News: CJ Exclusives

Will TTA Use Eminent Domain?

TTA's Gulley says using Kelo-style eminent domain won't happen

The Triangle Transit Authority, having forgone its pursuit of federal funds for a proposed commuter rail system, instead is planning to work with a developer creating businesses near its 12 planned train stations.

Private-property advocates wonder whether TTA could seize land because North Carolina law allows eminent domain when “it is useful for the purposes of public transportation.” But TTA’s interim director, Wib Gulley, ruled out the possibility that the agency would take any land for private development.

“That’s not something I think is lawful or appropriate,” Gulley said, “so it’s not going to happen.”

TTA in August gave up its effort to obtain Federal Transit Administration money to help pay for its planned $810 million commuter train project, which was planned to connect its rail stops over 28 miles through Durham, Research Triangle Park, and Raleigh.

TTA could not provide ridership and cost estimates for rail that FTA officials would support. Original plans had the FTA paying for 60 percent of the project’s cost, with state and local government providing the remaining money.

Now TTA is planning a public-private partnership with a developer. The consortium would construct residences, stores, and offices to create public demand for commuter trains near proposed rail stops.

The mixed-use communities would finance, through increased local tax revenues, construction of the transit system.

TTA is in the final stages of negotiations, Gulley said, with Raleigh-based Cherokee Investment Partners, a private equity firm that acquires environmentally damaged properties – brownfields – and restores them. The company rehabilitates blighted areas, and local governments often help them expedite their work through quicker permitting and public redevelopment funds.

Carolina Journal obtained a draft copy of the agreement between TTA and Cherokee, which at press time was expected to be discussed, and possibly voted on, by TTA’s trustees Sept. 27.

“Cherokee accepts projects that traditional investors often reject,” says the company’s Web site, “and actively looks to transform communities where urban blight and environmental contamination impede economic growth and community redevelopment.”

One project Cherokee redeveloped was the North Hills Mall in Raleigh. The investment company purchased the decaying property in 2001, cleaned up asbestos and groundwater contamination around its site, and turned it into an open-air “town center style” shopping center.

Now that the company is on the verge of an agreement with TTA, can it count on the agency’s power to condemn private property to help it seize the land it wants for development? Gulley said the issue was discussed with Cherokee.

“We told Cherokee that’s not something that’s even going to be considered,” Gulley said.

Tom Darden, Cherokee’s chief executive officer, failed to return phone messages left by CJ.

Does it have the power?

Property rights advocates, however, are concerned. TTA has the authority to condemn property, which it has exercised in acquiring rights-of-way and sites for rail stations. But whether it could continue to do so in a partnership with a developer — for purposes other than the direct use by the transit system — is another question.

Private property rights advocates say North Carolina’s eminent domain laws open the door for TTA, or similar quasi-government entities, to seize property for economic development — or for any other reason the agency deems appropriate to its mission.

“It is a concern of our group for sure,” said Kieran Shanahan, a Raleigh lawyer who heads the North Carolina Property Rights Coalition. “I think they’re going to have to rely on some takings for this.”

The state law that outlines acceptable reasons for eminent domain does not appear to be limited to public “use,” or a public “purpose,” by a transportation authority. North Carolina law (G.S. 160A-601) defines a “public transportation system” as a combination of types of property, “without limitation,” that is “used or useful for the purposes of public transportation.” A public authority running the transportation system, according to the state law (G.S. 160A-610), is allowed to acquire private properties through eminent domain “which are useful for the Authority’s purposes….”

The word “useful” is one legal term that troubles property rights advocates. In a policy paper released in September, John Locke Foundation legal and regulatory policy analyst Daren Bakst wrote that “’useful’ specifically does not mean ‘used’ for public transportation reasons. In other words, the property that the TTA seizes likely can be used for nontransportation functions, such as malls, hotels, residences, office buildings, and other businesses – as long as it is ‘useful’ for public transportation.”

A vague “useful” definition and a “without limitation” degree of control, Bakst said, concocts a recipe for unchecked power by an unelected body.

“The words ‘without limitation’ certainly seem to mean that the TTA has an unlimited ability to take as much property as it wants that is ‘useful’ for public transportation purposes,” Bakst wrote.

Another area of the public transportation authority statute, which delineates the powers of the authority, could enable TTA to acquire land for specific development. The law, in addition to allowing the acquisition of property by a transportation agency, grants the authority “to enhance mobility within the region and promote sound growth patterns through joint transit development projects….”

The statute also permits TTA “to enter into development agreements with public, private, or nonprofit entities to undertake the planning, construction, and operation of joint transit development projects.”

David Lawrence, a professor of public law at the University of North Carolina’s School of Government, said the idea of “sound growth patterns” might enable TTA to wield eminent domain for economic development.

“Those look like particularly expansive concepts,” he said, but added that he “would be surprised if there is room for them to build anything beyond a train station.”

Real estate speculation?

The law also authorizes a transportation authority to “transfer (or dispose thereof) [its property] whenever the same is no longer required for purposes of the Authority, or exchange same for other property or rights which are useful for the Authority’s purposes….” Just as TTA has the ability to seize private property, with compensation, so also may it sell property it has taken that it decides it no longer needs.

