Thank you Marty. Before I talk about the Pine Barrens, I would
just like to pick up on one
thing that Carol had said, alluded to, earlier this morning, because of the lack of press attention the number of walk-ins has declined over last year. I don't think that the lack of press attention should be viewed as accidental. One of the ways that the press and the government agencies deal with us is to ignore us in the hope that the message will not spread, and I think that one of the commitments we all should make before we leave here today is working through Carol to bring things to the public eye.
The litigation that Marty referred to [in the introduction] was over a man-made erosion. I'm not in the business of holding back the ocean. I'm in the business of trying to deal with erosion that's been caused by government projects that destroy the property of adjacent property owners in inlets and so on and so forth. It's a growing national problem.
In West Hampton, we developed an in-your-face approach to dealing with the government that attracted tremendous publicity and which led to a very favorable settlement with the Army Corps of Engineers. It's the first time they've ever had to admit defeat in an area like this. So I would hope that one of the things we would offer Carol is our support and participation in an effort to try and bring all of our issues to a level of public visibility so that this room is filled to standing next year and that during the course of the year we get our message better out.
Well, I'm here to talk about another item in the parade of horrors that you've been listening to this morning, and that is the Long Island Pine Barrens Protection Act. If it's ultimately sustained, it could be a model for stripping property rights here in New York State to the extent that you've never seen before and will pose a problem for anyone who happens to own property that can be viewed as environmentally sensitive.
I want you to picture a map of Long Island as you've all seen it. It's five times longer than it is wide. I just want to get the setting down for you. The western-most portion of Long Island is in the City of New York. It's the Borough of Queens and the Borough of Brooklyn. You have Nassau County in the middle. Suffolk County is out in the east. You will recall that Long Island forks at the very end. The South Fork is the so-called Hamptons that goes to Montauk Point. The North Fork goes out to Orient Point, the more rural area.
The Pine Barrens are somewhat west of the fork. This is a great generalization, but the Barrens are west of the fork, in the center of Suffolk County. Originally, the area was 250,000 acres. Over the years, development reduced it to about 100,000 acres. It sits partially atop an enormous aquifer. Long Island is blessed with a tremendous aquifer beneath much of it, which supplies water currently to 2½ million people. It could supply a much larger population into the indefinite future. It is gigantic and it is a natural resource that has tremendous economic consequence, particularly for the future. That, I think, is the main theme of our story.
Those of you who have children, you know you have to watch where the ball goes. The issue here is, watch where the water rights are going in this whole scenario. The Pine Barrens itself is very useful for that aquifer because its porous soil allows the water to filter through into the aquifer and out into the outlying area. So it's very useful.
Of the 100,000 remaining acres, 50,000 of them are in an area that's somewhat developed, to a greater or lesser extent. Then there's about 50,000 acres in what's called the "core" area. Don't think of the "core" as being remote, which is what a lot of people who hear the term "core" think of. "Core" doesn't mean that you have to walk five miles off the developed highway to find it and that its value might be relatively modest in comparison to property that's nearer to the road. "Core" just means it's in the center of the Pine Barrens.
The Long Island Expressway, for example, goes right through the middle of the core. There are highly developed north-south roads that go through the core. So this is an area where the property is enormously valuable along those roadways and to a fair extent inland as well.
This area is home to some of the environmentalists' favorite endangered and threatened species, the tiger salamander, the red-shouldered hawk, and several others. The area has always been regulated rather highly and, in fact, government reports, as recently as within the past decade, show that the then-existing level of protection by zoning and what-have-you protected the aquifer adequately, even more than adequately. So what you had, if you go back about a decade or so ago, is an area where there were zoning regulations, where people were developing if the economic reality allowed them to do it, and where the area was more than adequately protected for the enhancement it gives to the underlying aquifer.
About a decade and a half ago, things began to shift. You had a movement on Long Island by environmentalists and no-growth advocates, and there are a fair amount of those on Long Island, that began to focus on the Pine Barrens as an area where they would like to curtail development, particularly in the core, because it almost visually functions as a gateway to the very eastern end of Long Island, an area of natural beauty. If you're familiar with the area, you'll agree with me on this. When you're driving out, it acts as a buffer between the developed western end of Suffolk and Nassau County and, of course, New York City.
So the no-growth advocates began to pressure for a restriction on development in that area. At the same time, the Suffolk County Water Authority began, as a result of some long-term planning, to focus itself on further restricting development in the Pine Barrens area. Since the level of protection was already more than adequate, one has to question, well, why were they advocating such a change?
