Supreme Court and Eminent Domain

Supreme
Court and Eminent Domain

06/24/05

The Supreme Court approved New London
Connecticut’s seizure of land from private owners, “to make room
for private development projects to try to boost the local economy.”
(It just so happens that New London was one of the most aggressive
cities in my analysis of city sign codes, a regulation,
planning-happy city.)

So cities, in alliance with certain
interests, developers, can effectively force landowners to sell to a
buyer. The city seizes and pays some compensation for the land, then
sells it to the developer, if I have it right. All the buyer has to
do is convince the city that his use of the property will result in
higher taxes collected. It’s a relatively simple calculation. The
Court provided no guidance as to when the tax collection differential
is large enough to allow cities to go ahead. “Promoting economic
development is a long-accepted function of government’” says the
court. But it should not be. That’s an invitation to mischief.

Justice Kennedy is worried that some
seizures may reflect favortism toward developers. (It is certain that
this ruling cannot be used to reflect favortism to small property
owners.) Well might he worry. He voted for it anyway and warned
cities to avoid letting their takings look like favortism. Keep
appearances good.

I can think of many properties that
would be worth more, and thus generate more taxes and jobs, if they
were sold to put up businesses. The corner of Kagy and South 3rd
in Bozeman, where Town and Country wants to build a grocery store
could be infinitely more valuable than a church. Church property
doesn’t generate taxes. The City of Bozeman could now be held
culpable if it didn’t force the transaction to take place. They
would be remiss.

So every property in town along major
routes might be visited by an appraiser, who would identify
under-utilized lots and list them, soliciting developers to make bids
on them. Any bid that exceeded the cost of procurement under a
watered-down condemnation proceeding would have to be honored.
Otherwise the city would suffer less-than-optimal tax collections,
and a city would be shirking its duty.

Another phrasing of the Court’s
warning: Watch out for localities that favor private developers at
the public’s expense. What could that mean? Localities can favor
developers as long as the public, meaning tax collection, benefits.
Higher tax collections and job creation, things never realized in
perfect consonance with projections, thus trump every other good,
especially the desires of clueless owners.

The Fifth Amendment allowance for
seizure of property used to have strict limits. Roads and bridges
were thought to benefit all more or less equally, and one obstinate
farmer could hold up the whole thing by refusing to sell. So
government could seize his land in the process called eminent domain,
pay full market value and own it for the city, state or federal
highway. It had to be a public use and full compensation had to be
paid. The “public use” and “full compensation” limitations
held governments partially in check.

Lately professional sports teams have
pled for cities to condemn properties so they could build new
stadiums. They say the economic gain to the community is a public
purpose. But not all share equally in the profits of having a new
stadium. Team owners, players, businesses close by, TV networks all
fare better than the average citizen of the town.

Neither is having a Pfizer mega-campus
a public use. Let Pfizer, or the Seahawks buy a property or
properties where they can find willing sellers. That often means
going to a single seller who has sufficient land for the stadium or
campus- on the outskirts of town. But that displeases planners who
want bustling, vibrant city cores. It also displeases the team owner
or corporation who wants to locate near highways, or in the heart of
things, for better access for their patrons and employees.

Now they have their way. The small
property owner who wants to stay, perhaps because he was born in that
house, or for other sentimental reasons, or to watch the market for a
few years so he can hopefully command more money, to remodel and
start his own business on the spot, to defer tax consequences of
selling, or to leave the lot empty for kids to play in or people to
cooperatively garden, this small owner will be forced to sell at an
inopportune time. (Easier condemnation will also distort values
downward.)

The justices stressed that the project,
hotels and office to complement a new Pfizer research plant, “was
not intended to benefit the developer or Pfizer.” But surely it
benefits them disproportionately.

Kennedy’s warning was, “A court
confronted with a plausible accusation of impermissible favortism to
private parties should treat the objection as a serious one and
review the record to see if it has merit.” That is unclear
guidance.

Thomas Merrill, an advocate, says
Kennedy’s warning will force governments to use caution. It cannot
be see how. The city attorney in Hollywood, FL agrees with me. His
city, “will almost certainly now be successful in our eminent
domain actions.” Their desire is to condemn, (seize and pay for), a
two-story commercial building standing in the way of a development
project. Merrill’s caution is like promising that preemptory forest
fires must not be allowed to get out of control.

After this decision, the best use of
property will not be decided by owners, buyers, markets, and users
and prospective users, whose desires sometimes reflect non-monetary
value. On the contrary, the best use will be decided by agents from
the tax assessor’s office and planning office. The economic
analysis can even be fakey. Imagine a city commission who believes
that a wonderful trail system might be the economic tool it needs to
attract up-scale residents willing to pay for “natural amenities”.
The city could seize a house, pay some compensation, raze it, and
clear a trail. Who could challenge their analysis?

Maybe as Randy Barnett suggests, it is
time to amend the Constitution and drop the eminent domain clause.

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