SAN FRANCISCO - Public finance firms are putting their money behind efforts to defeat a California ballot measure they say could throw a monkey wrench into the state's infrastructure needs.

Supporters of Proposition 98 pitch the measure, on the June 3 statewide ballot, as a response to the U.S. Supreme Court's 2004 Kelov. New London ruling, saying it will ban the use of eminent domain to acquire property for transfer to private owners.

But opponents say the measure, as drafted, has the potential to delay or halt much-needed infrastructure projects, even for purely public purposes.

"Our take is that it has the prospect of significantly increasing the cost of public infrastructure projects and increasing delays to them," said Stone & Youngberg LLC banker Jim Cervantes, board member and past chair of the California Public Securities Association, the state industry group representing about 50 broker-dealer and other public finance firms.

The CalPSA's political action committee has contributed $250,000 to the campaign to defeat Proposition 98 and pass a competing measure, Proposition 99. At least eight individual broker-dealer, financial advisory, and bond counsel firms have made separate contributions, according to campaign finance records.

In the 2004 Kelo ruling, the Supreme Court held that there was no federal constitutional bar against condemning a property to transfer it to another owner for economic development purposes.

The ruling triggered a backlash felt at the state level in many locations, and the dueling ballot measures June 3 mark the second time the eminent domain question has reached the California ballot.

In 2006, voters narrowly rejected Proposition 90, a measure that would have prevented the use of eminent domain to acquire property for transfer to private owners, but which opponents also said placed sweeping limits on governments' ability to regulate land use.

As with Proposition 90, the Howard Jarvis Taxpayers Association, a taxpayers' advocacy group, is a primary proponent of Proposition 98. The California Farm Bureau is also a proponent, though much of the financial backing comes from elsewhere.

The same campaign committee that defeated Proposition 90 is leading the campaign against 98, though this time they have come up with a competing measure, Proposition 99. The League of California Cities and the California Redevelopment Association are major backers.

Proposition 99 is a narrowly crafted measure to limit the ability of governments to use eminent domain to seize owner-occupied homes for transfer to another private owners.

"[Proposition] 99 is, I think, an honest effort to address the major concern individuals have, which is losing one's home in an eminent domain action, recognizing the number of single-family residences lost to eminent domain is little more than a handful," Cervantes said.

Proposition 98's limits on eminent domain would have obvious impact on California's redevelopment agencies, which are permitted to use eminent domain as a tool to acquire properties in redevelopment zones. Even if they don't actually exercise eminent domain, it can be a powerful negotiating tool.

But opponents of the measure say it poses a real threat to the ability of state and local governments to use eminent domain for any kind of project, including roads, schools, or utilities.

The California Transportation Commission, the state board that allocates transportation capital dollars, voted in April to oppose Proposition 98, saying the measure's language regulating eminent domain takings for traditional public purposes, such as highway construction, would increase the amount of money and time needed to construct new projects.

"Under Proposition 98, the property owner could accept an offer by Caltrans [the California Department of Transportation] for the property, deposit the money, and still contest the acquisition of the property, potentially delaying the project for years," according to the commission's opposition letter.

Among the commission's other concerns was that the prohibition on transferring property to private owners could impair potential public-private partnership projects.

Opponents have also charged that language in the initiative that prohibits the transfer of property "for the consumption of natural resources" would effectively prevent the use of eminent domain for water projects such as dams or canals.

The intent of that language is to prevent the seizure of property for the purpose of obtaining natural resources on the property.

But its effect could be much broader, according to a staff analysis by the Metropolitan Water District of Southern California, which voted in April to oppose Proposition 98. "Whether intentional or just a matter of poor drafting, Proposition 98 could be interpreted to prevent use of eminent domain to acquire land for water conveyance projects and facilities around the state," the MWD report said.

Whatever the intent of the language, it's ambiguous enough to cause trouble, according to Cervantes.

"We'll have yet another round of a decade's worth of court fights," he said.

Gov. Arnold Schwarzenegger, while saying he favors eminent domain reform, came out against Proposition 98. "California voters strongly support rebuilding our transportation, housing, education, and water infrastructure, so it would be irresponsible to support a measure that would prevent the state from accomplishing our goals," his April statement said.

Such criticisms of Proposition 98's effects on water and infrastructure projects are not based in fact, said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

"People who look at it from a critical perspective and look at the language conclude it's a manufactured issue," Coupal said.

Opponents are simply trying to recycle their arguments against Proposition 90, which involved a much more ambitious effort to limit "regulatory takings," he said.

"The difficulty they find themselves in is that [Proposition] 98 went through about 25 drafts, and we were very careful in the choice of our words to use language that would achieve our desired policy outcomes and no more," Coupal said. "And we did that."

The co-sponsoring California Farm Bureau is among the staunchest advocates of improving the state's water infrastructure, he said, adding that the nonpartisan Legislative Analyst's Office, in its review of the ballot measure, made no mention of a threat to water projects.

Proposition 98 supporters commissioned a review of the natural resources language by Sacramento water lawyer Stuart Somach, whose firm represents dozens of government and water agency clients.

Somach concluded that the ballot measure cannot be read to prohibit the use of eminent domain for public water storage and conveyance projects.

"When we win, if we win, I guarantee this won't come up and nobody's going to use this to block water storage," Coupal said. "It'll be laughed out of court."

For all the debate about infrastructure and water, the issue of rent control is likely to drive the success or failure of Proposition 98.

The measure would phase out rent control laws, affecting rent control for apartments in about a dozen cities, according to the Legislative Analyst's Office, and about 100 jurisdictions that have rent control laws for mobile home parks.

Phasing out rent control belongs in the measure because it is a property rights issue like eminent domain reform, according to Coupal. For what its worth, apartment and mobile home park owners provided much of the cash needed to fund the petition drive that resulted in Proposition 98 and finance the ensuing campaign.

The Proposition 98 campaign has raised more than $6.6 million, according to campaign finance filings with the secretary of state, including more than $3.6 million in late donations reported since the last comprehensive reporting period closed in mid-March - and those late donation records aren't necessarily complete.

But rent control has also become a tool for the opponents of Proposition 98, who have focused on the rent control phase-out in their campaign to defeat the measure.

According to a Public Policy Institute of California poll released this week, 54% of likely voters said rent control is a good thing, and 38% said it is a bad thing.

According to the PPIC, 30% of likely voters surveyed said they would vote for Proposition 98, 48% said they would vote no, and 22% were unsure. Proposition 99 fared a little better, as 44% said they would vote yes, 36% no, with 20% unsure. A simple majority is required to pass. In the event both propositions pass, the one with the highest majority would become effective.

Turnout is not expected to be high for the statewide election. Much of its thunder was stolen when lawmakers moved the presidential primary to February. Aside from the two statewide propositions, all that remains on the ballot are party primaries for the state Legislature, and a smattering of local elections and ballot measures.

The No on 98/Yes on 99 campaign committee has reported at least $10 million in contributions, many from political action committees controlled by the League of California Cities, the California Redevelopment Association, and the California State Association of Counties.


Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.