TCS Daily


They Can't Take That Away From Me... Unless They Can

By Stephen Bainbridge - June 24, 2005 12:00 AM

By a 5-4 vote, the Supreme Court on Thursday ruled that governments may seize your business and even your home in order to facilitate private economic development schemes.

It's well settled, of course, that the government can take your property in order to devote the land to some public purpose. The Binghamton campus of the State University of New York, for example, was built in part on land that the state took away from my family. In the case before the Supreme Court, however, the City of New London wanted to seize a neighborhood and turn the land over to a private developer who would then raze the homes and build a big industrial park.

This has become an increasingly common problem. State and local governments increasingly make use of their eminent domain power to take property for what are really private purposes As CNN reported:

        "At issue is whether governments can forcibly seize homes and businesses, 
        for private economic development. Under a practice known as eminent 
        domain, a person's property may be condemned and the land converted for 
        a greater 'public use.' It has traditionally been employed to eliminate 
        slums, or to build highways, schools or other public works.

        "The New London case tests the muscle of local and state governments 
        to raise what they see as much-needed revenue, which they argue serves 
        a greater 'public purpose.'" (Link)

The Economist explained the problem quite succinctly:

        "Put simply, cities cannot take someone's house just because they think 
        they can make better use of it. Otherwise, argues Scott Bullock, Mrs Kelo's 
        lawyer, you end up destroying private property rights altogether. For if the 
        sole yardstick is economic benefit, any house can be replaced at any time by 
        a business or shop (because they usually produce more tax revenues). 
        Moreover, if city governments can seize private property by claiming a 
        public benefit which they themselves determine, where do they stop? If they 
        decide it is in the public interest to encourage locally-owned shops, what 
        would prevent them compulsorily closing megastores, or vice versa? This 
        is central planning."

Exactly. The government's takings power is a necessary evil that, if used broadly, can destroy the entire concept of private property rights. As Russell Kirk pointed out, doing so will have devastating affects on society:

        "[F]reedom and property are closely linked. Separate property from private 
        possession, and Leviathan becomes master of all. Upon the foundation of 
        private property, great civilizations are built. The more widespread is the 
        possession of private property, the more stable and productive is a 
        commonwealth." (Link)

The Kelo case is a particularly egregious example of how the takings power can be abused. According to the Economist:

        "The day before Thanksgiving 1998, Susette Kelo, a registered nurse, got 
        an unwelcome holiday gift: an eviction order. Her house, and those of 
        six other families living on an abandoned submarine base called Fort Trumbull, 
        had been compulsorily purchased. She had five months to get out.

        "What is unusual about this is that her house is no rat-infested health hazard. 
        She bought and spruced it up three years before. Nor is it being seized by a 
        branch of government: the evictor is the New London Development 
        Corporation (NLDC), a private non-profit body."

The Supreme Court has held that private property can be seized via eminent domain as part of an urban renewal project when the property is blighted, a loophole that local authorities have greatly abused to seize private property. Yet, in this case, the government didn't even bother trying to hide behind that fig leaf. They baldly asserted the power to seize private homes because they think some other user can put them to a higher tax generating use, as the following description of the oral argument in Slate made clear:

        "Justice Antonin Scalia ... describes [City of New London lawyer] Horton's 
        position as: 'You can always take from A and give to B, so long as B is richer.' 
        And O'Connor offers this concrete example: What if there's a Motel 6 but 
        the city thinks a Ritz-Carlton will generate more taxes? Is that OK?

        "Yes, says Horton." (Link)

This is no minor technical dispute. Kirk's dicta is confirmed by the brilliant work Richard Epstein did in his classic book Takings, which makes a compelling case that the power to take private property is the critical and central power of government that must be constrained if liberty is to have any substance.

Ms. Kelo and her lawyers relied on the Takings Clause of the 5th Amendment, which provides:

        "Nor shall private property be taken for public use, without just compensation."

Note that the Takings Clause has two independent requirements: (1) just compensation must be paid; (2) the property must be taken for a "public use." The Supreme Court could -- and should -- have held that this second requirement means that the government may not take away your property to give it to some other private individual (or company) who will then devote it to their own personal or business use.

But the 5 justice majority did not. Instead, so long as the government compensates you, it can take your land and turn it over to some other private person or company.

Unfortunately, the requirement to pay fair market value is a grossly inadequate safeguard on government power for two reasons. First, it fails to take into account the subjective valuations placed on the New London property by people whose families have lived on the land, in at least one case, for a 100 years. In other words, the government now will be able to seize land at a price considerably below the reservation price of the owners. Indeed, as Will Collier explained:

        "... the price even a willing seller would be able to get from his property just 
        took a huge hit. All a developer has to do now is make a lowball offer and 
        threaten to involve a bought-and-paid-for politician to take the property 
        away if the owner doesn't acquiesce."

Second, unlike the prototypical eminent domain case, in which the land is seized to build, say, a school or road, in this case the city is using eminent domain to seize property that will then be turned over to a private developer. If this new development increases the value of the property, all of that value will be captured by the new owner, rather than the forced sellers. As a result, the city will have made itself richer (through higher taxes), and the developer richer, while leaving the forced sellers poorer in both subjective and objective senses.

Justice O'Connor's dissent makes the point eloquently:

        "Any property may now be taken for the benefit of another private party, 
        but the fallout from this decision will not be random."

        "The beneficiaries are likely to be those citizens with disproportionate 
        influence and power in the political process, including large corporations 
        and development firms."

After news of Napoleon's victory in the Battle of Austerlitz was conveyed to British Prime Minister William Pitt, Pitt pointed to a map of Europe and said: "Roll up the map; it will not be wanted these ten years." In light of the Supreme Court's decision to side with New London, we might just as well roll up the Takings Clause of the Bill of Rights, because we won't need it any longer.

One final thought: Reagan appointee Kennedy and Bush 41 appointee Souter voted with the majority, proving once again just how essential it is that Bush 43 pick somebody reliably -- and permanently -- conservative when there's an opening.

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