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Published in Providence Business News (January 31, 1994)

If the laws coming out of California are any indication, and they often are, the United States may be moving toward socialism as Eastern Europe embraces capitalism.

Consider just some of the laws which regulate development in Culver City, California, and which have been upheld by California courts.

In 1975 a businessman built a private tennis club and recreational facility in Culver City. By 1981 the club was not doing well, and the businessman sought permission to develop an office building on the property. The city denied permission, saying the property should be used for recreational facilities.

After seven more years the owner finally closed his failing business and sought permission to develop 30 “deluxe” townhouses on the property. The city only agreed to the townhouse project after imposing almost $350,000 in fees on the businessman.

First, the city imposed a $280,000 “mitigation fee” for the loss of recreational facilities to the city. The $280,000 would “replace” tennis courts no longer available to the community because of the failure of the private tennis club.

Although the city was ostensibly concerned about the loss of recreational facilities, the city refused to acquire the club by eminent domain so the tennis courts would be available for public use, presumably because the city would have to pay for this.

The trial court struck down the fee, noting:

  • The club was at all times private property never owned or dedicated to public use.
  • The businessman had no obligation to maintain the club for public use.
  • The businessman could exclude the public from the club.
  • The businessman was not required to operate the property as a club.

The trial court quite properly found that the mitigation fee was “simply an effort to shift the cost of providing a public benefit [i.e., tennis courts] to one no more responsible for the need than any other taxpayer.”

Unfortunately, this sound decision did not survive judicial review. The appellate court reversed the lower court, and upheld the mitigation fee imposed by the city.

Under the principle upheld by the appellate court, private property owners who used property for private, as opposed to public, purposes could be required to pay government for the privilege of changing the use of their property if officials determined the change of use would constitute a “loss” to the community.

What official couldn’t find a “loss” when a downtown department store closes it doors and the owner wants to build a parking garage, or when a developer wants to put residential housing on a parking lot?

This is an invitation for government officials to effectively impose fees, taxes or penalties on those willing to risk capital in new business ventures.

The second of three fees imposed on the businessman was a $33,220 fee to provide public artwork. A city ordinance equated “revitalization” with “diminished cultural and artistic resources.” Thus, those who revitalize the community must pay to put art on their property or elsewhere in the city.

Apparently, Culver City officials find revitalization a bad thing.

If a developer replaces a block of slums with attractive and affordable housing, has this diminished cultural and artistic resources, requiring the project be burdened with a fee to provide artwork in the city? One would think the answer is obvious, but not in Culver City.

The total impact fees imposed on this project by Culver City were $11,440 per housing unit. Perhaps the difference between what constitutes a “deluxe” townhouse as opposed to a “standard” townhouse in Culver City is the amount of the impact fees per unit.

The fee weary businessman is now seeking review by the United States Supreme Court, where lawyers will be left to argue that something is “unconstitutional” or “statutorily prohibited.” However, the real arguments should come from the public, not the lawyers, who should be saying: “This is crazy.”

Perhaps if these fees were more visible to the public, which ends up paying for them in higher housing costs or other “pass throughs,” they might appropriately be dealt with at the ballot box rather than in the courtroom. Why not label these fees “Consumer Pass Through Taxes” or “Revitalization Disincentives” or “Homeowners’ Purchase Taxes”?

Californians are already voting with their feet, with an exodus of businesses to the Rocky Mountain states. However, if these legal trends move from west to east, as often happens in this country, Californians may find themselves heading towards Eastern Europe in search of a more hospitable attitude toward free enterprise. Now that’s really crazy.

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