PB and the Mattoon Act

Pacific Beach experienced a period of growth in the mid-1920s, including a new business district at the corner of Garnet Avenue and Cass Street, Crystal Pier and the opening of new subdivisions like Pacific Pines, North Shore Highlands and Crown Point. However, this growth soon stalled and was followed by a period of stagnation that lasted through most of the 1930s. While the Great Depression which followed the stock market crash of October 1929 undoubtedly played a role, many blamed this slowdown on the Mattoon Act.

The Mattoon Act, or Acquisition and Improvement Act, was passed by the California legislature in 1925. Named for its author, Everett Mattoon, it was intended to facilitate community development by allowing local authorities to create improvement districts where property owners would be assessed to pay for construction projects which benefited the district. The authorities would also have the right to acquire property for an improvement project through condemnation, if necessary.

Promoters of an improvement project would petition the local government authority to approve a project and an assessment district created to pay for it. While approval of a project did not require a vote of property owners in the district, a signed protest by 51 percent of the owners would be required to stop it. Once a project was approved and a district established the project would be funded by bonds to be repaid by an ad valorem tax on property owners within the district. A collective lien was placed on all property in the district, remaining in effect until the assessment for the entire district had been paid in full. Any delinquent payments were to be added, or ‘pyramided’, onto the district’s assessment for the next year, in effect requiring owners who did pay their taxes to pay their neighbors’ delinquent taxes as well.

The impact of the Mattoon Act on Pacific Beach was primarily the result of one project, the Mission Bay Causeway, a roadway built across what had been mud flats and open water between West Point Loma Boulevard and Crown Point. In April 1927 a petition was filed with the San Diego City Council asking for construction of a causeway under the provisions of the Mattoon Act. The San Diego Union reported that the project would be of immense proportions, costing thousands of dollars, and would mean the creation of an extensive assessment district north of the bay and on the Old Town flats, with the issuance of 6 percent bonds. A month later, in May 1927 the council voted unanimously to begin proceedings which could result in the construction project, estimated to cost about $500,000.

The causeway project was not without opposition, however. Attorney H. C. Gardiner, representing 150 Pacific Beach residents, protested that it was an unwarranted and unnecessary burden and threatened to fight it in court. After the council adopted a resolution of intention in August 1928, and set a date a month later to hear protests, Gardiner outlined his objections in a letter to the Union, complaining about the cost of the project, its potential to spoil Mission Bay, and the Mattoon Act itself, recently condemned by the Real Estate Association of San Diego and already in ill repute due to its ‘vicious provisions’ and ‘objectionable features’. In their September meeting, the council overruled these protests and formally authorized the project.

In November 1928 the council voted four to one in favor of issuing bonds and acquiring rights-of-way for the causeway project, again sweeping aside protests. In December, opponents of the project, led by Gardiner, filed another protest with the city council, claiming that the Mattoon Act was purely a street improvement measure and conferred no authority for the construction of bridges, which was the greater part of the Mission Bay Causeway project. When construction actually began, later in December 1928, Gardiner filed suit, and in January 1929 a judge granted a temporary injunction, halting the work.

In what was called one of the most bitterly fought court cases in recent years (attorneys were said to be like ‘gladiators sparring for position’) the project was nearly struck down in April 1929 when the judge ruled against 36 separate objections to the project but upheld one, that the proposed right-of-way crossed a small section of federal property and that the permit to cross this land was revocable by the Secretary of War and therefore did not represent a permanent dedication to the public (the property in question had been acquired by the federal government in 1878 to build a levee to divert the waters of the San Diego River into Mission Bay). Judge Griffin was prepared to make the temporary injunction against the causeway project permanent, but before his final ruling the attorney representing the promoters of the project made a ‘spectacular dash’ across the continent by air mail plane to Washington, D.C., returning with a permanent easement for a right-of-way for highway purposes signed by the Secretary of War. The judge reopened the case and reversed his former decision, although he did permit the injunction to stand pending appeal, provided the plaintiffs posted a $50,000 bond. The protesters were unable to raise the bond, Judge Griffin lifted the injunction, and construction work was resumed in July 1929.

With the Mission Bay Causeway finally under construction, some prominent Pacific Beach residents expressed positive opinions about the project. J. M. Asher Jr., who lived in his recently completed mansion at the top of Loring Street hill, was quoted as saying that his interests in Pacific Beach led him to be enthusiastic about the causeway; ‘I am convinced that land owners here will find it a great factor in the rise of property values’. An ad in the Evening Tribune in February 1930 noted that San Diego residents could already drive from Barnett Avenue to the south end of the causeway and if they did they would grasp the significance of the statement that the new causeway would effect such a transformation in Pacific Beach as it has never known. A transformation not only in the lives of its people but also in Pacific Beach real estate values. ‘But you should invest here now! Later may be too late for maximum profit’.