As best as we can see it at the moment, what they were really looking at was that as you went out 20, 30, 40, 50 years, and they have studied out that long in terms of population shifts, the water rights that sit underneath all of these properties in the Pine Barrens become enormously valuable. Just think about what water means in the Southwest. Although we'll, hopefully, never see the water problem that much of the Southwest faces, we can foresee that the overabundance of fresh, pure water we have in the Northeast may become a thing of the past. So our belief is that starting in the Eighties at some time, Suffolk County Water began to strategize how to acquire property in the Pine Barrens so that they could put their wells down and not face a claim by other property owners adjacent to them that they were somehow taking out more water than they might otherwise be entitled to legally, given the size of the property that they own. So that if they acquired large-scale holdings that argument would be diminished.
Suddenly they came up with a study or two back then. By the way, this entire enactment of the Pine Barrens legislation was financed by Suffolk County Water. I think that might be the single most significant circumstantial fact in all of this. They have poured hundreds of thousands of dollars into the enactment of the legislation. Currently staff of the Commission that I'll talk about in a few minutes is financed by them in that the staff is largely Suffolk County Water employees on leave from Suffolk County Water for the Pine Barrens commission. Why is that? So I think that there's strong circumstantial evidence that supports our beliefs.
I was mentioning some studies. Suddenly some new studies were done and, lo and behold, they concluded, not unexpectedly, that the level of protection that had previously been found adequate was no longer adequate. Thus the studies concluded that you had to neutralize all further development in the Pine Barrens. So you have those studies that radically contradict the old studies, done by government. But what's the difference? I think it's the motivation of the Suffolk County Water Authority, it's the motivation of the environmentalists and the no-growth advocates in the area.
There is a group called the Pine Barrens Society. They began in the Eighties to challenge any application for permits for development or what-have-you in the Pine Barrens. They went up and down to the Court of Appeals on various issues several times and they effectively brought all development of any Pine Barrens property to an absolute and complete halt by the early 1990's. It was an absolute impasse.
The New York State Legislature on the last day of the legislative session in 1993 passed the Long Island Pine Barrens Protection Act. It's an act which required not only the participation of New York State but of Suffolk County and of three eastern Long Island towns of Brookhaven, Southampton and Riverhead to make it effective. Those three towns voted and signed onto the legislation as of March of 1995. They had a very celebrated photo opportunity the summer of last year, on Shelter Island, I believe, with the Governor, the County Exec, and everyone signing onto the Act.
What it does is essentially strip all development rights from this core area. The core area, as I mentioned, is 50,000 acres. Of those 50,000 acres, roughly 30,000 of them are already in government hands, many of them through tax foreclosures from people who during this period of uncertainty in the late Eighties and early Nineties let their taxes go because they just felt that it was hopeless for them to ever get any development out of them. They didn't know what the future held, so they just let them go. So we have already an enormous land grab in the Pine Barrens by virtue of these foreclosures.
There are, as I said, about 20,000 people who hang desperately onto their property. In the core there is no development allowed.
The Act sets up a commission. The commission consists of a representative of the governor, the county executive or his representative, and the supervisors of the three towns. It's a five-person commission. They also have an advisory committee of, I believe, 25 or 26. Somehow, miraculously, of the 25 or 26, none of them are Pine Barrens property owners. I wondered how that happened, but somehow they must not have been able to locate them. So you have everybody and his brother, who wants to stop development. It's obviously stacked, there's not a person on this advisory committee who doesn't want to stop development in the Pine Barrens. So the outcome of any discussion is totally predictable. The moment you hear what the issue is you know which way they're going to vote because of their preconceptions as to what to do.
When it set up the Pine Barrens Act and the Pine Barrens Commission, the New York Legislature clearly was aware that, by stripping away all these development rights, it was "taking" under the Constitution, something which, in all fairness, they should pay compensation for. They figured they had to duck the bullet somehow. So they came up with a scheme which they think will pass Constitutional muster and it goes like this.
The Act called for the Commission to create a land management plan, which it did, and it was implemented last year, finally. What it in essence sets up is the following: They have as a goal to acquire 75 percent of the remaining privately held property in the core area. But, incredibly, they do not have a funding mechanism for doing any of that in the regulations. Indeed, they say in the regulations that the 75 percent is a goal which they hope to achieve over the next twenty years.
