EMINENT DOMAIN AND PROPERTY - Reason Foundation by wuzhenguang


									COVER ESSAY                                                                                          .
EMINENT DOMAIN                                                                                       .
AND                                                                                                  .
PROPERTY                                                                                             .
An appreciation for clear title brought Indiana                                                      .
the 16th U.S. President and the Indianapolis Colts                                                   .
by SAM STALEY                                                                                        .
                                                                                                     .   Abraham Lincoln
   T    he setting would have
        been ideal for an action
film featuring international in-
                                                                The protection of property
                                                             rights has been a key element
                                                             of Indiana’s economic success
                                                                                                         recalled that his father
                                                                                                     .   moved from Kentucky
trigue. In the mid-1980s, at the                             over the years. Thomas Lin-
height of the Cold War, a pri-                               coln, father of our 16th presi-
                                                                                                     .   to Indiana “partly on
                                                                                                     .   account of slavery, but
vate businessman is faced with                               dent, moved to Indiana from             .
the seizure of his business by a                             Kentucky 200 years ago be-              .   chiefly on account of
government. He is rescued in                                 cause he could buy farmland             .
                                                                                                     .   the difficulty of land
                                         PROPERTY RIGHTS
the middle of the night as his WHYSUCH A BIG DEAL
                                   ARE                       and make an honest go at a              .   titles in Kentucky.”
property and business is                                     profitable business here.               .
smuggled to safety in a nearby state.              In Kentucky, poorly defined and en-               .
    The plot could entice the best and forced property rights had resulted in three                  .
brightest — Harrison Ford, Matt Damon, failed farms for the elder Lincoln. He couldn’t               .
Angelina Jolie, Tom Cruise — the Holly- afford to stick around any longer.                           .
wood A-list. But those stars are unlikely to       The federal Land Ordinance of 1785                .
sign onto this film because the plot, though required consistent measurements for land               .
real, isn’t based on international intrigue.    and established the township system of               .
    The scene was vivid enough — dozens surveying, assuring clear title in Indiana.                  .
of Indianapolis-based Mayflower vans According to the National Park Service,                         .
packed up the equipment of the NFL Colts Abraham Lincoln recalled that his father                    .
in a midnight move to Indiana. The dra- moved from Kentucky to Indiana “partly on                    .
matic action was set in motion not by some account of slavery, but chiefly on account                .
East German bureaucracy but by the state of the difficulty of land titles in Kentucky.”              .
of Maryland. Its legislature would have Thousands of others moved “west” to Indi-                    .
used its power of eminent domain to seize, ana at the time for the same reason.                      .
or “take,” the football team for public use        Property rights have not fared so well in         .
in Baltimore. By moving the team’s assets recent years. Eminent domain is the legal                  .
              to Indiana, the business stayed authority of governments to seize, or “take,”          .
              private.                          private property for public use. The action          .
             Samuel R. Staley, Ph.D., an adjunct scholar with the foundation, is director of Urban   .
             and Land Use Policy at the Reason Foundation (http:www.rppi.org). He is co-author,      .
             with economist John P. Blair of “Eminent Domain, Private Property and Redevelop-        .
             ment: An Economic Development Analysis,” recently published by the Reason Founda-       .   Indiana Policy Review
             tion. This is an adaption of that policy report.                                        .   Summer 2005

                                           PAGE THREE
                              . COVER ESSAY
             The City of . is part of the police power and is explicitly          preserving and protecting the property rights
         Indianapolis, . granted to governments in the U.S. and
                                                                                  of longtime residents and businesses.
     which benefitted . Indiana constitutions so long as the taking                   The message in Indiana as well as the
                                 is for public use and private property           rest of the nation is clear: Private property
     from Maryland’s . owners are given “just compensation.” Un-
                              .                                                   is not safe if the government wants it, even
           indifference . fortunately, the courts have interpreted the            if the benefits are going primarily to other
 to property rights, is . term “public use” so broadly that even
                              .                                                   private businesses and property owners.
now using the threat . professional football teams can fall into the                  The U.S. Supreme Court hasn’t been any
  of eminent domain . category.                                                   help either.
                                    Indiana’s General Assembly and Indiana            One of the most significant cases ad-
   to make way for a . cities are increasingly following in the foot-
                              .                                                   dressing eminent domain in years, Kelo vs.
stadium parking lot. . steps of other cities and states in using                  City of New London, was decided this sum-
                              . eminent domain to seize private property          mer. The case pitted property owners against
                              . for whatever local government might covet.        New London’s redevelopment authority and
                              .     “Indiana is growing more aggressive in        the city’s plans to revitalize a neighbor-
                              . its use of eminent domain to benefit private      hood. The city wanted to buy the proper-
                              . parties,” notes attorney Dana Berliner in         ties, many of them historic, raze them to the
                              . “Public Power, Private Gain,” a survey of         ground, and sell the land at steeply dis-
                              . state and local actions to condemn and take       counted prices to private developers who
                              . private property for private interests. Ber-      would build new shops and offices to
                              . liner defends private property owners in          support a nearby Pfizer research facility.
