An Ivy League Course In
Buying Government Power
Palisades Hudson
Financial Group
by Larry
M. Elkin, CPA, CFP® Dec 2011
http://www.palisadeshudson.com/2011/12/an-ivy-league-course-in-buying-government-power/
It’s easy to identify
winners and losers in the long saga of Columbia University’s pursuit of uptown expansion. It’s harder to separate the
players into good guys and bad guys, mainly because the good guys are so
scarce.
In 2003, Columbia announced its plan to convert 17 acres in Manhattan’s
West Harlem neighborhood) into a satellite
campus. The Ivy League school quickly proceeded to convince all but three of
the property owners in its desired terrain to sell their land. The
neighborhood, like much of northern Manhattan, has benefited from substantial
decreases in crime in the past few decades, and most of the property owners
were likely pleased by the opportunity to sell at a profit.
But unless Columbia wanted a gas
station and two storage facilities amid its classroom buildings, it needed a
way to oust those final holdouts. It turned to the city and state governments.
Under the precedent
set by the Supreme Court’s ruling in Kelo v. New London (a decision which I believe may be in for a future update), governments can
exercise eminent domain to transfer ownership from one private owner to another
if doing so is expected to serve a “public purpose” by generating economic
development.
In New York, governments seeking to use eminent
domain on the behalf of private parties have the added responsibility of
proving that the area in question is “blighted.” The definition of blight,
however, is so vague as to prove little obstacle to motivated political movers
and shakers. “Vagueness invites subjectivity, subjectivity invites selective
enforcement, and selective enforcement invites favoritism,” Norman Siegel, an
attorney representing one of the holdout property owners in the Columbia case, said at a conference. The New York
State Court of Appeals ruled that Columbia could proceed.
But politicians didn’t
lend their help to the university for free. In exchange for the ability to
break ground, Columbia
agreed to fund a so-called benefit package valued at $150 million. That money
was to be divided between a public school to be built at Columbia’s expense, a contribution to a
housing fund, and a $76 million fund to be used by an entity called the West
Harlem Local Development Corp. for unspecified community benefits.
So far, however, the
main benefit the fund seems to provide is a pool of cash for local politicians.
Tom DeMott, a former member of the Local Development
Corp.’s board, told The New York Post that, in
brokering the deal, the board “sacrificed good development because it wanted to
control a slush fund.” The development corporation has, so far, managed to
spend less than $700,000, including $150,000 paid to a consultant for corporate
structuring advice.
How did this mess
occur? The vague blight laws were part of it. But, more than that, the sham
fund was the product of a system in which anyone who wants to do anything not
only has to deal with the powers that be in the mayor’s office and the City
Council, but also must run a gauntlet of self-appointed community activists and
officially designated “community boards.”
New York has 59 of these community boards. They
operate as quasi-governmental entities comprised of individuals appointed by
City Council members and borough presidents. Because they are not part of the
official structure of the city government, these boards operate below the radar
of mass-market media outlets and other potential watchdogs. But since their
members are drawn from the political clubhouses, they lack any actual
independence.
So when Columbia proved willing
to pay to get rid of those pesky private property owners, plenty of people were
willing to step forward to take the money.
Despite the rhetoric
of the development corporation, there’s no real reason Columbia’s money should
be directed at the “West Harlem community,” a jurisdiction that exists only in
the minds of people who claim to speak for it. The losers were the property
owners and taxpayers citywide who will no longer receive revenue from that
land.
There is no reason
why taxpayers in West Harlem deserve any more
compensation for the deal than taxpayers anywhere else. If the city had really
wanted to make Columbia
take responsibility for its actions, it might have had the university pay the
city directly for the lost tax revenue. That would have been far simpler and
fairer. Of course, it’s not what happened.
Rather than aiming
for simplicity or fairness, city officials were interested in selling off
government services, including the power of eminent domain, for their own
benefit.
Fans of HBO’s “Boardwalk
Empire” might sense something familiar in all this. The only real difference is
that, back in the days of Atlantic City boss Enoch “Nucky”
Johnson —fictionalized as Nucky Thompson — such shady
deals were conducted behind closed doors in private hotel suites. Now, through
the system of politician-dominated community boards and civic groups, modern Nuckys can extract private cash for their own purposes and
issue press releases while they do it.
Perhaps, in the end,
the project has served a public purpose. While pursuing more classroom space
for its students, Columbia
has provided us all with an education on just how modern political dealings
work. It’s an Ivy-League-caliber refresher course in cynicism.