Tucked away in the Fifth Amendment is a tiny little phrase stating that “private property [shall not] be taken for public use, without just compensation.” With those few words, the framers of the constitution granted government the power of “eminent domain,” which can be used to take away someone’s home or business if the state determines that it’s in the interest of the general public to do so. Despite the fact that this power is at odds with a property owner’s right to dominion over his or her land, courts have upheld challenges to eminent domain time and time again, and in fact have greatly broadened the government’s power to use it over the years.
In doing so, the courts have made clear that public interest merits as much consideration as the rights of a few individuals who might otherwise stand in its way. While the property rights aspect usually receives most of the focus, the benefits a city can reap from using eminent domain have often proved both valuable and necessary, and can’t be easily overlooked. Indeed, the discussion now being shaped in the courts looks less at when and where property can be seized, and more at how to compensate property owners for their losses, so as to curb abuse and ensure that local governments act responsibly.
This past February, the Supreme Court decided to hear its first private takings case in half a century, Kelo vs. The City of New London, in which seven landowners contested the city’s right to take land for development purposes, while the city fought for a chance to get back on its feet.
New London, CT, is a small, working-class city of around 25,000 with a serious revenue problem: Over half the city’s property is exempt from property taxes and the city has little available land for further residential and business development. As a result, New London cannot cover its own expenses and relies on federal subsidies to make ends meet. Hence, civic leaders breathed a sigh of relief when, seven years ago, pharmaceutical giant Pfizer announced plans to locate a major research facility next to New London’s Fort Trumbull neighborhood. The facility would bring in sorely-needed jobs and boost tax revenue. To accommodate Pfizer, the city drew up a 90-acre development plan that included upscale housing for the new employees, a luxury hotel for visiting clients, a conference center, a Marina, and many other new amenities.
There was just one catch: Fort Trumbull, home to dozens of families with longstanding ties to the neighborhood, would have to be demolished. City officials first tried to pay the families to leave, but as is often the case, a few landowners held out. At this point the city used its eminent domain powers to condemn the hold-out properties in the name of economic development—an authority permitted under Connecticut law. Shortly thereafter, the homeowners filed suit, and the case eventually made it up to the Supreme Court. (A decision will be handed down later this year.)
No one tried to deny the public benefit of economic development, especially in a city like New London. But the city’s opponents wouldn’t accept that economic development alone could justify the demolition of a perfectly good neighborhood, especially when so many residents wanted to stay. Their point was that if private property can be taken away simply because another party thinks it can generate even more revenue from it, then no one’s property would be safe.
The Supreme Court mostly seemed to disagree. During opening arguments, attorney Scott Bullock, arguing in Fort Trumbull’s defense, claimed that development for private use—such as the creation of a facility for Pfizer—does not constitute a public benefit. Justice Stephen Breyer knocked that argument down: “[T]here is no taking for private use that you could imagine in reality that wouldn’t also have a public benefit of some kind, whether it’s increasing jobs or increasing taxes, et cetera. That’s a fact of the world.” The only notable dissent came from Justice Antonin Scalia, who claimed that Breyer’s reasoning “washes out entirely the distinction between private use and public use.”
Most of the court discussion, however, focused on Bullock’s request for heightened standards on eminent domain, namely that reasonable and foreseeable benefits must result from any condemnation that was driven solely by the desire to increase tax revenue or add jobs. When the conversation turned in this direction, Justice Breyer commented, “[N]ow you’re getting to what I think is a possible realm of reason here.”
Although insisting that he wasn’t advocating heightened standards of “reasonableness,” Breyer was clearly attempting to raise the issue of checks on eminent domain and provide grounds for further discussion. No one can deny that abuses of eminent domain have taken place. [See Gary Greenberg, “The Condemned,” Jan/Feb 2005.] At the same time, there are a number of mechanisms that both exist and can be constructed to ensure that eminent domain is carried out in a reasonable manner.
David Parkhurst, Principal Legal Counsel for the National League of Cities, argues that in addition to legal constraints imposed by the courts, a natural sets of checks and balances have been developed to keep eminent domain under control. Parkhurst points out that eminent domain is expensive for cities to undertake, after paying legal fees, planning and negotiating costs, and just compensation for those who lost property. “The cost for cities to do eminent domain provides major incentives for using alternative and more economical incentive-based approaches,” he says.
Meanwhile, cities have plenty of other options for orchestrating urban redevelopment: tax policy, enterprise zones, small business loans, landscaping and urban design improvements, and the alteration of permits, among other incentives. Part of the mission of the National League of Cities, according to Parkhurst, is to help cities understand the options available to them and to facilitate their broader use. Not only are these tools far less contentious than eminent domain, but they can be less expensive and are very well adapted to modern needs of many cities, he contends.
Paul Shigley, a journalist who has tracked trends in eminent domain and redevelopment in California, believes that mistakes in using eminent domain in the past have resulted in increased regulation aimed at curbing abuse. Says Shigley, “Urban renewal [in the 1960s and 1970s] was well-meaning, but misguided. And it made a whole lot of politicians and city managers hesitant to undertake large-scale eminent domain.” Cities would sometimes wipe out whole blocks, while the resulting projects would turn out to be of little real benefit. The results made eminent domain a far less popular option, adding social and political costs to the maneuver.
In its remarks on Kelo, the Supreme Court discussed at length another aspect of eminent domain that has seen its share of abuse in the past: just compensation. Breyer wondered: “[I]s there some way of assuring that the just compensation actually puts the person in the position he would be in if he didn’t have to sell his house? Or is he inevitably worse off?” When or how this issue will be addressed in court still remains to be seen, however; it was not within the scope of the Kelo case.
As the Reason Institute of Public Policy pointed out in a recently released report on the subject, the history of eminent domain is filled with cases of cities trying to lowball landowners. In the mid-1980s Dayton, Ohio condemned a city block that displaced 32 businesses, of which only one challenged the city. The court awarded that business $235,000, well over three times the city’s original offer of $67,000. Another case in Garden Grove, California involved a business owner who was originally offered $16,000 but ultimately gained $950,000 by threatening a lawsuit.
As a result of abuse, some states have laid out new restrictions on compensation. California’s “fair market system” has developed relatively tough rules that are strictly enforced by courts. When a local government condemns a property, it must pay fair market value, plus the cost of relocation. Of a business is involved, the government might have to pay for lost “goodwill” because of the relocation. Whether or not the standards are tough enough to prevent cities taking advantage of less-than-savvy homeowners is debatable, but such laws can potentially curb much abuse.
Another issue discussed in the oral arguments for Kelo was whether or not the displaced owners get reimbursed for court costs. Connecticut, for example, does not pay attorney’s fees, and that prompted to justices to grill Defense Attorney, Wesley Horton, over the degree to which the homeowners get fairly compensated. Although Souter remarked that this is not the issue presently before the court, it may arise at a later date.
Despite the Court’s preference for allowing economic development and eminent domain to co-exist, they have not turned a blind eye to issues involving abuse of power. The opening remarks in Kelo may have set the stage for additional Supreme Court cases addressing the issues of heightened standards and just compensation.