The new causeway did effect a transformation in Pacific Beach, in the lives of its people and in real estate values, but not in the way that its promoters had hoped. By 1930 the negative effects of the Mattoon Act were already being felt in districts around the city and county. The assessments added to property taxes to repay improvement bonds both increased the cost of ownership and reduced the value of the property, and increasing numbers of owners were either unable or unwilling to make their payments. The pyramiding provision of the Mattoon Act meant that these delinquent payments could be added to future assessments, which even more owners would fail to pay, creating a potential death spiral of rising assessments and more delinquencies.

In January 1930 a joint meeting of city councilmen and county supervisors pledged all possible relief for owners of property in Mattoon Act assessment districts. It was the ‘sense of the meeting’ that there should be no further pyramiding of assessments and that each landowner should be required to pay only his share of the cost of the improvement for which the district was formed. If bondholders did not agree they should take their case to the state courts, where the local officials believed they would find no legal basis for pyramiding. In August the supervisors established a revolving fund of about $60,000 to eliminate the year’s delinquencies on bond payments and also canceled penalties on delinquencies. According to the Evening Tribune, these measures created a ‘better feeling’ about tax bills in local Mattoon districts.

Construction of the Mission Bay Causeway was completed and a grand opening was held in January 1931. Four cadets from the San Diego Army and Navy Academy in Pacific Beach officially cut the ribbon at the south end of the roadway at Rosecrans Street. The Tribune noted that the large crowd was sprinkled by residents of Pacific Beach, Crown Point and owners of adjoining property who would pay the bills. The opening of the causeway was also accompanied by renewed advertising for Crown Point and other subdivisions in Pacific Beach.

However, delinquencies within Mattoon Act districts, including the Causeway district, continued to increase, exacerbated by the general economic collapse of the Great Depression. In February 1931 the county assessor reduced tax valuation of property in Mattoon districts by approximately 50 percent. Although he said the reduction was effected to bring relief to overburdened property owners, he noted that it was also justified by the present sales value, or lack of it, in the territory bearing heavy improvement assessments. The large, and growing, tax burden on property in these districts undermined its value, in some cases making it unsaleable.

Relief for overburdened property owners and increased delinquencies also meant that improvement districts did not raise enough revenue to make scheduled payments to bondholders. In August 1933 holders of Causeway bonds, led by the American Securities Company, won a state supreme court ruling that would have forced the city to levy a special tax to make up $31,000 in delinquent interest payments. In April 1934 the court also ruled in favor of the securities company’s demand that the city pyramid all amounts delinquent to date in the next year’s assessment. James Abbey, deputy district attorney in charge of Mattoon litigation, objected, predicting that pyramiding would result in immediate and total collapse of Mattoon Act districts, that taxpayers would no doubt refuse to pay any further assessments when they saw their tax bills, and that the situation should bring the bondholders of Mattoon Act districts to the realization that there is very little prospect for immediate payment of their bonds. Supervisor S. P. McMullen actually advocated a tax strike by property owners; ‘It’s getting better all the time for the property owners’, he said. ‘The more penalties accrue, the quicker the owners will realize how impossible it is to carry their burden, and they will quit paying taxes at all and thus force the bondholders to terms’. Rather than comply with the state supreme court ruling, the city appealed to the United States Supreme Court in July 1934 to halt pyramiding in the Mission Bay Causeway district on the grounds that pyramiding would amount to illegal taking of property without due cause, but in January 1935 the United States Supreme Court upheld the constitutionality of the Mattoon Act in the Causeway district, denying the city’s appeal.

The June 7, 1935, San Diego Union ran to 134 pages; 28 pages of news and advertising and over 100 pages dedicated to a delinquent tax list, eight columns to a page, listing the owners, descriptions and amount of taxes delinquent for property in the county. In some of the newer subdivisions in the Pacific Beach area like North Shore Highlands, Congress Heights, Pacific Pines and Crown Point, nearly every lot in the tract appeared to be listed. Some prominent citizens were included on the list, like Kate Sessions, who owed $152.92 on property in her Soledad Terrace subdivision and $66.86 on her nursery in the Homeland Villas No. 2 tract as well as additional taxes on other properties around the city. J. M. Asher Jr. owed $91.34 on the property in Acre Lot 11, where he had built his house at the top of Loring Street hill. The San Diego Army and Navy Academy, located on 31 acres in the heart of Pacific Beach that is now the Pacific Plaza shopping center, and with improvements that included recently completed 4-story dormitory buildings, was delinquent by over $8000. For the academy, this failure to pay property taxes was a fatal blow. Overextended by the dormitory building program, founder Thomas Davis had been forced to mortgage the property, buildings and furnishings, down to the silverware in the mess hall, to Security Trust & Savings Bank of San Diego. One of the conditions of the resulting deed of trust was that the academy would be responsible for property taxes, and when Davis failed to pay the delinquent taxes the trust company declared default in 1936. The campus was sold to the John E. Brown College Corporation in 1937 and was known thereafter as Brown Military Academy.

