Penn Central Transportation Co. v. New York City

Penn Central Transportation Co. v. New York City, was a landmark United States Supreme Court

Supreme Court of the United States

The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

decision on compensation for regulatory taking

Regulatory taking

Regulatory taking refers to a situation in which a government regulates a property to such a degree that the regulation effectively amounts to an exercise of the government's eminent domain power without actually divesting the property's owner of title to the property.-United States law:In common...

The New York City Landmarks Law

The New York City Landmarks Law was signed into effect by Mayor Robert F. Wagner, Jr.

Robert F. Wagner, Jr.

Robert Ferdinand Wagner II, usually known as Robert F. Wagner, Jr. served three terms as the mayor of New York City, from 1954 through 1965.-Biography:...

, in 1965. This law was passed after New York citizens grew concerned over the loss of culturally significant structures such as the Pennsylvania Station

Pennsylvania Station (New York City)

Pennsylvania Station—commonly known as Penn Station—is the major intercity train station and a major commuter rail hub in New York City. It is one of the busiest rail stations in the world, and a hub for inbound and outbound railroad traffic in New York City. The New York City Subway system also...

, demolished in 1963. The Landmarks Law's purpose is to protect structures that are significant to the city and still retain their ability to be properly used. This law is enforced by the New York City Landmarks Preservation Commission

New York City Landmarks Preservation Commission

The New York City Landmarks Preservation Commission is the New York City agency charged with administering the city's Landmarks Preservation Law. The Commission was created in April 1965 by Mayor Robert F. Wagner following the destruction of Pennsylvania Station the previous year to make way for...

Railroad Decline

Use of railroad systems saw its peak in the 1920s, and began to falter in the mid to late 1930s. World War II

World War II

World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

revitalized use of the railway systems in the early 1940s and brought the industry back to prior success. While this period saw nearly half of Americans using the railroad systems, by the late 40s there was once again a steep decline in railroad use. This put many of the railroad companies out of business and left others to find new ways to increase revenue.

Early Proposals to Replace Grand Central Terminal

In 1954 New York Central Railroad

New York Central Railroad

The New York Central Railroad , known simply as the New York Central in its publicity, was a railroad operating in the Northeastern United States...

began to look at proposed plans to replace the Grand Central Terminal

Grand Central Terminal

Grand Central Terminal —often incorrectly called Grand Central Station, or shortened to simply Grand Central—is a terminal station at 42nd Street and Park Avenue in Midtown Manhattan in New York City, United States...

. Early designs by William Zeckendorf

William Zeckendorf

William Zeckendorf, Sr. was a prominent American real estate developer. Through his development company Webb and Knapp – for which he began working in 1938 and which he purchased in 1949 – he developed a significant portion of the New York City urban landscape.-Career:Zeckendorf's...

and I. M. Pei

I. M. Pei

Ieoh Ming Pei , commonly known as I. M. Pei, is a Chinese American architect, often called a master of modern architecture. Born in Canton, China and raised in Hong Kong and Shanghai, Pei drew inspiration at an early age from the gardens at Suzhou...

included an ambitious 80-story, 4800000 square feet (445,934.6 m²) tower that would be over 500 feet (152.4 m) taller than the Empire State Building

Empire State Building

The Empire State Building is a 102-story landmark skyscraper and American cultural icon in New York City at the intersection of Fifth Avenue and West 34th Street. It has a roof height of 1,250 feet , and with its antenna spire included, it stands a total of 1,454 ft high. Its name is derived...

. None of the early designs ever made it past the sketch phase and for the time being all plans to replace Grand Central Terminal were abandoned.

The Pan Am Building

In 1958 Erwin S. Wolfson created proposals to replace Grand Central Terminal's six-story office building just north of the Terminal. Erwin S. Wolfson developed the project in the early 1960's with the assistance of the architects Emery Roth and Sons, Walter Gropius

Walter Gropius

Walter Adolph Georg Gropius was a German architect and founder of the Bauhaus School who, along with Ludwig Mies van der Rohe and Le Corbusier, is widely regarded as one of the pioneering masters of modern architecture....

and Pietro Belluschi

Pietro Belluschi

Pietro Belluschi was an American architect, a leader of the Modern Movement in architecture, and was responsible for the design of over one thousand buildings....

. The Pan Am Building was completed in 1963 and bought Grand Central Terminal more time away from proposed reconstructions.