                              . eminent domain cases for the Washington,              The city condemned the properties even
                              . D.C.-based Institute for Justice. Nation-         though it didn’t have clear plans or projects
                              .                      wide, she identified         for the use of the property at the time. Most
                              .                      10,282 cases of “filed or    of the neighborhood was already gone, but
                              .                      threatened condemna-         a few residents and business owners dug
               ‘City Sees Empty Lots
                              .                      tions” for private uses      their heels in and tried to hold on, setting
                       as Assets’
                              .                      over a five year period      Kelo vs. City of New London in motion.
                              .                      in her report. In Indi-          During oral arguments in February, ques-
             This intriguing . headline ap-
         peared in the May . 8 Fort Wayne            ana, she found at least      tioning by the U.S. Supreme Court justices
                              .                      four instances where         was vigorous and heated. At the end of the
         Journal Gazette. It describes an
         article in which the .
                              paper’s govern-        cases were filed and 51      day, however, the Court did not overturn
         ment reporter tries .mightily to ex-        cases where eminent          previous precedent. It continued to grant
                              economic news
         plain why it is good .                      domain was threatened.       wide latitude to cities, counties and state
         that City Hall takes claim to 174
                              .                          Cases crop up in big     legislatures over when and how they can
         vacant lots, all properties left sus-       and small cities. In In-     use eminent domain for redevelopment
         pended after the collapse of a public       dianapolis, the city got     purposes. It would seem that cities now
                              .                      tired of trying to negoti-   have no limits in this regard.
         housing scheme. It. is both ironic
         and profound that many of the lots          ate with a parking ga-           That would leave everyone’s property at
         are incumbered by government                rage owner and seized        risk. As courts have become less and less
                              .                      the property so the city     willing to question the substance of govern-
         regulations rendering their titles
         either unsalable or untransferable.         could sell the land to       ment eminent domain decisions, the targets
                              .                      private developers. It       have moved from poor to middle-income
                              .                      served the city’s rede-      homeowners and businesses, from run-
                              .                      velopment goals.             down neighborhoods to stable and growing
                              .     In Mishawaka, the county government           neighborhoods. Virtually anything in the
                              . used the threat of eminent domain to close        way of a government redevelopment project
                              . the deal on 51 homes that stood in the way        can be taken.
                              . of AM General’s plan to expand an automo-             A recent case from Mesa, Arizona, illus-
                              . bile manufacturing facility.                      trates how the process works.
                              .     In Indianapolis, the city, ironically, is         Randy Bailey owned and operated a
                              . now using the threat of eminent domain to         brake repair shop at the corner of Country
                              . remove a 60-year Indianapolis business so         Club Drive and Main Street in Mesa, Ari-
                              . as to make way for a parking lot for the new      zona. The owner of the local ACE Hardware
        Indiana Policy Review . Colts stadium. Apparently, the desire to          store, Ken Lenhart, wanted to expand his
                  Summer 2005 . keep the Colts is more important than             franchise. He thought Bailey’s site would be

                                                                           PAGE FOUR
ideal. The city saw this as an opportunity       and city of Indianapolis are facilitating the    .   City development
to further revitalize its downtown. It offered   acquisition of land for the new Colts sta-       .   plans almost always
to use eminent domain to take the proper-        dium, even though the primary beneficia-         .
                                                                                                  .   trump private efforts.
ties and provide them to the hardware store      ries will be a privately owned NFL team.         .
and other private developers. The fact that          Again, city development plans almost         .   Ask Bob Parker about
the property was outside the city’s desig-       always trump private efforts. Local India-       .   his Indianapolis
nated redevelopment area was considered          napolis businessman Bob Parker, to pro-          .   industrial park.
a technical matter.                              vide another illustration, assembled prop-       .
    Once Lenhart decided that Bailey’s prop-     erties in the mid-1980s to develop an indus-     .
erty was suitable for the expansion of his       trial park, notes attorney Dana Berliner.        .
hardware store, the city redrafted Mesa’s            However, the city of Indianapolis later      .
redevelopment plan to include the land at        decided it would develop its own industrial      .
Country Club and Main. They designated           park, but its plans were bigger and more         .
the property “Site 24” and issued a request      expansive. So, rather than incorporate           .
for proposals to redevelop it.                   Parker’s properties into the larger plan, the    .
