Public Benefits and the Public Trust Doctrine in 'Avella v. City of New York'
ALM Media
Updated
The recent Court of Appeals decision in Avella v. City of New York, covered by Mark Hamblett in early June, prevents a major economic development project in northern Queens from moving ahead. Known as the "Valley of Ashes" in The Great Gatsby, the site of the project includes a polluted brownfield where small auto repair shops have repaired vehicles for decades. Those same business owners primarily immigrant entrepreneurs have thrived without passable streets, sewers, sidewalks, and other infrastructure. For decades government has tried unsuccessfully to redevelop Willets Point.
The Decision and Implications
The primary issue on appeal in this case was whether mapped parkland upon which a portion of the development project was to be built had been alienated by the state legislature. In the decision, the majority interpreted a 1961 state law to prohibit the development of a retail and entertainment shopping mall complex next to Citi Field where the Mets play baseball. Chief Judge Janet DiFiore's dissent argued for the construction to occur, finding that the parkland had been alienated, and that the retail and entertainment uses were consistent with the trend in modern ballparks (and even the Circus Maximus in ancient Rome) to co-locate retail, restaurant, and entertainment shops near stadiums.
The majority's decision to affirm the Appellate Division's reversal of the Supreme Court's denial of plaintiff's request for declaratory and injunctive relief is the correct result. The decision, as the majority points out, leaves room for the legislature to specifically authorize the project to move forward. Practically, this is possible, though unlikely without a significant lobbying effort in Albany.
While the majority decision yields the correct result, both the majority and the dissent get it wrong, at least in part. Both the majority and the dissent fail to address the harm the City's actions caused to surrounding small businesses. This is a mistake since loss of small business activity has significant negative social and economic impacts on the families who relied on income earned in the area, and consumers who frequented the repair shops for an affordable vehicle repair option.
The narrow issue on appeal before the court was whether the area where Shea Stadium used to stand, now used as a parking lot, had been alienated. Developers argued that in order to redevelop the Willets Point area where the shops stood, they also needed to develop a large retail and entertainment facility on the parking lot the parkland in question. Some might argue that a discussion about small business displacement is not ripe. Given the over half a billion dollars in public funds the City spent acquiring private property from landowners, developing sewer and other infrastructure, and shepherding the project through the City's land use approval project, it is important to discuss what taxpayers received for this enormous public investment.
Stepping back to look at the big picture, economists criticize spending significant public subsidies on arena construction. A 2016 report by the Brookings Institution concludes that the spillover effect on local businesses of arena tax-exempt bond financing is weak at best, and that stadiums in general should not be funded by tax-exempt bonds in the current form. In 2015, the Obama Administration's 2016 budget called for Congress to prevent the use of tax-exempt bonds to finance sports arenas. In June of this year, Senators Cory Booker and James Lankford introduced a bipartisan bill to end federal subsidies for sports stadiums. The Trump Administration has promised a $1 billion infrastructure plan through public-private partnerships, and some fear this could be a boon for new stadium developers leaving taxpayers on the hook.
The Court of Appeals' decision reveals a weakness in the law regarding the approval process for major land use and economic development projects. The result of a four-year court case is essentially no benefit to anyone. The parkland in question remains a parking lot for Mets games not usable recreation space for area residents and families to enjoy. The plaintiffs gain little else than delay until the next redevelopment proposal comes along. Dozens of small businesses in the southernmost part of Willets Point were displaced years ago. Those businesses gain nothing from the court's decision. Over half a billion dollars in taxpayers resources gone. Significant judicial resources consumed.
Before they were evicted, several dozen businesses formed an organization called Sunrise Cooperative. (The author was part of a legal team that represented Sunrise Cooperative in its efforts to negotiate relocation for the small businesses being displaced.) Sunrise worked with the City to lease and construct a suitable building in the Bronx in which to operate. However, the funds provided by the City and the developer as the result of a settlement of litigation similar to Avella were not enough to cover build out and relocation. Sunrise filed for bankruptcy protection last year. This result was unfortunate and avoidable. The City could have and should have done more.
Alterative Option
An alternative legal step could have involved first obtaining the support of local residents and business owners in deciding whether or not the project would provide enough benefits to justify the costs. There is precedent for community coalitions negotiating community benefits agreements (CBAs). A CBA is a contractual agreement between a community coalition and a developer where the coalition agrees not to oppose a project in exchange for specific benefits. CBAs have been used in major stadium construction projects in Los Angeles, San Diego, and elsewhere. A CBA was negotiated around the development of the Kingsbridge National Ice Center in the Bronx.
The City of Detroit recently enacted an ordinance requiring CBAs for certain large projects above a certain square footage and construction budget. A CBA related to the development of the Gordie Howe international bridge connecting Detroit and Canada was recently announced. CBAs continue to be a legal tool useful for community groups and developers to discuss and resolve issues outside of formal government approval processes.
A press release from the City's Department of Housing Preservation and Development alludes to a CBA surrounding the Willets Point redevelopment providing funding for affordable housing. While the funding is important and the housing needed, it is incorrect to call it a part of a community benefits agreement since no coalition of community groups negotiated the funds with the developer. Instead, it refers to funds that the local councilmember was able to secure.
Some scholars have suggested creating a fund to compensate landowners in the event that land values are diminished because of a land use approval and pairing it with a CBA. Borrowing the idea, one could imagine a Small Business Displacement Fund to which businesses and workers could make claims. Businesses and workers claiming displacement could make claims pursuant to a process outlined in a CBA, for instance.
Relocation benefits of this type are not unheard of in current law. The City's administrative code requires modest compensation for displaced commercial tenants. And the federal Uniform Relocation Assistance and Real Property Acquisition Act of 1970 mandates certain benefits be provided to displaced businesses when federal dollars are involved. In this case, the City did not meet its obligations under existing law. Sunrise and other small businesses that eventually sued the City and the developer were offered relocation assistance in the form of retraining, and eventually compensation after years of uncertainty and coercion. The trouble was that the funds came very late and did not permit time for the businesses to build out a new space in which to work. A better designed plan could avoid the harms caused in this case.
CBAs have their issues. In the development of the Barclays Arena in downtown Brooklyn, for instance, an attempt was made at a community benefits agreement. That CBA effort failed because it lacked a representative and inclusive community coalition. As a result, scholars and practitioners have argued that the agreement at Barclays was not a CBA. But this does not mean that CBAs as a whole are flawed just that they must be done correctly.
Other efforts are underway to ensure local government transparency around disclosing the value of tax subsidies. The Governmental Accounting Standards Board (GASB) rules by which local governments account for their budgets recently included a statement regarding disclosure of the actual value of tax income forwent because of various tax abatements to spur economic development. Such disclosure will yield additional data points about taxpayer resources that are devoted to economic development projects. With the new data, the public may question what benefits they receive in exchange for government abating taxes for particular stadium projects and other economic development.
Conclusion
If there is any truth in fiction, it might be that those who lack power risk their lives and livelihoods being disrupted by those with power. Just as in The Great Gatsby, where personal tragedy befalls a vulnerable small business owner in the Valley of Ashes, so too have Willets Point business owners lost their livelihoods, all for the failure of a mega development project. Reforming land use and economic development law can avoid future tragedies.
