O\u27Neill, Terry J.

English

University of Denver

Denver Law Review Volume 30 Issue 9 Article 5 June 2021 A Thought on Slum Clearance Terry J. O'Neill Follow this and additional works at: https://digitalcommons.du.edu/dlr Recommended Citation Terry J. O'Neill, A Thought on Slum Clearance, 30 Dicta 347 (1953). This Article is brought to you for free and open access by the Denver Law Review at Digital Commons @ DU. It has been accepted for inclusion in Denver Law Review by an authorized editor of Digital Commons @ DU. For more information, please contact jennifer.cox@du.edu,dig-commons@du.edu. Sept., 1953A THOUGHT ON SLUM CLEARANCETERRY J. O'NEILL*of the Denver BarThe slum problem is one of the greatest faced by any munici-pal government. This is so because the slum appears as an ulcerto mar the physical beauty of the community and creates an en-vironment which breeds crime and a wide variety of social prob-lems and leaves scars upon our youth which can rarely be eradictedcompletely. The cost of these slums to the community is incal-culable as it is in this area that most of our welfare services, oursocial services and our police services operate. Our very costlyjails and juvenile detention halls are largely populated with theproduct of the slum.The usual method of slum clearance at the present time isthrough condemnation which not only is extremely costly but whichoften leads to another evil, government owned and operated hous-ing projects. The author submits that any city can permanentlyfree itself of slums in a period of several decades without cost toitself, without invoking powers of eminent domain and withoutviolating any constitutional guarantees of due process.Although the usual slum is a costly burden to all taxpayersof a community, it still produces income for its owners. The slumcan be made self-liquidating without any government subsidy bya plan which will make it economically desirable for the ownerof substandard property to replace his improvements. Beforeshowing how this might be brought about let me outline the eco-nomic conditions responsible for most slums.The investor who erects a housing unit, a warehouse, hotelor office calculates an estimated life for the improvement and setsup a depreciation schedule based upon this estimated life. He mayestimate the life of his duplex at forty years, for example, andtake a depreciattion of 21/2% of the total cost as an ordinaryoperating expense each year before computing the profit on hisinvestment. He certainly will claim such a deduction for federaltax purposes. If the building is destroyed by fire or other casualtythe remaining cost is usually restored to the investor through in-surance proceeds. If the building is not destroyed by some casu-alty, it is still standing and probably is still producing income atthe end of its estimated life. If the building is not producingincome, the landowner still will not go to the expense of demolish-ing it unless to make room for another improvement or to avoidtaxes and other liability on account of the structure. A slum hasbeen created.Another investor may acquire the structure and he in turnwill again calculate a schedule of depreciation, estimating maybe* The author writes as an individual and a property owner and not in anyrepresentative capacity.DICTASept., 1953a ten year remaining life, and will rent the property to whateveruse will produce the highest income to meet his 10% per yeardepreciation schedule. He again claims a tax deduction for thisexpense and the building may still be standing when the secondestimated life expires. It still has some value which each subse-quent owner will try to bleed from it or which will have to bepaid by any condemning authority attempting to remove the of-fending structure. The. tax value of the land is reduced. Taxrevenue is lost because each subsequent owner claims larger deduc-tions for depreciation and quite frequently extra burdens are im-posed upon city services as pointed out earlier because of the usesto which the now sub-standard structure is being put.This is the condition which exists in all of our slums. Theeconomic flaw is that a building is constructed with but one lifeexpectancy for the purpose of amortizing its cost and should notacquire a new life expectancy each time a new owner acquires thepremises. Some income produced by a building after its anticipatedlife has expired should be held by any prudent investor as a fundto replace the structure. Instead, with each sale, the vendor takesthe fruit and relinquishes all responsibility for the tree that pro-duced it and a new owner begins his exploitation of a propertythat has already repaid its cost and normal profit.Analyzing the slum problem economically in this fashion leadsto one obvious solution. The owner of a structure should not beallowed to entirely sever the fruit from the tree that produces itand the following method of accomplishing this end is suggested.Each municipality seriously considering its slum problem andwilling to lay long range plans which can not vacillate with chang-ing administrations can create a municipal housing authority tofix the estimated remaining life of every building now used forthe production of income or for each building when converted tosuch use. Each building owner should be allowed an election be-tween the estimated life fixed by the engineer for the municipalhousing authority or that adopted by himself in computing hisdepreciation deduction for federal tax purposes. But, once fixedthe estimated life should not be altered regardless of any sale ofthe property except on account of capital improvements whichclearly prolong the life of the building and comply with defini-tions of capital improvements as set forth in existing Federalrevenue laws.When any building producing income completes its fixed lifeexpectancy, a quarterly