    Three development companies submit-          city condemned his land and 70 additional        .
ted plans. One was Redstone Develop-             acres to create the Keystone Enterprise          .
ment, owned by Lenhart. Another was Palm         Park.                                            .
Court Investment, owned by Mesa Dis-                 Condemnations are just the tip of the        .
count. The third was Watt Commercial             iceberg. Often, cities appraise properties       .
Properties, a national operation, which pro-     well below their value on the open market.       .
posed a complete redesign of the property,       In Bob Parker’s case, the city offered           .
including 50,000 square feet of new retail       $349,950 for his 10 acres although he esti-      .
and office space.                                mated its market value at $3.8 million. The      .
    The city consolidated the proposals sub-     owner of a property in Indianapolis in the       .
mitted by Palm Court and Redstone, reject-       way of the Colts Stadium project was of-         .
ing Watt’s bid altogether. It then negotiated    fered well below the listed price of $350,000,   .
a development agreement that included the        according to a recent report in the India-       .
terms for sale of the property to Lenhart and    napolis Star.                                    .
Mesa Discount once it was acquired by the            Low-balling appraised values, or pro-        .
city. It also agreed to acquire Lenhart’s old    viding highly leveraged and subsidized           .
building and land as part of a land swap.        property to private developers, is not unique    .
    At the request of Palm Court and Redstone    to Indiana. The city of Mesa’s redevelop-        .
Development, the city proceeded to con-          ment agreement with private developers           .
demn 21 of the site’s 26 parcels, including      for Bailey’s property would have amounted        .
Randy Bailey’s business, which represent-        to effective subsidies ranging from $176,000     .
ing half the assessed value of the land.         to $592,000.                                     .
Lenhart was asking the city to acquire               In Indiana, at least, property owners are    .
property worth two-thirds of the assessed        most often approached by local govern-           .
value of his share of the development            ments before their property is taken. The        .
project.                                         Baileys, in contrast, were never approached      .
    At first glance, the process seems excep-    by the owner of ACE Hardware, the City of        .
tional. Indiana cities aren’t usually as bra-    Mesa or any of the other investors about         .
zen as Mesa. But the process is not all that     selling their property before or during the      .
different from what one finds here, particu-     process in which the city issued its request     .
larly in cases such as AM General that have      for proposals to redevelop the site. The         .
clearly identified business plans that in-       small businesses affected by the redevelop-      .
clude expansion. As long as a site is iden-      ment project were effectively shut out of        .
tified as a redevelopment area, cities have      the process.                                     .
wide latitude for using eminent domain for           To add insult to injury, Lenhart bought a    .
economic development purposes. Existing          property adjoining Bailey’s building and         .
private property owners are considered           proceeded to board it up. The set of small       .
incidental to the development process.           office spaces had gone unused for years,         .
    This process is indicative of redevelop-     contributing to the rundown character of         .
ment efforts in more and more cities through-    the corner. In a cynical twist, Lenhart, as      .   Indiana Policy Review
out the state. Currently, the state of Indiana   landlord, was contributing to the blight that    .   Summer 2005

                                           PAGE FIVE
                             .   COVER ESSAY
    Legislation was          .   the city cited to justify condemning Bailey’s     local governments to condemn land for
introduced several           .   property.                                         urban renewal and then transfer title to
                             .       What distinguishes the current era of         private parties. But even then, local govern-
   years ago in the          .
                                 condemnations is the degree to which local        ments didn’t have carte blanche; they had to
  Indiana General            .
                             .   governments are willing to use this power         justify the taking as a way to mitigate “urban
 Assembly to allow           .   to achieve ever wide-ranging public-policy        blight.”
      “quick takes”          .   goals. Sometimes they succeed.                        Over the years, however, that term has
of private property.         .      Sometimes they’re driven back by pub-          become little more than a name for property
                             .   lic protest or the courts. In Lakewood,           a government wants to take. Today, rede-
                             .   Ohio, a growing neighborhood was saved            velopment agencies enjoy more discretion
                             .   from the wrecking ball only after a city-         than ever, and eminent domain is their tool
                             .   wide vote that rejected the city’s develop-       of choice.
                             .   ment plan for the area. But cities, counties          In Indiana, legislation was introduced
                             .   and states across the nation are pushing the      several years ago in the Indiana General
                             .   boundaries.                                       Assembly to allow “quick takes” of private
                             .      Jeff Finkle, president of the International    property. The legislation was said to be
                             .   Economic Development Council, a trade             necessary to facilitate government attempts
                             .   association representing development and          to redevelop land. The bill died in commit-
                             .   redevelopment organizations and agen-             tee but the sentiment is alive.