Now put yourself in the position of our poor property owners who own these remaining 20,000 acres. It seems like a sophisticated trap. They are sitting there and saying to themselves, I have a possible chance that over 20 years somebody may buy me out. I have a three out of four chance that they may buy me out if they have the money. Now, thus far Suffolk County has seemingly stepped up to the plate and it passed a law, we're gonna increase the sales tax and that money will be dedicated to the acquisition of property. I may be wrong, but I believe that dedicated tax lasted a month before the Suffolk County Legislature then passed a new act which said that the money that was dedicated for land acquisition would go into the general fund.
So land acquisition is really a pig in a poke. If you believe in that there's a few bridges in Brooklyn I can sell to anybody who'd be interested in them. That phase is Prong One.
Prong Two is, well if we don't have the money, we're going to set up this scheme of transferable development rights. For those of you who are somewhat unfamiliar with them, what they essentially do, is you sever all of the rights to the development of the property that existed at the time of the enactment of the legislation. I think of it as a little chip. They give you this little chip, and it says, this used to be your development rights. And what you can do with these development rights, is there are these specifically defined receiving areas, within near proximity of the area, and you can take that right, that chip and drop it on a piece of property that you own, or you can sell it to somebody who owns it, and that person or yourself, if you're the owner of this property in the so-called receiving area, will be able to develop that land to an extent somewhat greater, but not unreasonably greater, than the existing zoning will allow.
It doesn't sound that bad until you find out where the receiving areas are. The receiving areas are near toxic tort sites, old railroad facilities, commercial enterprises, and so on. If you want to add a little bit to the hat, if you wanted to drop that little chip on the lot next to Billy Joel's house in Southampton, forget it. You cannot bring your chip to that area of town because that's not part of the receiving area.
They've given the property owners what's in essence another charade. If you think that the chances of it being bought out under Alternative A are remote, under Alternative B it's even sillier because you're now given a chip, which if you don't have a piece of property in the lousy receiving areas, you'd have to try and sucker somebody into buying it to utilize in the lousy receiving areas. Whatever you can get for that, that's it. In the one year that the legislation has been in effect there has not been one transaction in the Credits. The reason for that is not a mystery, because they're worthless. They are absolutely valueless.
That's where we stand at the moment on Long Island.
The Civil Property Rights Associates, founded by Henry Dittmer, who's out there, and Edward Ledogar, who's up here, and others are in the audience as well, banded together to try to stop this. All the years that they lobbied, all the years they pleaded, all the years they tried to get the press, were for naught, because they enveloped all this in motherhood, the flag, apple pie, environmentalism, and everybody on Long Island got suckered in. Fortunately for us, some people are now beginning to realize what is going on.
To show you the crass political nature of what happened, look at the core area: I was involved in some challenges to Congressional redistricting, and if any of you have ever seen the typical New York State Congressional District, particularly the closer you get to Manhattan, it's hilarious. Districts will go in the most peculiar directions imaginable.
If you look at the core Pine Barrens property, you will see, for example, the line is coming straight down the middle of a highway, suddenly it stops, hangs a left, goes ninety degrees, turns in to what you would think is core Pine Barrens property for a couple of miles, makes another ninety degree turn, then goes back down a few more miles, and then comes back out to the road. Now, do you think for a moment that there's no water underneath that property? That's whacky. What you find out, is who is the major political contributor to the Suffolk County Executive's race, who is the major builder in the area. You will see in the drawings of the Pine Barrens exactly what's up. A twelve-year-old can be asked, where did they intentionally cut out part of the property and that kid will come back with 100 on that test. It's as obvious as the nose on your face.
That's what we're confronted with. We've banded together and brought an action in federal court, and what we're trying to challenge is this whole way the TDR's and the payments work because it's clear it's not going to work. But, as you all know, regrettably, in the federal court the definition of what, how much, the government can leave you with without constituting a taking is very narrow. There is a case where a fellow had a property worth two million dollars and after the back and forth of the new zoning, the property was worth about one hundred grand and that guy was found to have a revenue because he still had a hundred thousand dollars worth of property left. So it's a very tough standard that we have to overcome.
