BusinessReport.com

In the weeks leading up to the Nov. 4 election, John Noland was telling anyone who would listen to vote “yes” on proposed Constitutional Amendment 6.

It didn’t help.

“We just barely failed,” says Noland, chair of the East Baton Rouge Redevelopment Authority’s board, of the amendment’s 51%-49% vote. The first three amendments on the ballot passed, while the next four failed—with fewer voters weighing in on each measure as they went down the list.

“If we had been third on the list instead of sixth, I think we’d have won,” Noland says.

Amendment 6 would have reaffirmed expropriation as a tool for redeveloping blighted or abandoned property, and its failure appears to rule out one tool for revitalizing distressed neighborhoods, at least for now.

In 2005, the U.S. Supreme Court ruled in Kelo v. City of New London that governments could force the sale of a home or business to promote an economic development plan. Many property-rights advocates were mortified, arguing expropriation should only be used for necessary public projects like roads and bridges, and many states reacted [some say overreacted] to Kelo with new laws or constitutional amendments.

A 2006 Louisiana law requires that expropriated property be offered back to the original owner or a successor if the property is held by the government entity for less than 30 years; if the original owner doesn’t exercise that right, the property can only be sold through a public bid. Read literally, the 2006 law means a property expropriated to protect the community’s health and safety—blight—must be offered back to the owner who allowed the property to become a problem in the first place.

“It’s just insane,” Noland says. “Nobody could have intended that.” The failed amendment would have created an exception in the law for properties taken for health and safety reasons. Baton Rouge’s new redevelopment authority, which seeks to move abandoned and blighted properties into productive uses, does not officially have the power to expropriate, but it hopes to borrow that power from the city-parish when necessary.

“Expropriation is a power that is feared in much of the African-American community, and that’s the community we’re going to be working in,” Noland says. “We don’t want to go in and stomp around and cause people to fear the Redevelopment Authority. So I don’t see us using [expropriation] for years.”

But expropriation could eventually be an important tool for land banking, whereby the authority assembles a number of small properties into a single tract large enough for a meaningful project that might actually make a difference in a depressed community.

“There is going to come a time when a particular blighted area is tough, and we can’t buy it, and we can’t trade for it, and we can’t get a hold of it by code enforcement or other strategies and it stands in the way of achieving something good. There would be, in that case, a very selective use of expropriation,” Noland says.

The legislative history suggests the 2006 law was not intended to constrain expropriation of harmful properties, says Frank Alexander, a law professor at Emory University in Atlanta and a housing and community development expert. He says the proposed amendment would have resolved the ambiguity, and he says that job now falls to the Louisiana courts.

The New Orleans Redevelopment Authority, created in 1968, has continued to expropriate property. In May, a district court ruled NORA was within its rights to seize two vacant lots and sell them to Habitat for Humanity. The landowner appealed, and the state’s 4th Circuit Court of Appeal is expected to hear the case in January. Ultimately, the Louisiana Supreme Court might make the final call. In the meantime, the East Baton Rouge Redevelopment Authority, whose board has only been meeting since April, will have to look to other methods to make an early impact.

“This would have been a nice tool to have in the toolbox, but this constitutional amendment not passing does not limit the Redevelopment Authority from being effective quickly,” says Mark Goodson, assistant executive director of the Downtown Development District, who has worked with the Redevelopment Authority during its early months.

The city-parish already adjudicates properties for nonpayment of taxes, and anyone, including the Redevelopment Authority, can bid on those properties. There are more than 3,000 adjudicated properties in the parish.

One legal right the city has but rarely uses is foreclosure for the nonpayment of liens, Goodson says. Say a property is condemned and the city tears down the dilapidated structure, starts cutting the grass or performs some other service. The value of that service goes into the property’s tax bill in the form of a lien. If liens aren’t paid, the city can foreclose on the property.

“To my knowledge, the city-parish doesn’t really actively enforce the nonpayment of those liens, just taxes,” he says. “So you’d have to have the adequate resources to actively enforce the nonpayment of the liens.”

“I think code enforcement has a lot of advantages relative to expropriation,” says David Marcello, executive director of the Tulane-Loyola Public Law Center. “You can process more properties through a code-enforcement proceeding than you can hope to address through expropriation suits.”

Code enforcement leaves ownership in the private sector, and so it doesn’t confront the public body with the expense of expropriation or the problem of finding a way to get the property back into private ownership, Marcello says. Often the current owner will improve the property himself when faced with code enforcement fines.

While Marcello agrees with Alexander and others that expropriation restrictions in the 2006 law were an unfortunate blow to redevelopment efforts, he disagrees that the law is ambiguous.

“The outcome at the polls suggests that voters do have a point of view,” he says. Marcello urges redevelopment authorities not to widely use expropriation until getting a definitive ruling from the state Supreme Court, which isn’t likely to happen until late next year at the earliest.