Defending the virtues of liberty, free markets, and civilization... plus some commentary on the passing scene.

Freedom's Fidelity

Wednesday, February 23, 2005

Property Rights and Eminent Domain

Private property rights are just as important as free speech or any of the other inalienables. You get property because you use your effort, creativity, personality to produce it and trade for it. In that sense property is an extension of self. If you had no property, you'd have little privacy. Where would you change clothes? Sleep? Shower? Hide your stash? Property rights help secure a place to freely exercise your other rights.

With that in mind the U.S. Supreme Court is going to hear a case that will have far reaching implications on the scope of the state's power for seizure. The Chicago Tribune reports:

Lawyers for the homeowners say the case [Kelo et al v. City of New London] is the most important property rights dispute to reach the court in 50 years, because it could limit the government's ability to condemn property for economic redevelopment under its power of eminent domain.

Governments have relied on that power to condemn land for traditional public uses, such as railways, roads, public utilities, schools, waste treatment plants and the like. But they also have used condemnation powers to assemble large parcels of land for redevelopment--be it for an automobile manufacturing plant or a speedway or a baseball stadium.

A few things here, eminent domain is the government's right to take your property for 'public use.' This power is tempered somewhat by the 5th amendment which provides that 'just compensation' must be paid when eminent domain is invoked, and a 'public use' for the property must be demonstrated. That leaves two questions. What constitutes 'just compensation' and what constitutes 'public use'?

Typically 'just compensation' means 'fair market value' but this inherently under-compensates the owner. Why? Because if the owner valued his property at or below fair market value, he would have already sold it. In other words, the owner is never compensated for his subjective value of the property.

The second question, and this is really the crux of the case, is what constitutes a 'public use.' Historically 'public use' was reserved for projects like roads, bridges, railroad tracks, schools, etc. Over time, however the definition expanded, culminating with the landmark case in 1981 of Poletown Neighborhood Council v. The City of Detroit where the government essentially took the whole town (churches and all) in order to turn the land over to General Motors for a new plant. With GM threatening to leave Detroit if the land for the new plant was not appropriated, the court essentially held that a private entity's pursuit of profit did in fact fall under the umbrella of 'public use' because that entity's profit maximizing abilities contributed to the general health of the economy as well as the government's tax base. Over the next several decades, this precedent was used to seize private property nationwide. Though it was finally struck down this past August by the Michigan Supreme Court, the real test lies in the parameters that the U.S. Supreme Court sets in Kelo vs City of New London.

The City of New London is looking to the U.S. Supreme Court to definitively widen the scope of eminent domain. If the court agrees, and 'public use' is re-defined in such a broad sense, it's hard to imagine what would not fall under the government's right of eminent domain. After all, one would only have to make the speculative argument that confiscation and redevelopment would make the public richer, by making the tax base larger. It's not too difficult to make a case that almost anything would bring in more revenue to a city than a particular private residence. Could low cost housing in a gentrifying neighborhood be forcibly confiscated and replaced with mansions? Could an Arby's be forcibly demolished to put in a 5 star restaurant if the government so desired? Is it so difficult to imagine a bribery scenario where the government threatens to replace an existing business with one that will pay more taxes? The 'public use' economic argument applies in all of these scenarios.

This also gives any nefarious government official a legal weapon to punish specific citizens, business groups or political opponents with threats of seizure at a whim. It's difficult for me to come up with even one reason to hand over property rights carte blanche to the government, especially when there are already institutions in place to deal with such situations. They are called free markets and if a business wants to expand and needs property, they can freely negotiate a purchase price with the current owner and the owner can decide to sell or not sell. If he doesn't sell, then the answer is to offer more money or find another location, not have the government (a third party) step in and substitute it's desire for that of the individuals. Kelo et al. vs. City of New London has just those implications, and the city lawyers are making no mystery of it:
A lawyer for New London argued that state and local governments should be able to condemn property if its redevelopment would substantially enrich the public coffers, even if the property were not blighted or neglected…..

Justice Sandra Day O'Connor asked a lawyer for New London, "For example, a Motel 6. The city thinks it should have a Ritz-Carlton, [to] have higher taxes. Is that OK?"

"Yes, Justice O'Connor, that's OK," attorney Wesley Horton said.

"You can take from A and give it to B, if B pays more in taxes?" a dubious Justice Antonin Scalia asked.

"If it's a significant amount," Horton said.

Fortunately over the last 15 years or so the Supreme Court's decisions have been decidedly libertarian, I would be awfully surprised if the city of New London wins this case - it would be a significant blow to individual rights if they did. Keep an eye on this one.


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