Friday, April 24, 2015

Richard Epstein: The Problem With NYC’s Landmark Preservation Laws



This year, the New York City Landmark Preservation Commission is celebrating its fiftieth anniversary with, not surprisingly, a triumphant summation of its many achievements: fostering civic pride, protecting property values, attracting tourists, and strengthening New York’s economy.

The Commission’s activities over the past fifty years have indeed altered the landscape of the city. There are now some 1,347 individual landmarks, 114 historic districts, and 10 scenic and 117 interior landmarks. Today, about 27 percent of buildings in Manhattan have the dubious honor of landmark status—dubious because of the enormous costs associated with that designation. Surely, New York has many buildings worth preserving for the cultural and aesthetic benefits that they bring to the city. But it is one thing to accept as legitimate the public ends of the landmark statute and it is quite another to endorse the heavy-handed methods that the Commission uses to apply its mandate.

The law creating the New York City Landmark Preservation Commission was passed in 1965. New York City Mayor Robert F. Wagner signed the legislation in the wake of the 1963 demolition of the old Pennsylvania Station—a Beaux-Arts masterpiece by the great architectural firm of McKim, Mead & White—that made way for the new Madison Square Garden. The purpose of the law was to supposedly preserve New York City’s great and historic buildings from the crass utilitarian dictates of the marketplace.

Though the law was originally well intended, the current rules under which the Commission operates regulate everything from the process by which landmarks are designated to the extensive restrictions on the ability of their owners to make any exterior or interior changes in their structures, down to the last ventilation duct, awning, window opening, and fire escape. The simplest way to think about landmark designation is that it puts the city in the position of part owner of the affected buildings, which then lets it decide how these buildings are maintained and altered, without having to bear anything close to the full financial burden of its decisions. Yet, at the same time, the city only has a tiny budget—under $6 million for the current fiscal year—to manage this far flung enterprise.

The key question here is the touchy matter of who should pay for the benefits that the city imposes. As matters now stand, those costs are born largely by the private property owners, who must bear the losses in market value that come from landmark designation established through a complex political process in which they participate, albeit without effective control. The demand for the extension of these laws—whether by adding new properties to the list, or by tightening the restrictions on the use and renovation of existing properties—is high because the price of that regulation is currently set at zero.

Rest assured that the behavior of landmark commissions and landmark preservationists alike would change rapidly if they had to raise public or private money to fund their prized projects. At this point preservationists, like everyone else, would have to learn to live within a budget, at which point they would moderate their demands so that only the best projects would be landmarked, and only in a way which minimizes the financial burdens to their owners.

This is not so under current practices, that let activists list, or “calendar,” various buildings for landmark designation, at which point their owners must gain Commission approval in order to get work permits for the site, leading to a deterioration in the very properties that need preservation. In an effort to reduce the backlog to that overload, Landmarks Chairwoman, Meenakshi Srinivasan, proposed to remove over 100 buildings from the roster in order to let the Commission devote its limited budget to key properties.

Her sensible proposal was buried under an avalanche of criticism so that the status quo continues. A recent New York Times editorial praises the law on the one hand while lamenting its defects on the other. The Times writes as if scarcity were irrelevant. Mayor de Blasio, the paper contends, has to speed up the creation of new affordable housing units while preserving more of the city’s historic cultures. But at no point does the Times understand that the chief defect of the New York Landmarks Law is its want of a pricing mechanism in making key decisions.

The original and conscious omission of a compensation requirement from the 1965 law led to a famous constitutional challenge of the New York City Landmark Law, which culminated in what ranks as the single most influential “takings” decision of recent times—the United States Supreme Court’s 1978 decision Penn Central Transportation Co. v. City of New York, which offers a textbook illustration of everything that can go wrong in constitutional adjudication.

At issue in Penn Central was a decision by the New York City Landmarks Commission to refuse to allow Penn Central, as owner of Grand Central Station, to build an impressive Marcel Breuer Tower over the station. Simply stated, the claim of Penn Central was that the city took its air rights without compensation, which it had to pay for its plan to go forward. In upholding the city’s position, Justice Brennan twisted the law of takings in ways from which it has yet to recover.