But, fortunately, we have working for us the polarity of two cases that you may be familiar with. One of them is Penn Central against New York, which is a bad case. Penn Central, as you know, owns the Grand Central Station, and they wanted to build a tower. The chap with whom I worked with at the time was working on the tower, and they wanted to build a tower literally over Grand Central. Many people said, and I think there was some truth to it, that it would ruin Grand Central aesthetically, the looks of the tower, but it was the position of the railroad that they had the right to do it, and that was, in fact, the case. A piece of law was passed which in fact condemned the air rights of Penn Central. It gave Penn Central, in return for that condemnation, these transferable development rights, to add to the density of buildings in the immediate area, a number of which they owned. The Penn Central case went all the way to the Supreme Court. The transferable development rights survived constitutional muster on the ground that there was a certain value that Penn Central could definitely achieve if it utilized the credits, at least on its own property. It was clear that because, on the adjacent property in the area that there was also the ability to unload these credits, they had received just compensation, somehow. In fact their analysis depended on the definition of whether there had been a taking in the first place.
The case in the other polarity is the case involving Fred French, which is a company in New York which is a large scale developer, owner and manager of real estate. They owned a place called Tudor City across from the United Nations, which is a charming set of, as the name suggests, Tudor-style, brick and stucco apartment buildings. The part that perhaps made it most charming was a park on which all the buildings faced. There was some concern with the French company which was going to develop it and that it needed restrictions on the use of the park. The City passed another statute, like they had done with Penn Central. The chronology was actually reversed, the French one occurred earlier. They prohibited any building in the park area and said that you can take those development rights that we in effect take from you, use them as a transferable development right and go uptown and utilize them. There, the Court of Appeals held that that was unconstitutional because, in fact, it was speculative, as to whether or not it could ever be used at all, or what value, if any, it might have, and so that the French company had, in fact, been deprived of these development rights without anything certain in return.
I'm going a little into the thinking in our case. I'm in a bit of an awkward position. The State of New York is going to move against the complaint in two weeks and I'm worried about whether there might be some guy out there from the State of New York waiting for me to reveal my deepest fears about the lawsuit.
I really can't go into too much detail other than to say that, we believe that the scheme here is analogous to what you saw in the French case. There's simply no certain market out there, or no certain value out there, that we can ascribe to the Credit. Of course, the notion of land acquisition is also equally ridiculous and speculative. So we feel that we will be able in this litigation to attack the statute, as lawyers say, on its face. Forget how it's even applied down the road. What they're offering simply cannot work. You have lots that were trading before the legislation was passed, particularly in the tonier areas, like Southampton, lots that were going for 50, 60, 70, 80 thousand dollars, even with the fear that this legislation was on the horizon, and where lots that were outside the core area, but very close to it, were trading for $150,000 an acre. Those things have been rendered virtually valueless by this. There's no market for this stuff, whatsoever, and we believe that we'll be able to attack this statute on its face and to show that it just doesn't pass constitutional muster.
Our problem is this, I will give the enemy this if they're here, in a couple of other states around the country there has been litigation involving this type of transferable development rights, which, like in the Penn Central case, have been upheld. Several of them, incredibly, have involved Pine Barrens. You have one in Jersey, one in Massachusetts. The judge who first hears this case will be undoubtedly be told "identical statutes" or similar statutes in other states have been upheld. It will be my job to show what distinguishes the more certain compensation schemes in those other states from the one here, which, I think is totally ephemeral. I am going to have to deal with that.
Let me end with this thought, that the implications of the Pine Barrens legislation are quite chilling. Pick wherever you happen to live and simply speculate that the government decides that this is great property and maybe find some governmental purpose for taking your development rights away. Now, if they were stand-up type people, they'd get some money and they'd pay you the market price and they'd take your property and there's really nothing much you can do. You might hate it , but you'd probably lose Wall Street to try to stop them. But at least you've got your money. You've got your market value. But if this legislation holds up, what you're going to get is the privilege of sitting around like many of these Pine Barrens people are, and paying taxes as if it were developable property. Hey, you know what, they haven't thought yet to reduce the tax level in the light of the stripping of the development rights. Does that come as a surprise?
So these people are paying taxes as if it's developable land and they're sitting there saying, do I wait twenty years to see if I am one of the lucky guys who get bought out or do I get this silly Confederate war bond and try to move it into the receiving area. That could happen to anyone out there in this room, whether they live in Rye in Westchester County (there's a gentleman here who's from Chappauqua) or upstate New York. If your property is valuable, if this scheme is held to be constitutional, it allows for your property to be stolen with no compensation whatsoever. So, keep your eye on this ball. It's going to be an important case.