Defining Ideas

Chicago's New Obama Burden

Monday, December 17, 2018
Chicago Skyline
Image credit: 
Rudolf Balasko, iStock

The proposed construction of the extensive Obama Presidential Center on some 19.3 acres in Jackson Park on the south side of Chicago has long been a simmering issue of deep and continuous controversy. This past February, I stated my multiple objections to the choice of the historic site for the center and argued that on every conceivable ground it would be far better for the City of Chicago to construct it in Washington Park, located just to the west of Hyde Park. Washington Park is largely under-utilized and is a stone’s throw from the Chicago expressways. The Washington Park site will not require closing the major northbound roads that now run through Jackson Park, and it will not clash with other lakefront fixtures, including the Chicago Museum of Science and Industry located on the north end of Jackson Park. My views were hardly idiosyncratic;  they were shared by at least 200 members of the University of Chicago faculty.

Objections to the project were effectively overridden when the Chicago City Council’s Committee on Housing and Real Estate gave the project its unanimous blessing on October 11. By that time, however, the action had started to shift to the courts: On May 14, a long-time activist group, Protect Our Parks, joined by several Chicago residents, filed a lawsuit whose sole purpose was to block the construction of the Obama center in Jackson Park. The suit seeks to invalidate the transfer of property rights in the Jackson Park land from the Park Department to the City of Chicago for the nominal price of $1, after which the City plans to designate it for use by the center, without making a formal transfer of title.

One of the grounds on which this transfer is challenged is that the City is barred by the so-called public trust doctrine from making the transfer. In response to this complaint, seven prominent law professors prepared a brief in which they announced that the public trust doctrine under its current interpretation gives the City ample grounds on which to complete the deal. In their view, the Court must give deference to the legislative decision and allow the transfer to go through. On this question, the precedents are divided and often confused. What follows is my analysis of how the public trust should apply, and why.

There are good reasons why lands owned by Chicago, or any other public entity, become public trust land. The term “trust” means that the city representatives cannot treat the property as their own private preserve, to be used or disposed of as they see fit for their personal advantage. In order to prevent that abuse, the public trustee essentially labors under similar fiduciary restrictions to those imposed on any private trustee or corporate director. All trustees owe a duty of loyalty to their beneficiaries, whether they be shareholders or citizens.

The question is how to cash out that maxim. On this question, there are three different approaches. The first of these is a flat-out refusal to allow any transfer, with the exception of some minor short-term uses, to any private party on any terms. Historically, the decision to make public trust property inalienable was adopted by the United States Supreme Court in the 1892 case of Illinois Central Railroad v. Illinois, where the Court invalidated a purported transfer from Chicago of submerged property (in effect, a large section of lakefront) to the railroad, no matter what the terms. That hard-line rule, which has never been extended beyond submerged properties, may make sense if the risk of trustee abuse is so high that it is better that the property be locked in storage. Except in rare cases, I regard that position as too costly, because in many cases transfers of public properties make good economic sense for the government and private party alike. Indeed, the Shedd Aquarium and the original Soldier Field are instances of Chicago landmarks that could not have been constructed on formerly submerged lands if the hard-line rule had been followed.

The question then arises: what rule should replace the absolute prohibition on alienation? In order to prevent any abuse of trust, I have long defended an inverse takings test—“nor shall public property be given to private use without just compensation.” But how should this rule be implemented? The standard law of fiduciary duties rejects any special dispensation for present or formerly submerged lands. Instead, it functionally distinguishes between two situations. The first involves cases of self-dealing, where the property in question is transferred to a party that has close relations to the public trustee. When these dealings are not executed at arm’s length, the applicable standard calls for strict scrutiny in which the parties to the transaction have to show that it provides full and fair value to the government in exchange for the property that is surrendered. The risk is too great that the outside party will give a pittance for the property it receives, leaving the public all the poorer. This standard applies to a corporate board in self-dealing transactions.

The second, and lower, standard is the business judgment rule, which applies where there is no conflict of interest between the public trustee and the private party. Here, any close scrutiny of the merits of the transaction puts the fiduciaries in the impossible position of being exposed to liability for any deal that flops, while providing them only their fees for the deals that go well. No person will accept a fiduciary position in which they have to bat 1.000 in order to avoid financial ruin. The hard task is to line up the transactions.

One key precedent in the current dispute is the 1970 case, Paepke v. Public Building Commission of Chicago, which approved the transfer of about four acres of land in Washington Park for the construction of a public school. The shift in use raised no possibility of abuse. It would have been foolish to allow a few neighbors to veto a transaction that makes sense for all concerned. But the Obama center lies entirely at the opposite pole. One striking feature of the amici brief of the law professors is that it does not discuss the obvious conflicts of interest surrounding the center. They insist that it is a profound mistake “to reject the legislative determination that the construction of a museum and center focused on the 44th President, and the first African American President of the United States will serve the public interest.”

Once that bald declaration is made, the brief avoids addressing the manifest conflicts of interest in the case. Former President Obama is one of the most powerful and influential personages in Chicago life, with deep ties to Mayor Rahm Emanuel and with many close connections to key city public officials. His enormous clout cries out, not for deference, but searching scrutiny. Yet the professors’ brief does not devote one word to the critical question of fair value. The manifold objections on that front start with the obvious point that permanent use of the site is given to the Obama center without any rental payment. Perhaps the added attraction that the center gives to the City of Chicago could justify such an arrangement. But if so, the point applies with equal force to building it in Washington Park.

Most critically, the Washington Park site does not impose any of the incredible burdens that the Jackson Park site does. Recall the force of the community objections to the center in Jackson Park: There is no need to disrupt a world-class park designed by Frederic Law Olmstead; there is no need to spend millions of dollars to disrupt traffic flows along the lakefront; there is no reason to disrupt the lives of the thousands of people who live near Jackson Park. These losses are large and permanent. It is a gross breach of the fiduciary duties of the City to aid and abet this planning nightmare.

Sadly, no one knows how this case will play out in court, given the confused state of the relevant case law. The professors’ brief tries to distinguish the 2016 case of Friends of the Parks v. Chicago Park District, which held that the public trust doctrine was violated when the Park District sought to allow George Lucas to build a museum on formerly submerged lands under the per se rule of Illinois Central Railroad. The better approach to the Lucas Museum would have been to apply the business judgment rule in the absence of any conflict of interest between Lucas and the Park District. On the other hand, a particularly egregious use of this deferential standard of review is found in the 2003 reprise of Friends of the Parks v. Chicago Park District, in which the court rejected an effort (in which I participated extensively) to block the long-term sweetheart lease that the Park District gave to the Chicago Bears. The deal led to the desecration of the landmark Soldier Field in a transaction that, like all stadium deals, enriched the Bears and imposed heavy burdens on the City.

There is no need to tolerate the current long-standing confusions in the law. The tough fair-value standard should apply to the Obama Presidential Center. The center flunks this test in Jackson Park, but passes it with flying colors in Washington Park, which is how the federal court should rule.