payment equal to the amount previouslydeducted for depreciation should be paid into an escrow fundeither in a local bank approved by the housing authority or tothe housing authority itself. In many cases this will create ahardship as a building forty years old may not produce incomeequal to 2 7% of its original cost each year. Therefore an alterna-tive payment of 10% of the gross income produced by the prop-erty might be allowed for the owner claiming hardship.DICTATitle to the funds thus held in escrow must remain in theowner of the land and run with the land, being bought by andpassed on to any subsequent* purchaser acquiring the property.Withdrawals from the fund could only be allowed for justifiedcapital improvements which will clearly improve or prolong thelife of the structure and which receive the approval of the mu-nicipal housing authority. The entire amount in the escrow fundcould not be paid out to the owner until it is showed that the landhas been leveled and returned to a virgin state or that the fundsare to be used to replace the former structure with a new struc-ture in all respects complying with existing city building codesand zoning ordinances.The plan should provide an effective penalty to be imposedupon anyone who receives income from any property without hav-ing its remaining life expectancy fixed and recorded with thehousing authority even if this income be merely the rental of asleeping room in a private residence. Thus the plan would reachvirtually every property which might be involved in a slum prob-lem for rare indeed would be the house, hotel or the like that willnot at some time be used to produce income.It is to be noted that the plan also provides relief for theowner of his own home who wishes to stay in his residence how-ever decrepit it might become. Quarterly payments into the es-crow fund are only paid out of income produced by the propertyeither on the basis of the depreciation schedule previously adoptedby the property owner or on the basis of 10% of the gross incomereceived from the property itself or a business operated on theproperty. This owner would have no payments to make for hehas no income from the property even though the life expectancyof his home may have been recorded at an earlier date. However,few indeed are the present slum residents who own their ownhomes and these usually maintain their property with some de-gree of pride. Business properties would always be covered bythe plan.It is true that some old buildings produce a negligible amountof income and it would be a long time before the escrow fundsattaching to these properties would be substantial enough toinduce the owner to demolish or replace his improvements in orderto obtain a release of the fund. However the funds would grow,however slowly, and the time would eventually arrive. Even herethe situation could be no worse than under the present methodwhere we wait until the owner decides that it is cheaper to levelthe building than to continue to pay taxes on it or until someauthority exercises powers of eminent domain.Giving further thought to the application of such a plan asthis will'reveal that many situations must be provided for if nohardships are to result, if constitutional guarantees are not to beabridged and if the plan is to reach all types of offending prop-erties. While I have considered a large number of these problemsSept., 1953 DICTASept., 1953and feel that solutions to all of them can be easily developed, Ihave not attempted to confuse this outline with a discussion ofthem.It is my belief that we can plan the economy of our commu-nities to make it more economical for a landowner to build newbuildings than to maintain sub-standard structures. The planhere suggested is far less drastic than slum clearance throughexercise of the power of eminent domain and will effectively andpermanently meet the problem even though more slowly at first-and it will not put municipal governments in the housing businessunder the guise of slum clearance.Some structures in our slums are fine old buildings of whichwe were once proud and which returned nice profits for theirvarious owners. They are not to blame and some of the incomethey produce during their declining years should be used to pro-vide for them a dignified burial.DICTA NEEDS ARTICLESEach month the editors of Dicta try to provide readers with40 pages of material of interest to Colorado lawyers. It is some-times difficult for the editors to find sufficient material of suitablequality or type to meet the needs of this publication. We knowthat some lawyer each day completes a brief on some phase ofColorado law which would be of interest to his professional col-leagues if re-written in article form and submitted to the editors.We know that many lawyers have valuable ideas on favorite sub-jects which other lawyers in the state would find of interest.Regularly we all uncover curiosities and items of interest whichthe Editors of Dicta would consider worthy of publication.We call the attention of all readers to the statement on thetitle page of each issue of Dicta reading "The submission to theeditors of articles of interest to the profession is invited." Articlesor items of interest should be sent to the editor at 702 MidlandSavings Building, Denver 2, Colorado.PERSONALSNorris C. Bakke, formerly Justice of the Supreme Court ofColorado and more recently in charge of the Legal Division of theFederal Deposit Insurance Corporation in Washington, D. C., hasreturned to the private practice of law in association with RenahF. Camalier and H. Stewart McDonald under the firm name ofCamalier, McDonald & Bakke, 1025 Connecticut Avenue, N. W.,Washington 6, D. C.DICTA

A Thought on Slum Clearance

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A Thought on Slum Clearance

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