting taxes.

National City had tried unsuccessfully in 1976 to establish a redevelopment project by proposing to condemn the 103-acre Bonita Golf Course and Club but was overruled by the courts for inability to prove the property was “blighted.”

A budget deficit is nothing new to National City. According to a story in the Los Angeles Times, National City also had a $2 million budget deficit in 1993 as well as battling a high crime rate.

On April 22, 2011, National City’s attempt to establish a redevelopment agency was thwarted once again when a Superior Court judge ruled there was no substantial evidence that the properties brought before him for review — in particular a local youth boxing club — were blighted.

Redevelopment Dream

Some California cities are scrambling to set up redevelopment projects as a way to plug the state’s short-term $25 billion budget deficit and looming $75 billion pension fund shortfall before Gov. Jerry Brown eliminates redevelopment agencies.  What was proposed in National City was a mixed commercial/residential use development with a 24-story tower of luxury condominiums.

According to Trulia.com, National City has a median home price of around $200,000, after falling from about $450,000 in mid-2006.

Homes.com indicates there are 282 foreclosed homes listed for sale in National City, not including the shadow inventory of homes that are underwater in their mortgages after home prices fell $250,000, or 56 percent on average.

One of the foreclosure sale listings shown on the front page at Homes.com is a one-bedroom, one-bath condo built in 1990, located in a 12-story tower, and listed for sale for about $100,000.  This is $100,000 less than what a developer proposes to sell condos for in the planned — but now defunct — redevelopment project.

Citydata.com indicates the median household income in National City as of 2009 was $35,332, which is about $24,000 less than the statewide median income.

What redevelopment is about is creating luxury real estate for upscale chain-owned restaurants, chain retail stores, luxury theaters, local entertainment venues and luxury high-density housing.  The typical family in a working class community like National City has very little discretionary income to spend eating out, going to the movies rather than renting a film through Netflix, or buying high-end goods in trendy clothing and retail stores, especially in an economic recession where real inflation is taking off.

Redevelopment in California has redefined affordable housing as a new luxury condo, with pools, spas and gyms, located on pricey commercial land next to an upscale mall and light rail.  The traditional definition of “affordable housing” has been housing that is old, obsolescent as to design and/or building codes and located further from shopping centers and transit stations or freeways.  There is no discernible market for luxury condos in National City now or in the foreseeable future.

No More Raiding the Piggy Bank

Like all cities in California with redevelopment agencies, National City is desperate for a piggy bank to bail them out of their budgetary hole.  But like households that can no longer easily use the equity in their homes as a cash cow for living beyond their means, cities are learning there is no magic such as redevelopment that is going to save them.

After pigging out on debt and overspending for decades, cities, as well as households, have to learn to live within their means.

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

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.