Although the U. S. Supreme Court had denied their last legal defense against pyramiding delinquent Mattoon assessments, it was obvious to local officials that pyramiding was not a viable option. According to deputy district attorney Abbey the situation had ‘just gone plain crazy’; the law seemed to give no alternative but to pyramid but under pyramiding many a lot would be called upon to pay a district assessment at least five times as great as its assessed valuation. The Causeway district was already 54 percent delinquent and if the assessments were pyramided, they would become 100 percent delinquent, like many districts already were. The county assessor added to the alarm, saying that the 100-page delinquent tax list spoke for itself; out of 155,000 real estate accounts the previous year approximately 80,000 were delinquent. Also 16,000 had been removed from the tax rolls for being delinquent over five years, reducing the tax rolls to 139,000. The supreme court order would add $3,500,000 special taxes to pay in addition to the regular levy, and the possibility of payment of such a huge sum was ‘far beyond the realm of possibility’. All such districts would without doubt go 100 percent delinquent and another 20,000 accounts would go off the rolls.

Instead of pyramiding more taxes on property owners in assessment districts, most of whom could not or would not pay them, the county proposed a $2,600,000 bond issue which would be used to buy up the existing Mattoon Act bonds at deep discounts. About half of this county bond would then be repaid by property owners in the districts, but with reasonable assessments so that the owners would resume paying their taxes. The other half would be repaid from general property taxes and gasoline taxes, reflecting the fact that much of the improvement work had involved the construction of arterial roads that actually benefit the entire region, not just the district in which they are located.

Abbey had prepared legislation enabling the Mattoon settlement plan which was introduced by the San Diego county delegation and enacted during the 1935 session of the state legislature. The settlement plan was put to a vote in San Diego County on October 29, 1935, and passed by a margin of 3 to 1. The San Diego Union celebrated it as not only a relief measure for assessment-burdened property, allowing it to be returned to general taxation and affording owners a practical method of repaying their obligations and clearing their titles, but also as a ‘Go’ signal, clearing away the wreckage from an era of reckless and unscrupulous promotion and promising renewed initiative and foresight to back projects for future progress.

The state supreme court upheld the Mattoon settlement legislation in July 1936 and in March 1937 Abbey went to San Francisco to negotiate with representatives of a large block of Causeway district bonds, which the county was to buy and retire at 50 percent of their face value. According to the San Diego Union, the district was 65 percent delinquent in city and county taxes because of the Mattoon blight. It had approximately 1500 taxpayers and included lands from the Marine base to La Jolla. In June 1937 the Union announced that settlement of the Causeway Mattoon district was voted unanimously by the county board of supervisors. $730,000 of the $743,000 bonds were in the county treasurer’s office and money was available to pay for them at the county’s price.

The Causeway district had the largest area of any Mattoon district in the county, with 56 percent or over half of the assessed valuation of such districts, and a Union editorial noted that clearing up 56 percent of the Mattoon blight meant that the hardest half of an extremely difficult task was almost finished. A solution to the Mattoon problem, a disastrous community blunder, would lift an immense worry from the literally thousands of local residents involved in the maze of legal complications created by promoters, salesmen and contractors who exploited the Mattoon Act as an easy means of making a quick cleanup in San Diego. The settlement would free the community to begin again where it left off nearly 10 years before when a small minority of individuals deluded the rest of the community with reckless promise of sudden and unearned speculative profit.

Title insurance companies agreed to issue title insurance policies in the Causeway Mattoon district without mention of the fact that the properties had been in such a district. The policies would include a note saying that San Diego County had forever waived the right to levy future Mattoon assessments on land in the district. An ad in the Union by the Southern Title and Trust Company announced that the company would insure titles in the entire Causeway district showing the property to be clear of Mattoon bonds as long as there were no delinquent assessments.

On the Fourth of July, 1937, Pacific Beach celebrated the Causeway district’s ‘declaration of independence’ from Mattoon Act ‘bond-age’ with fireworks and a huge ‘bond-fire’ at the beach, symbolizing burning of the last Mattoon bonds. City and county officials and citizens who had labored long to release the district from the heavy Mattoon yoke joined in the festivities (James Abbey had the privilege of throwing the first bundle of bonds on the fire), and predicted an era of progress and prosperity. The president of the Pacific Beach Chamber of Commerce declared that nothing could stop Pacific Beach now; ‘Our unfortunate experience with Mattoon bonds set back our development, but only temporarily. From now on watch us grow’.