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Eminent domain fight in Nashville may get costlier for taxpayers

By   /   September 14, 2011  /   No Comments

By CHRISTOPHER BUTLER

Property owners in Nashville should take notice.

If they so desired, officials with Nashville’s Metropolitan Development and Housing Agency (MDHA) could seize your property for eminent domain reasons. They could then offer you less than fair market value for what they took.

This scenario has already played itself out many times over.

If you have the right to vote in Nashville, and if you so desired, you could help elect local candidates who oppose the agency’s actions and who promise to rein the agency in — but you still might not get very far.

Nashville Mayor Karl Dean and members of the Metro Council apparently have no direct say over what happens at the agency, nor do they have the authority to remove its Executive Director Phil Ryan. Such authority lies only with a seven member (all-volunteer) Board of Directors, all of whom the mayor can appoint, but still not influence.

Current and former Metro Council members have spoken out against MDHA, with one even making an extremely harsh analogy to Nazi practices in 1930s Germany.

Officials with Tower Investments, which has considerable real estate properties in Nashville, also have little love for the agency. To establish the new $500 million Nashville Convention Center, MDHA acquired a very desirable piece of land from Tower in downtown Nashville and offered what Tower officials describe as “less than fair market value,” prompting a lawsuit.

A jury of Nashville residents agreed with Tower and decided that the MDHA must pay an additional $15 million to make up the difference in compensation — subsequently forcing city government officials to exceed their land budget for the new convention center, at a loss to taxpayers of $12.5 million.

Phil Ryan

MDHA is likely to appeal the jury’s verdict, which will cost taxpayers even more in legal fees. Tower officials said they differ from many other property owners impacted by MDHA’s land grabs in that they have the resources to fight as far and for as long as they must.

“We are prepared to take this matter all the way to the U.S. Supreme Court,” said Tower Investments Vice President John Pierce.

Pierce and other Tower officials have mentioned a “chilling effect” that may keep other real estate developers in fear of the MDHA, which could have an adverse impact on economic development in the city.

Furthermore, Tower officials are putting MDHA on notice about another extremely important matter.

If MDHA files their appeal over the compensation issue, then Tower officials will do something that legal rules have not permitted them to do until now —appeal not only MDHA’s financial offer for their land (as expected), but also appeal that agency’s right to take the property in the first place (thus costing Nashville taxpayers an even greater sum of money).

Meanwhile, construction crews in Nashville are well into building the new convention center, with an opening date scheduled for 2013.

COMPLAINTS ABOUT MDHA

According to its web site, the MDHA’s stated mission is to “create affordable housing opportunities for Nashvillians, nurture our neighborhoods and build a greater downtown.”

The agency does much more than that.

Perhaps no one had a statement more condemning of MDHA than current Nashville Metro Council Member Michael Craddock:

“Here is a good way to describe the MDHA — they are the Gestapo of the Metro government,” Craddock said.

“They are supposed to be taking care of housing for the indigent, which is what they were doing when they first started. MDHA has now evolved into the worst agency that exists here. They go in, condemn people’s property, take people’s land and do the dirty work for the city. They have no one to hold them accountable.”

Michael Craddock

Sources told Tennessee Watchdog that, in their opinion, MDHA board members rarely go against or even question Ryan’s wishes or suggestions.

Former Metro Council Member and current state Rep. Jim Gotto believes Nashville residents cannot hold MDHA officials accountable because of the way that government officials structured it and certain other governing agencies in the city.

“Mayor Dean could try to influence the board, but that depends on whether he could get the votes to do it or not. I’m not sure that’s appropriate, because the board is supposed to be an independent entity, not answering to the mayor for its decisions.

“The same thing is true for the city’s planning commission, true for the parks board, and health board that oversees the health department. Metro social services is also governed by a board,” Gotto said.

Gotto cites the Tower situation, the well-publicized case of Joy Ford (VIDEO OF HER TALKING ABOUT HER CASE HERE) and others as examples of MDHA’s overly aggressive actions in acquiring property through eminent domain.

“MDHA becomes the manager of those redevelopment projects, and the (Metro) Council can give the MDHA eminent domain authority, which I don’t agree with because I don’t think a board or a commission should have that kind of power. I think they should only be able to make recommendations to a legislative body for final approval on a case by case basis.”

MDHA officials also oversee the bidding process for contractors on any projects they are involved with, essentially managing the project from start to finish, Gotto said.