The simplest way to approach the case was to note that the development rights over the terminal were, under New York law (and indeed everywhere else), a recognized interest in property that was routinely bought, sold, mortgage and leased. Indeed, without a strong system of air rights, it would be impossible to sell condominiums or lease office space in any high-rise building.

Normally, the state law of property determines the interests that receive protection from expropriation under the takings clause that provides: “nor shall private property be taken for public use without just compensation.” The clause’s broad sweep applies to all of the many types of property interests, not just the outright ownership of a given parcel of land by a single owner.

In dealing with these takings issues, the traditional lodestar was a famous 1960 maxim of Justice Hugo Black in Armstrong v. United States, that the takings clause “was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” In this instance, the ostensible benefits of taking the development rights were, as everyone insists, for the benefit of New York City as a whole. The city need not pay the construction costs for a building that was never constructed. But if it takes the air rights, it should pay for them, at which point there will be responsible public deliberations of whether the light and view thereby preserved are worth the financial costs they impose on the city. The on-budget nature of the deliberation improves the operation of the democratic political processes.

Justice Brennan would have none of this. His first move was to insist wrongly that Justice Black’s maxim could not apply to complex forms of regulation that had to be governed by what he termed “ad hoc rules.” He further argued that those ad hoc rules did not require per se compensation for the taking of a partial interest in land. Instead, he urged a complex inquiry to determine whether the “investment-backed expectations” of the property owner merit compensation in light of the city’s public objectives in imposing these restrictive regulations on land use. From there he wrongly concluded that the “primary expectation” of Penn Central had to be the present use of its facility.

Therefore, so long as it received some return from the “parcel as a whole,” it could not complain of the loss of its future development rights, which were fully protected under New York law. He thus took the odd position that the government did not have to pay for the property interests that it took, so long as it left something of value behind, which is in flat contradiction to the standard rule that the government should pay for the property it takes, no matter how much it leaves behind.

As a legal matter, Penn Central opened up an intellectual can of worms that remains unresolved today. No one knows how Justice Brennan determined why the development of air rights didn’t matter to their owner, just because its current operations may have mattered more. Nor did his formulation give any guidance as to what the government should do with various land use provisions on parcels where current operations cannot cover their costs, or indeed, where the land was not developed at all, so that the only expectation had to be in development rights. Nor does anyone have any idea of what counts as the “parcel of land” when a single plot of land is subdivided into many lots, or multiple separate parcels of land are assembled into a whole.

The bottom line, however, is that the Court has, for the most part, let local governments impose extensive land use restrictions on all sorts of vacant and developed parcels, without the slightest assurance that the social gains from these regulations exceed the costs that they have imposed. The political pressures to get something for nothing are hard for local governments to resist.

The intellectual wreckage of Penn Central has made it impossible to introduce any sensible reforms on land use designation in New York City. The key to any sensible reform is to put all the government claims on budget, so that the public can deliberate sensibly about how much should be spent on landmark preservation and which projects should be selected for their the aesthetic and civic virtues.

The only way to achieve that focus is to require the state to pay for whatever it takes. Once that is done, grandiose claims will no longer be sustainable. In addition, fiscal restraint will compel public bodies to look for better ways to minimize the dislocations on current owners. With government resources limited, private groups can raise money to preserve key structures and monuments, spurred on by a charitable deduction that operates as a matching public grant.

Come to think about it, are we really sure that New York City is the better for not having a world class tower over Grand Central Station, when the view up and down Park Avenue was at the time already partially blocked by the (then) Pan Am building? It is surely worth asking whether the tough land-marking restrictions now in place are thwarting the creation of new landmarks, which current landmark regulations can easily do across entire districts. It is not for the courts to dictate the budgets or select the projects for landmark preservation. But by insisting on compensation for property taken by regulation, it can improve the deliberative processes and thereby ease the logjams, inequities, and factional struggles that luxuriate under the current statutory framework. 

Richard A. Epstein, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, is the Laurence A. Tisch Professor of Law, New York University Law School, and a senior lecturer at the University of Chicago. 

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