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.

About Larry M. Elkin 534 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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