“TTA should be able to seize property for transportation systems that clearly have the ‘green light,’” Bakst said. Because the hoped-for funding from the FTA fell through, any land that TTA might take would largely be speculative, because the agency’s rail project is in limbo, he said.

“The TTA should not be able to seize private property because it might be able to use the property in the future,” Bakst wrote.

But whether TTA uses eminent domain, it clearly plans to develop projects with Cherokee that it hopes will force the need for a rail system.

According to the draft agreement between the two, Cherokee Investment Partners would serve as “Master Developer” of all 12 rail stations in the TTA’s plans, as well as the authority’s sole partner in development surrounding the stations.

Under the agreement, TTA and Cherokee would form two Limited Liability Companies for each rail site. The first LLC at each rail location, created by TTA and Cherokee, would own and develop the “Core Property,” which would be the footprint of the rail station plus necessary parking areas, walkways, drop-off points, and other amenities. The core development LLC would own any property contributed, and already owned, by TTA to the entity, “plus any property hereafter obtained by TTA for the station sites….”

The second LLC at each site, called a “Peripheral Development Entity,” would be formed as the owner and developer of property nearby, but outside, the core property, but “functionally related to the Core Property…and within 1/4 mile of the Core Property….”

Only Cherokee would form the peripheral development LLC. Most or all of the properties to be owned by the peripheral entities would be acquired after the agreement between TTA and Cherokee is signed, according to the agreement.

The agreement also calls for both TTA and Cherokee to contribute additional capital on an equal basis to each development entity, determined on an as-needed basis. TTA would be allowed to make financial contributions to peripheral entities, in order to enjoy what the agreement calls “Profits Interest.” But TTA could not participate in the management decisions of any peripheral entity. Cherokee would have first rights to manage all the development entities, whether core or peripheral.

TTA’s seizures so far

George Autry, a Raleigh lawyer who represents several property owners in eminent domain cases against TTA, questioned why a nearly defunct rail system would require additional resources. While TTA has suspended condemnations, its pending agreement with Cherokee shows it plans to continue pouring money into the rail project.

TTA has already seized, or is on the verge of acquiring, nearly 240 acres of land along the proposed rail lines for stations and right-of-way. Gulley told The News & Observer of Raleigh in August that the land TTA owns at station sites, to be core property, is worth $28 million.

The money would represent the authority’s initial investment in its partnership with Cherokee. The newspaper also reported that TTA “might acquire additional property if the rail project moves forward.”

Autry questioned why his clients’ lives must be uprooted for a project that might not happen. He said the prospect of more condemnations for a speculative rail system is worse. He mentioned, for example, the pending purchase of right-of-way from the North Carolina Railroad, which TTA is scheduled to close Jan. 1, for $15 million.

“Why are we going to spend $15 million of taxpayer money,” Autry said, “when the TTA themselves say the project is not going to happen in the foreseeable future?”

Autry, with his wife and law partner Stephanie, represented Dan Wilson, who owned a parcel in downtown Raleigh near several lots once owned, and also condemned by TTA, by Dillon Supply Co. The site has attracted the interest of developers, who want to build condominiums, restaurants, and offices.

If any of the property seized through eminent domain were used for anything other than the rail station, it would be tantamount to a taking for economic development — similar to the Kelo v. New London Supreme Court decision last year.

“[The Wilson taking] was happening all around Kelo,” Autry said. “People were saying we don’t have that in North Carolina. We saw this coming.”

Ellis Hankins, executive director of the N.C. League of Municipalities, said in February that what happened in Connecticut is not possible in North Carolina. “North Carolina law does not allow our cities, counties, or local governments to do what New London did,” Hankins said.

The Kelo decision addressed a situation in which a local economic development agency, with powers of eminent domain given to it by the city, sought to condemn the properties of nine owners of 15 homes in the city of New London.

The agency planned to obtain the land and turn it over to a private developer, who would build offices, a hotel, and a health club. The 5-4 court decision allowed government agencies to seize private property from one owner and to give it to another private owner for economic development purposes, and led to a grass-roots backlash across the nation.

While Autry couldn’t ascertain that TTA took only property for the rail right-of-way and stations, he did say the authority’s approach was different from that of the Department of Transportation, which takes only enough private property in order to construct roads and highways. Autry said, in contrast, that TTA has taken entire parcels. TTA officials told him that his clients’ properties were for the footprints of the rail stations only.

“You’re not supposed to take any more land than what you need for your project,” Autry said. “If they are taking extra for development, that’s not right.”

Gulley said that the property designated “core” that has been taken through eminent domain will be used only for the direct needs of rail stations. He said that businesses could be built on the core properties, but that such development would be “vertical.”

Still, North Carolina grants TTA powers that encompass a broader purpose, as shown in terms such as “without limitation;” the “usefulness” of a project; and permission to engage in “joint transit development projects.”

“Could the TTA take 10 blocks of property and transfer it to a private developer to develop a shopping mall and luxury condos because it would help a rail system?” Bakst wrote in his report. “How about taking 40 blocks for a subdivision if it could be shown that it may help increase the number of passengers? The answers to these hypothetical questions are unclear.”

What is clear is that TTA — regardless of whether it builds a rail system — is getting into the economic development business.

Paul Chesser is an associate editor of Carolina Journal.