When Public Power Is Used for Private Gain

It's time for New York's highest court to say no to eminent domain abuse

Damon W. Root | October 8, 2009

In December 2003, Bruce Ratner, a New York real estate tycoon and owner of the New Jersey Nets basketball team, announced his long-simmering plans to build a 22-acre "urban utopia" in central Brooklyn, featuring more than a dozen office and apartment towers rising as high as 60 stories, a 180-room hotel, and a fancy new basketball arena for Ratner's Nets to call home.

Dubbed the Atlantic Yards, this ambitious project faced several potentially ruinous obstacles. First, various private parties owned more than half of the 22-acre site, which meant time-consuming and possibly unsuccessful negotiations to acquire their land. Second, the size and scope of the project would violate numerous zoning restrictions on height, density, and use. And third, the powerful Metropolitan Transit Authority (MTA), which runs New York City's subways, buses, and commuter trains, controlled a crucial 8-acre rail yard at the center of the proposed footprint.

So Ratner did what most politically-connected elites do when they run into trouble: He turned to the government—including his old Columbia law school pal Gov. George Pataki—for a bailout. More specifically, Ratner partnered with the Empire State Development Corporation (ESDC), a controversial and embattled state agency with the power to bypass zoning laws and seize private property via eminent domain.

The result of that unholy union is Goldstein v. New York State Urban Development Corporation, which New York's Court of Appeals—the state's highest court—will hear next Wednesday in Albany. At issue is the ESDC's use of eminent domain to seize privately-owned homes and businesses on behalf of Bruce Ratner's Atlantic Yards.

It's a classic case of eminent domain abuse. Ratner isn't planning to build a bridge or a road or any other legitimate public project that might permit the forceful taking of private property. He wants to build a basketball arena, sell tickets to the games (not to mention sell broadcast rights, advertising space, concessions, and merchandise), and make a big fat profit. That's not public use, it's private gain.

Furthermore, state officials have gone out of their way to put those profits in Ratner's hands. Consider that when the project was officially announced in 2003 there was no mention of blight, which is the state of extreme disrepair frequently cited by the ESDC to trigger an eminent domain taking under state law. Two years later, however, Ratner and the ESDC started claiming that the neighborhood was "blighted." Yet by that point Ratner had already acquired many of the properties he wanted (thanks to eminent domain) and left them empty, thus creating much of the unsightly neglect he now cites in support of his project.

Moreover, the ESDC report counted minor things like "weeds," "graffiti," and "underutilization" as evidence of blight in the various holdout properties. Yet as the Institute for Justice argues in an excellent friend of the court brief it submitted, "A finding of blight premised on underutilization or the presence of weeds in a yard is not a finding of blight—that is, not a finding that property is causing harm to surrounding properties—it is simply a finding that the government does not like what a property owner is doing with a particular piece of property." If this "finding" is allowed to stand, few homes or businesses in New York would be safe from condemnation.

As for that 8-acre rail yard at the center of the proposed Atlantic Yards footprint, the MTA quietly struck a deal with Ratner as early as February 2005 without first opening the property up for competitive bidding. After a public outcry over this blatant act of favoritism, the MTA gave prospective developers a mere 42 days to submit their own "competitive" bids—another transparent attempt to privilege Ratner, whose plans had been in the works for years, over his competitors, who had to scramble to put something together.

Still, the real estate firm Extell submitted an attractive $150 million bid for the rail yard, a property which has been appraised at over $200 million. In response, Ratner bid just $50 million and won, with that figure later negotiated to a lump-sum payment of $100 million. This past June, the MTA decided to pour a little more sugar on the deal, allowing Ratner to pay a mere $20 million up front, with the remaining $80 million due over the next 22 years. Keep in mind that the allegedly cash-strapped MTA recently raised subway and bus fares and received a $2.3 billion bailout from the state.

So what should New York's highest court do about this corporate welfare boondoggle? Remember that New York is one of just seven states that has yet to pass any laws protecting property rights in the wake of the Supreme Court's notorious 2005 decision in Kelo v. City of New London, which allowed that municipality to seize private property on behalf of the Pfizer Corporation. As Robert McNamara, a staff attorney at the Institute for Justice, told me, "New York is one of the most egregious abusers of eminent domain in the country. With no meaningful change coming from the legislature, New Yorkers need the courts to start reining in these abuses. This case is a perfect place to start."

Damon W. Root is an associate editor at Reason magazine.