Pete Rates the Propositions
Sensible opinions on the California ballot propositions      since 1980      by Pete Stahl

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Pete Rates the Propositions
June 2008

Pete recommends:
98   NO   Elimination of Rent Control
99   YES   Restriction on Use of Eminent Domain


Eminent Domain and the Kelo Case

In 2000 the city of New London, Connecticut, in dire need of an economic boost, approved a redevelopment plan for the middle-class neighborhood of Fort Trumbull. The centerpiece was a major new research facility for Pfizer pharmaceuticals. Also included were a hotel and conference center, a new state park, and office, retail and residential space. To make room for the project, the 115 existing property owners were offered buy-outs. Fifteen owners, including ten who lived there, refused the offers. So the city invoked eminent domain and condemned their lots.

Eminent domain requires that property be taken for public benefit. The holdouts in Fort Trumbull sued the city, arguing that their property was being taken not for public benefit, but for the private benefit of the new owners (principally Pfizer). The case made it all the way to the U. S. Supreme Court, as Kelo v. City of New London. In 2005 the court ruled, in a 5-4 vote, that the city could condemn the property. Justice John Paul Stevens's majority opinion stated, "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." (Emphasis mine.)

The Kelo decision has caused quite a stir. Before the decision, eminent domain was used only to raze blighted or hazardous areas, or to make room for public works such as schools, aqueducts and roadways. Now the government can condemn perfectly viable property and sell it to new, private owners, solely to jack up tax revenue.

Imagine the implications for California, where Proposition 13 suppresses property taxes far below their potential. If your town felt the need to pump up its property tax revenues, under Kelo, it could condemn, rebuild and resell a few hundred homes and businesses, particularly those with longtime owners (and therefore artificially-low assessed value). Tax revenue from the freshly reassessed property would jump all right, by tens of millions of dollars. Your town would be allowed to do this because, according to the decision, increased tax revenue is a sufficient benefit to the community to justify eminent domain. Would your city fathers be able resist that huge payoff? Don't bet on it.

In November 2006 we saw a ballot proposition hoping to prevent this scenario. Prop 90 would have amended the state Constitution to prevent the taking of property via eminent domain, except to build facilities offering public services or to correct a public nuisance on a specific parcel. But Prop 90 also contained abhorrent provisions that would have effectively ended all future zoning and environmental regulation. Luckily the voters narrowly defeated Prop 90. (I ascribe this less to the wisdom of the electorate than to Ballot Fatigue. The first seven statewide propositions on that ballot passed, while the remaining six, including Prop 90, failed.)

This June's election includes two more propositions purporting to address the Kelo ruling. Prop 98 would prohibit use of eminent domain to convey property from one private owner to another. But it also contains much more important provisions abolishing rent control, eliminating eviction protections for renters and mobile home owners, and potentially gutting environmental regulations. I oppose Prop 98.

Prop 99, on the other hand, is exclusively concerned with Kelo. All it would do is prevent use of eminent domain to transfer owner-occupied homes to another private party, as happened back in old Fort Trumbull. I support Prop 99.



Proposition 98: Elimination of Rent Control – NO

You may have read that Prop 98 is about protecting us from improper use of eminent domain. It isn't. Prop 98 is about enhancing landlords' rights and abolishing local rent control laws. Yes, the measure does address eminent domain in a clumsy way. But voting on Prop 98 because of its eminent domain provisions would be like buying a car because of its hood ornament. It completely misses the point.

Prop 98 will eliminate rent control for residences and mobile home spaces. Current tenants can remain under existing rent controls as long as they stay in their units. But once they leave, the units will revert to market rate, and rent control will end.

About one dozen California cities have rent control for apartments, condominiums and houses, and over 90 cities and counties control rents for spaces in mobile home parks. Typically these controls apply only to older units. For example, in Los Angeles, controls apply only to buildings constructed before 1979 and mobile home parks opened before 1987. This is so controls don't suppress new units coming on the market. Rents on controlled units are not frozen, but adjust annually to track cost increases faced by landlords for utilities, insurance, and so on. Most controls apply only so long as a tenant remains in the unit. For example, Santa Monica allows landlords to charge market rate for vacant apartments, which are then subject to rent control at the new rate.

Rent control is essential for a number of reasons. Many renters are on fixed incomes, particularly seniors and the disabled. Unrestrained increases to their rents would cause serious hardship or force them to move, potentially far away if the rental market has heated up in their area.

Rent control also allows communities to thrive without the constant turnover that massive rent fluctuations would cause. This is particularly important for children of renters, who need stable neighborhoods and continuity in school.

Economists like to complain that rent controls subvert the natural wisdom of the market, which tends to fix things over the long run. But that model assumes a relatively frictionless market, which doesn't exist here because of the cost of moving. Most renters simply can't afford to move to a more suitably-priced unit every time their rent jumps. This is particularly true for mobile home owners, who must pay thousands of dollars to move their homes. Also, many economic models consider rental costs in isolation. However, it's likely that a priced-out renter would have to move a significant distance to find an appropriately-priced market-rate unit, so the model must account for additional costs, such as increased transportation to work (or finding a new job), settling into a new community, and so on. The upshot is that landlords hold all the trump cards, so renters in tight markets need the protections offered by rent control.

The Sacramento Bee's Peter Schrag recalls that the pitch to renters to vote for Prop 13 in 1978 was that it would stabilize rents because landlords' property taxes would stop rising. Of course this never happened, leading cities from Beverly Hills to Oakland to enact rent control ordinances. If Prop 98 succeeds in ending rent control, all those renters who voted for Prop 13 on false premises really ought to have a chance to reconsider.

Aside from abolishing rent control, Prop 98 would eliminate most additional protections for renters, such as laws requiring reasonable return of rental deposits and preventing unfair evictions. Section 19 (b) (3) (iii) (on p. 18 of your Proposition Fun Book) outlaws "regulation of the ownership, occupancy or use of privately owned real property ... in order to transfer an economic benefit to one or more private persons at the expense of the property owner." In other words, Prop 98 would nullify any regulation that benefits renters ("one or more private persons") at the expense of landlords. This could include protections such as the requirement for landlord-tenant mediation in Fremont, eviction restrictions in San Diego, and just-cause eviction protections for mobile homeowners statewide.

If all this weren't bad enough, there is a real possibility that the "transfer an economic benefit" clause in Prop 98 will prevent enactment and enforcement of many zoning and environmental laws. After all, these regulations impose costs on landowners for the benefit of the general public ("one or more private persons"). One law firm's analysis indicates that Prop 98 "appears to impair a broader class of environmental protections than did Prop 90," which would have essentially halted all zoning and environmental regulations in the state. (See that rating for details.) If this is true, then Prop 98 is far more evil than it seems.

Finally, part of the eminent domain language in Prop 98 prohibits the taking of private property "for the consumption of natural resources." Depending on how courts interpret this wording, it could become nearly impossible for the government to build new public water projects, as land for water rights, pumping stations and pipeline rights-of-way becomes unobtainable. In a state that lives and dies by its water supply, this can only spell trouble.

Even if you're a die-hard opponent of rent controls, Prop 98 is the wrong way to eliminate them. There are too many dreadful side-effects. Maybe you feel rent control must go. But unless you also believe that landowners should be entitled to ignore the needs of their communities, trash the environment, and deprive us of safe, reliable water, you must join me in voting no.



Proposition 99: Restriction on the Use of Eminent Domain – YES

A haiku:

Simple and serene,
This measure will fix Kelo,
And do nothing else.



 
 
 
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