“What Government Isn’t,
A Commercial Real Estate Developer”
UConn School of Business
Commercial Real Estate Conference
November 13, 2008
My thanks to the University of Connecticut School of Business for inviting me here today to speak to the Commercial Real Estate Conference. I was appointed by Governor Rell and confirmed by the state House of Representatives in May 2007. The position of Ombudsman for Property Rights was created as a reaction to the public outcry arising from the Kelo/City of New London court decisions. Legislative leaders promised eminent domain reform but could not immediately agree on what to do. So, in 2006 the Office of Ombudsman for Property Rights was established and in 2007 the legislature made changes to the municipal redevelopment and economic development statutes.
The Office of Ombudsman for Property Rights assists private property owners and public agencies in understanding and applying the law in matters concerning eminent domain and relocation assistance, including mediation. Specifically: I assist private property owners in obtaining proper treatment and fair compensation from public agencies. I assist public agencies in fulfilling their constitutional obligations to private property owners. I analyze the implications of the public agency’s actions when dealing with owners of private property and their tenants. I encourage agencies to give more consideration to how the process and the intended governmental activity affects the everyday lives and businesses of property owners and their tenants before using eminent domain powers. I mediate disputes pre and post condemnation and I make recommendations to the legislature and the governor concerning changes to the general statutes. Last year the legislature added a responsibility. Under provisions of Section 8-132 the Ombudsman is authorized to hear and decide disputed compensation matters pending in Superior Court.
In short, increasing respect for property rights and bringing all branches and levels of Connecticut’s government into agreement that eminent domain should be used only as a last resort to carry out legitimate public uses is the task and the ultimate goal I have set for the Office.
Today, I would like to address an issue which I think is of importance particularly in light of the current financial condition of our state government, our banks and other primary sources of funding of major community renewal and economic development projects.
I will start with the proposition that government’s responsibility is to provide for public necessities and not private sector projects. When government engages in planning and development based on a combination of public and private investment, it may subject itself and the citizens of the municipality or state to financial risks and uncertainties sometimes more than taxpayers and governmental entities should bear.
When government provides for public necessities, it sometimes has to utilize its power of eminent domain. Citizens understand and accept the use of eminent domain if the need is a new school or a fire house or police station or water or sewer lines or roads, public purposes where the property will be owned, occupied or enjoyed by the public. I believe they also accept the necessity of a community to mandate minimum standards of cleanliness, safety and maintenance of properties and when properties are so poorly maintained as to become a source of crime or fire or health hazards that eminent domain and demolition of the property may be the only adequate remedy.
What is not easily understood or well accepted and disturbs the sensibilities of average citizens are takings of private properties, some that may not be blighted, for private development, i.e., for the use, enjoyment and profit of developers, their tenants and patrons. This is true even though the development plan increases the revenue base of a municipality and results in a general upgrading of an area or neighborhood. This issue was at the heart of the Kelo case.
Personally, I find the decision of Connecticut’s Supreme Court of greater significance to Connecticut municipalities and developers than the decision of the U.S. Supreme Court. The outrage expressed by the public that has resulted in more than 40 states amending their general statutes and some their constitutions stems from the U.S. Supreme Court decision. Justice Kennedy who was the deciding vote wrote a concurring opinion in which he stated that if he believed the taking of private property in New London was merely a pretext for private development and did not provide a substantial public benefit, then, he would have voted differently.
This notion of a taking primarily for the benefit of the developer with only incidental public benefits will, in my opinion, be the basis on which actions which seek to enjoin Connecticut municipalities from taking private property for economic development will be judged in the future.
I want to discuss a case involving the taking of a waterfront property in 2000 by the City of Bridgeport Redevelopment Agency as an example of what public agencies caught in a financial bind do when original plans have failed to produce intended results. After many years of searching for a developer, the agency decided that it needed to include a marina and five other non-blighted waterfront properties in its Steel Point project to entice more developer interest in the area. The area had become more blighted and less livable since the inception of the project. Costs, both real and opportunity, were increasing and taxpayers were not earning a return, i.e., receiving increased tax revenues or other promised public benefits.