New York Central Railroad Merger with Pennsylvania Railroad

Despite increased office space, New York Central Railroad found itself facing bankruptcy in 1967 due to continued decline in railway use. Pennsylvania Railroad

Pennsylvania Railroad

The Pennsylvania Railroad was an American Class I railroad, founded in 1846. Commonly referred to as the "Pennsy", the PRR was headquartered in Philadelphia, Pennsylvania....

found itself in a similar position after the offices built following the demolition of Pennsylvania Station

Pennsylvania Station (New York City)

were no longer bringing the company sufficient income.

In 1968 New York Central Railroad merged with Pennsylvania Railroad to create the Penn Central Railroad company. The newly formed Penn Central began to look into updating the uses of the Grand Central Terminal in order to increase revenue and save the company from financial straits.

Plans to Build on Top of Grand Central Terminal

In mid 1968 Penn Central Railroad unveiled two designs by Marcel Breuer

Marcel Breuer

Marcel Lajos Breuer , was a Hungarian-born modernist, architect and furniture designer of Jewish descent. One of the masters of Modernism, Breuer displayed interest in modular construction and simple forms.- Life and work :Known to his friends and associates as Lajkó, Breuer studied and taught at...

one of which would potentially be built atop Grand Central Terminal. The first design (Breuer I) was a 55-story tall office building to be constructed on top of Grand Central. This building was to be cantilevered above the existing structure allowing Grand Central to maintain its facade. The second design (Breuer II) called for the demolition of one of the sides of Grand Central in order to create a unified facade for a new 53-story office building. Both designs were submitted to the New York City Landmarks Preservation Commission

New York City Landmarks Preservation Commission

after the structures met city zoning laws.

NYC Landmarks Preservation Commission’s Rejections

Upon reviewing the submitted designs for Grand Central Terminal the Landmarks Preservation Commission rejected the plans on September 20th, 1968. Penn Central then filed for a Certificate of Appropriateness for both proposals but was again denied. The Landmarks Preservation Commission summarized their reason for rejecting both plans:

Breuer I
Breuer II

The Landmarks Preservation Commission did offer Penn Central the Transfer of Development Rights

Air rights

Air rights are a type of development right in real estate, referring to the empty space above a property. Generally speaking, owning or renting land or a building gives one the right to use and develop the air rights....

(TDRs) which would allow them to sell the air space above Grand Central Terminal to other Developers for their own use. Penn Central felt this was not enough to be considered just compensation

Just compensation

Just Compensation is required to be paid by the Fifth Amendment to the U.S. Constitution when private property is taken for public use...

for the loss of their land use.

Penn Central files suit

After the New York City Landmark Preservation Commission rejected Penn Central's proposals for new use of the Grand Central Terminal, Penn Central filed suit, arguing that under the New York Historical Preservation Law it was entitled to a reasonable return on the value of its property, whereas in the existing condition Grand Central Terminal could not break even and because (a) Penn Central was a regulated railroad, and (b) it was in bankruptcy, it could not cease the deficit-causing operations, thus suffering a taking of its property, for which they were entitled to compensation. The trial court agreed. On appeal, the New York Appellate Division reversed, holding that Penn Central did not use proper accounting methods to demonstrate that it was suffering an ongoing deficit. On further appeal, the New York Court of Appeals affirmed. In a novel opinion that revised some of Henry George's discredited ideas, it ruled that in New York, a property owner was entitled to a return, not on the value of his entire property, but only on that increment of its value that was created by private entrepreneurship. Penn Central appealed to the U.S. Supreme Court.

Supreme Court decision

In the United States Supreme Court, Penn Central changed theories, arguing that it was receiving a reasonable return on its property, but arguing instead that the regulation took its air rights above Grand Central Terminal which had been designed to accommodate a 20-story building on top of it. The Supreme Court disagreed, and held that under a new taking test it formulated in this opinion, the economic impact on Penn Central was not severe enough to constitute a taking because Penn Central could continue with its present use whose return, it conceded, was not unreasonable, so the regulation did not interfere with its reasonable investment-backed expectations. The court therefore found that the city’s restrictions on the Grand Central Terminal did not amount to a taking.

The case is perhaps best summarized in Section II-C of the Opinion of the Court.
The dissent argued that in this case there was a net transfer from the Penn Central to the people of the city who were meant to benefit. The dissent argued that it was not fair to have the entire burden of preserving Grand Central fall on its owners. That cost is the opportunity cost of not developing the airspace over the terminal.

Aftermath

Although Penn Central nominally lost, it was at the time in bankruptcy and lacked the funds to maintain the Grand Central Terminal, which fell into misuse and became a place for the homeless to use as shelter and as a toilet. Eventually, the Metropolitan Transit Authority took it over and restored it at public expense—which was what Penn Central contended for to begin with.