Jim Gotto

“In Nashville we have upwards of 400 people, who are volunteers, appointed to serve on boards and commissions. Once you appoint them to a board or a commission, then it is very difficult to reign them back in and keep control of them. It’s the old classic thing about how much of government is controlled by bureaucracy. They have a lot of power, and, in a lot of cases, they have more power than the ones who were elected to represent the people.”

In 2009, private auditors released a well-publicized report critical of MDHA’s financial and procedural practices, citing instances of waste of more than $600,000. Additionally, the agency received negative publicity in 2010 after it ordered Nashville Musicians Hall of Fame and Museum founder Joe Chambers to vacate his building to make way for the new convention center (VIDEO LINK HERE)

Tennessee Watchdog contacted MDHA and asked Communications Manager Julie Oakes a variety of questions about its oversight and its litigation status with Tower.

In an e-mail, Oakes responded with the following:

“I talked with our attorneys about your questions and since we are still in litigation over this case, I’m afraid I can’t go into any further detail,” Oakes wrote.

“I know that doesn’t help us tell our side of the story, but I also know you understand our position.”

TOWER: “WE JUST WANT THIS BEHIND US”

News coverage in Nashville this summer has been replete with headlines about the Metro Government exceeding its land acquisition budget after Tower’s lawsuit proved successful.

In July, a jury of Nashville residents awarded the California-based development company a compensatory sum of $30.3 million for their property, which MDHA acquired through eminent domain.

Tower officials said MDHA’s initial offer of $14.8 million was not enough to compensate them for the loss of five and a half acres in one of Nashville’s most desirable real estate properties —simply put, MDHA’s offer was below fair market value, according to Tower’s appraisers.

The property had 300,000 square feet available that local tenants could have used in the form of a high-rise building, before MDHA acquired the property, Pierce said. Many of those tenants opted instead to locate in nearby Williamson County, thus costing Nashville more business and tax revenue.

The new Nashville Convention Center is still under construction, with an opening date scheduled for 2013 (photo by Christopher Butler)

“If Nashville officials had only moved that convention center a little further south, then they probably could have generated $300-$400 million worth of development in the tax base. Using that land for public use creates no property taxes,” Pierce said.

Nashville officials were not interested in Tower’s idea or having any other private company share some sort of co-investment responsibilities for the convention center, Pierce said.

The legal fight has cost Tower plenty in terms of the company’s time and money. Financial costs on MDHA’s end of the fight, however, are consequential only to Nashville taxpayers. MDHA, for instance, has four attorneys, whereas Tower only has two. On one occasion, MDHA sent two of its attorneys to Oregon to depose Tower’s lender — for less than one hour’s time.

“Phil Ryan has an unlimited budget to spend on legal that doesn’t come out of his acquisition budget and is hard to trace. Nobody can supervise what he is doing.”

“Regular folks cannot afford to fight this as we can. These people who think they have the system in their favor use every tactic at their disposal to break you, even if they have to spend millions of (taxpayer) dollars to do it.”

Tower officials believe MDHA will officially appeal the jury’s decision sometime this week.

If MDHA files its appeal, then Tower Investment officials are ready to fight yet again —and, this time, Tower will appeal more than just MDHA’s compensation claim.

“If we are going to be in the appellate courts, then we are going to also appeal on the right to take. We believe that there were errors made by MDHA in the way this process was handled, and in the rulings of the court that allowed MDHA to proceed that were done incorrectly.”

“This is not a threat. If we are successful on the right to take issue, then it will reverse possession of the property, when they’ve already got a $500 million convention center built on the property.”

Until now, procedural rules kept Tower from fighting MDHA’s right to take.

More than anything, Tower officials would rather devote their time and energies to other matters.

“It’s our desire just to put this behind us. We’ve been fighting it for three years. None of this would have happened if we were offered fair market value for the property in the first place,” Pierce said.

Other real estate companies in Nashville are monitoring the situation, but they feel that the less involved they are the better.

“You might see that more with local people. I can tell you that it’s disappointing that a lot of very good people and developers in this town are afraid to appear that they are siding with us, or helping us, or even talking to us because they don’t want retribution from Metro — and that’s a sad commentary.

“I don’t want to get anyone in trouble, but I can tell you that I’ve heard that a lot. People ask us not to use their names, or (say) we don’t want anything coming back on us. There is a definite chilling effect.”

Christopher Butler is the editor of Tennessee Watchdog and the Director of Government Accountability for the Tennessee Center for Policy Research. Contact him at chris@tennesseepolicy.org

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