Steel Point consists of approximately 50 acres. The Pequonnock Yacht Club sits on two acres at the tip of the peninsula. The club’s buildings and docks are in good condition and there is ample parking. At the time of the taking, the remaining upland acreage of the redevelopment area was generally considered in blighted condition.
Pequonnock is a workingman’s club. Dues are about $300 per year. Members with boats pay an additional $18.50 per foot for a slip. In addition they have to contribute a minimum of 10 hours a year working at the club or pay another $200. The club started in 1906 and has about 240 members. Members of the public are allowed to enter the premises to purchase food and drink as long as a member signs them in.
The redevelopment plan for Steel Point was adopted in 1970. The plan went through many revisions over the years and it wasn’t until the eighth revision in 1998, 28 years later, that the waterfront properties were included. The court found that the developer and the City concluded that the scope of the project and the need for private financial support made it necessary to acquire all of the waterfront properties including the marina property.
Shortly after the plan was revised for the eighth time, the club was acquired by eminent domain. Pequonnock was able to show a trial judge that it had tried to negotiate with the City in an attempt to integrate its facility into the redevelopment plan. The club was ready to invest in improving its property but the City rejected its proposals. The City needed to acquire the club’s waterfront property to be able to convey it to its preferred developer. The club searched for a new location but could find none. After the evidence was heard by the court and before a decision was made, the developer for whom the plan had been revised withdrew or was dismissed from the project. Still the City would not consider integrating the club’s marina into its redevelopment plan.
The trial judge ordered the city to reconvey the property to the club. On appeal the Supreme Court concluded that the City acted unreasonably when it failed to consider or even discuss integration of the club’s property into the redevelopment plan and had failed to establish that the taking by eminent domain was therefore necessary and essential to the redevelopment plan.
Fast forward to the spring of 2007. The City approached the club again indicating it could remain as a tenant but not as an owner. The City offered significantly more money than it had before. Members who kept boats at the marina would be given plenty of time to relocate them to other marinas. The club agreed to sell. I spoke with the club’s attorney to see why the club sold and didn’t stand its ground again. He said in view of the Kelo decision and the fact that the City had met its burden of offering to integrate the marina into the redevelopment plan albeit as a tenant and not as an owner, he felt as did the officers and directors of the club that selling the property made the most sense. He said the club members were tired of litigating with the City.
The second piece of news in 2007 was the City entered into an agreement with a new developer who, the Connecticut Post reported, would build 3,500 luxury condos with water views, stores, restaurants, a hotel, offices, a theater, a conference center, a boardwalk and a new 350 slip marina and yacht club. The developer’s estimate of the project cost was 1.5 billion dollars. The City would sell the entire Steel Point tract to the developer for just about the same amount it paid the club for its parcel. Now I’m sure many of you are saying what’s wrong with that. The city gets a real sprucing up and everyone knows Bridgeport needs more revenue. The problem is where’s the accounting of the public dollars spent and still being spent over 38 years and of the tax revenues not levied or collected while waiting for the development to be built. Where’s the housing for the lower and middle income families who were dispossessed and where are the store fronts at affordable rents for the small businesses that were forced to move? Where is the respect for private ownership of property and where is the line that separates what private citizens can comfortably call their own from what government officials can and will take if they are not restrained from doing so?
In the name of doing good, cleaning up a run down area and bringing in new, bigger and more valuable buildings all of which provide needed additional revenue to the city, the rights of private citizens to peaceably enjoy their properties, their recreation and their neighborhood friends were sacrificed.
Today the Steel Point project is on hold as the developer and the city try to find buyers for more than $100 million in bonds to pay for roads and infrastructure the repayment of which is to come from property taxes generated by the development. While potential investors evaluate the risks of the development succeeding, the plan as described in that Connecticut Post article hangs in the balance. So where are Bridgeport and State of Connecticut taxpayers to look for return on their investment? I don’t know. But I do know that in the future municipalities and state agencies have to do a much better job of evaluating economic risks before committing millions of taxpayers’ dollars to development projects. Government can not carry out its lawful purposes trying to be what it is not, a commercial real estate developer.
Presented by Robert S. Poliner, Ombudsman for Property Rights, State of Connecticut
