Freedom's Fidelity

Friday, April 15, 2005

Property Rights - The Subjective Element

The importance of property rights and the use of eminent domain seem to be turning into a regular topic here, and with good reason. The protection of those rights is not only a moral imperative but also a key to economic growth and development.

With that, here is an interesting case that the Chicago Tribune reported on earlier this week:

NAPLES, Fla. -- On a patch of rugged wilderness, with alligators, bears and an occasional panther for neighbors, a partially disabled former Navy frogman is nearing the end of a battle to save his homestead from an $8 billion plan to restore the development-battered Everglades.

As the Florida Department of Environmental Protection threatens to acquire the 160-acre property under eminent domain--a process by which a government can seize private property for public use--Jesse Hardy has refused the state's final offer of $4.5 million, and so far has not been satisfied with property offered for a land swap.

Florida officials contend that Hardy's land would be threatened by flooding under the plan. But the bearded Hardy said that a private study had determined that his land would be flood free, at 13 feet above sea level, when waters rise because of the state and federal Comprehensive Everglades Restoration Plan for Central and Southern Florida.

...."This is not the Everglades; that's a reference to that river of grass that grows 30 miles thataway," Hardy said, pointing to the ground and then to the southeast. "No, no, no, there's nothing here to restore. I'm 13 feet above sea level. There will never be a sheetflow of water here. There never was any heavy-duty standing water here."

Whether or not his land could flood doesn't seem to be the least bit relevant in terms of eminent domain and public use. Perhaps it is an implicit threat to get Hardy to give up his land? Anyway....

..."This is all I've ever had," he said. "This is all I wanted. I worked like hell to buy it. I bought it in 1976 for $60,000 because nobody else wanted it. It was solid damn rock and cabbage palms and slash pines. You can't farm on it or nothing. All I could do really good was to set up a fish farm. But there's no replacing this piece of land."

...Property rights advocates praise Hardy as a pioneering Grizzly Adams representing landowners determined to prevent governments--and their environmentalist supporters--from wresting away land from owners who deem it priceless, and to which they have strong emotional attachments.

Make no mistake, if there ever was a hero to property rights advocates, it's this guy.

When the government seizes land under eminent domain, they are required to give 'fair market value.' However, as I have written before 'fair market value' 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. Jesse Hardy is perhaps the perfect living example of this economic truism.

The state's initial offer for Hardy's land was $711,725.

....."This is our place," he said, speaking inside a small but sturdy shack that he built himself and in which he lives with a friend, Tara Hilton, and her son, Tommy, 9, whom Hardy has treated as a son since the boy's birth.

"We love it and don't want to leave it," Hardy said. "I'm not interested in their money. But with the lawyer fees and [the services of other experts], they brought us down. We don't have a damn thing now. We're just struggling, and I get paid a little bit for whatever bit of dirt we're still selling. That's what we're living on."

While asserting that his property lies on land above the proposed water flow, Hardy has offered to waive all liability for flooding, and has offered to encircle his property with an earth berm if the state will let him stay.

Many wonder why Hardy does not take the state's $4.5 million offer and establish himself in relative comfort elsewhere. But Karen Budd-Fallen, an attorney from Cheyenne, Wyo., on Hardy's legal team, said the Florida native's stand was akin to those taken by ranchers and farmers in the West and Midwest.

...."The land they have tried to trade me was worthless," he said, "and I'm too damn old now. I just can't go into homesteading again. I've got this here now. I want to finish out my life here and I would like to turn this over to my little boy and his mother so they will have something to make a living on."

A few items are revealing here. First, absent a 600+% increase in Hardy's property value over a two year period, the state clearly tried to lowball him. You can bet that this is the typical practice as the state has nothing to lose while the property owner could be risking everything. Without a clear definition of what constitutes a 'public use' the implicit message from the government is 'you better take this offer or we'll go to court, take your property anyway, and then pay you less.' A narrowing or at least a clarification of eminent domain cases would do much to head-off such government bullying.

Second, as an outside observer, this makes no sense whatsoever for a guy who is partially disabled and apparently struggling financially. Jesse Hardy should take the $4.5 million, start a trust fund for his family and buy a big chunk of land anywhere in the United States that is not in the middle of a godforsaken swamp with some human neighbors!

Right? But that is not what Jesse Hardy wants, and why should any non-cost bearing third party be allowed to preempt Jesse Hardy's decision? He knows his own tastes and preferences better than I, or the state of Florida does. He legally purchased the land, he's not harming anyone and it is obviously worth more than $4.5 million to him. The state would have to make a pretty compelling case that the land is worth more to them and the public than it is to Jesse to forcibly take his land. Or, alternatively, take advantage of this handy device called the free market and offer him even more money, at taxpayer expense of course.

Update: Looks like I waited a day or so too long to finish this post, it's already outdated. (such is life in the blogosphere) After doing a little research the fight is apparently over.

Jesse Hardy has ended his yearslong eminent domain fight with the state over land in Collier County that is part of an Everglades restoration project.

Senior Judge Jack Schoonover signed papers today approving a deal by which Hardy, 69, will receive $4.95 million for Hardy’s 160-acre homestead in Southern Golden Gate Estates, a mostly abandoned subdivision south of Interstate 75.

The state Department of Environmental Protection has tried since 2002 to negotiate a deal to buy Hardy’s land. Hardy had refused as much as $4.4 million to leave. He also rejected several land-swap offers.

...Despite the deal, Hardy said Wednesday morning that he was in "deep, deep pain" for not being able to stay on his land until he died.

Hardy said the fight with the DEP has been "a living hell." He said he wanted to make a stand for private property rights and continued to insist that the DEP doesn’t really need his land for the restoration. He said he’s through fighting.

"All I have to say is, I’ll be all right," Hardy said. "I’ve fought hard, I fought for the people of Collier County and the State of Florida. They can pick it up and run with it from there. Jesse Hardy is finished."

I guess we now know that he valued his land at roughly $4.95 million plus the avoided legal and mental costs of continuing the fight. Here's some interesting details on the compensation:

Hardy acquired his land for $60,000 in 1976. The first offer from the DEP was for $711,725 in October 2002.

The DEP then made offers of $909,000, then $1.2 million, then $1.5 million and then $4.4 million in April 2004.

The offer included $2.6 million for the land, $340,000 for him to buy another home and to relocate plus another $1.5 million.

I suppose this was as fair an outcome as could be hoped for. Obviously the land was enormously valuable to the state of Florida given their persistent increases in offers. The fact remains that with $4.4 million staring him in the face, Hardy still told the state to go scratch. He's a walking economic definition of subjective value. A property rights hero indeed.

posted by Paul  permalink | |