Eminent Domain – Political Issues (Part 2)

The usual next step in the political process of eminent domain is convincing the City Fathers that it is in their interest to exercise their powers, and that the likely outcome will be positive and beneficial.

What reasons/arguments can you use to convince the City Fathers?

[Much of the following is taken from an excellent document developed by attorneys Will Constantine and Terry Hancock of the Senior Citizens Legal Services in Santa Cruz, CA.  They were attempting to get some local City Fathers to use their powers to assist Surf & Sand MHP.  I supported this effort with them by providing financial and lending analysis of the situation.  Great effort on all parts, but it failed.]

Will/Terry were making the case that eminent domain in this circumstance was legal, necessary, affordable and lawful.

Eminent domain is legal.  

  • Eminent domain is authorized by the United State Constitution, by the California Constitution and by governing State law.
  • Eminent domain is possible even if a few spaces are not occupied by low income homeowners, have been sublet or are rental.

Eminent domain is necessary

  • The park owner is acting in bad faith
  • Homeowners deserve protection of the equity in their homes
  • The City needs to preserve their moderate income housing
  • The City needs to eliminate the expense of endless litigation

Eminent domain is affordable

  • The park’s purchase price will be based on its Value as presently zoned and regulated [i.e., under rent control]
  • Funds are available to assist the City in the Purchase  [In this scenario, the City would purchase the park initially, possibly using Bridge Financing, and the resident group would acquire the park from the City when the group had arranged their financing.]
  • Recouping the purchase costs is possible

Under this PLAN, the City would condemn the park and take possession, probably while going to court with the owner to determine the price.  The owner would kick and scream and the appraisers would argue, but at the end of the day everyone would probably settle for a price reflecting the current rent control situation.  This price would certainly be lower than the owner wants, but is the price that State law says applies.

Meanwhile, the resident group, since they now know that they can acquire the park and they know the likely purchase price, can move forward to organize the group as a resident owned mutual benefit corporation.  At the same time, they are seeking financing from various sources.  

Their financing budget would likely include the following:

  • The purchase price to repay the City
  • All the organizational and closing costs
  • Some amount of money to reimburse the City for their costs
  • Some funds for park fix up and repair
  • Some funds for operating reserves and maintenance reserves
  • Other needs

It is likely that there would need to be a review of the existing rent levels in the park since the future revenue needs have to cover all the costs and loan payments.  This could mean that rents increase.  One would hope to avoid that, but a small increase is better than being at the mercy of the park owner.

I’ll be in touch,
Deane

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