                             .   cies, believes eminent domain is critical to           While a ruling in favor of property
                             .   the revitalization of cities. He argues that      owners in Kelo vs. New London would have
                             .   few projects in urban areas occur on small,       restored substantive judicial review of emi-
                             .   isolated lots, and the costs of negotiating       nent domain, most protections still would
                             .   with dozens of property owners are simply         have had to come on the local level. In that
                             .   too high. In addition, he says, some prop-        respect, there are positive signs.
                             .   erty owners refuse to sell or set an unrea-           In 2004, the Michigan Supreme Court
                             .   sonable price, scuttling projects with large      reversed its infamous decision in Poletown
                             .   benefits for the community.                       vs. City of Detroit, which unleashed the new
                             .      “Lose eminent domain in urban set-             wave of takings for economic development
                             .   tings,” Finkle told Reason magazine, “and         purposes. The Poletown decision allowed
                             .   the only land that will be developed is           the city to clear an entire neighborhood so
                             .   green space on the edge of cities.”               General Motors could build an automobile
                             .      Even Finkle, however, recognizes that          factory on the site. Economic development
                             .   the power of eminent domain should have           was the sole purpose of the taking. In
                             .   limits. Taking private property, he says,         County of Wayne vs. Edward Hathcock, the
                             .   “should be the last possible tool. If negotia-    Michigan Court ruled that takings could be
                             .   tions fail, if the bully pulpit fails, then you   justified only for a clear public use and the
                             .   go to a takings case.”                            mere creation of jobs was not sufficient
                             .      But Finkle’s view is not necessarily the       justification.
                             .   dominant one. When pressed during oral                More courts at least require cities to
                             .   arguments in Kelo vs. City of New London,         follow proper legal procedures before they
                             .   attorneys for the city admitted that they         take private property. The Arizona Supreme
                             .   wanted enough freedom to use eminent              Court agreed that Mesa could not take
                             .   domain so they could replace a low-budget         Bailey’s Brake Service because they had not
                             .   hotel such as Motel 6 with a luxury hotel         made a determination of “blight” before
                             .   such as the Ritz-Carlton. A goal, of course,      condemning the property. Of course, if the
                             .   is more tax revenue.                              City of Mesa had officially determined that
                             .      In the current climate, many of the            Bailey’s property was “blighted,” the taking
                             .   traditional constraints on public takings of      would have been legal.
                             .   private property have disappeared. Most               During oral arguments in Kelo vs. New
                             .   redevelopment laws explicitly acknowl-            London, U.S. Supreme Court justices were
                             .   edge that land can be taken even if the           clearly sympathetic to the economic devel-
                             .   beneficiaries will be other private parties.      opment arguments. “More than tax revenue
                             .   This principle is even articulated in federal     was at stake,” Justice Ruth Bader Ginsburg
     Indiana Policy Review   .   law through the 1954 Supreme Court deci-          said. “The Town had gone down and down”
              Summer 2005    .   sion Berman vs. Parker, which allowed             economically.

                                                                             PAGE SIX
    Unfortunately, the legal definition of       clarified. The courts, however, are unlikely    .   “In eminent domain,
blight and what qualifies for economic           to be much help in reining in abuses of         .   there is no means-end
development, has become broad. The City          eminent domain. The courts “don’t feel          .
                                                                                                 .   scrutiny at all. (The
of Lakewood, Ohio, condemned an entire           comfortable saying, ‘We know better than        .
neighborhood, declaring it blighted even         the government’ on public use,” observes        .   courts) don’t even
though the average home there sold for           Garnett. When courts intervene, they usu-       .   bother to check to see if
$146,605 and assessed valuation increased        ally “pick up procedural aspects of the         .   the government is
15 percent between 1994 and 2000. None-          implementation of the law.”                     .   advancing a public
theless, the city argued that eminent do-           For example, in oral arguments in Kelo       .
                                                                                                 .   use.”
main was justified because it would be able      vs. New London Justice Sandra Day               .
to redevelop the neighborhood and poten-         O’Conner was uncomfortable with the idea        .        — Nicole Garnett, Notre Dame
tially increase the total value of real estate   that the U.S. Supreme Court (or any court)      .                       School of Law
to between $80 million and $131 million          should “second-guess” decisions by state        .
(up from an existing total value of $31          and local governments on the substantive        .
million).                                        importance of eminent domain.                   .
    Clearly, property rights currently do not       That leaves legislative action as a rem-     .
get the same level of protection as other        edy. The Indiana General Assembly re-           .
fundamental liberties such as free speech,       cently passed House Bill 1063, establishing     .
the right to assemble or the right to an         a commission to review the use of eminent       .
impartial jury. Restrictions on other rights     domain and takings at the state and local       .
have to meet a “means-ends” test, i.e., there    level.                                          .
has to be a compelling government interest          As this commission convenes over the         .
to justify them.                                 summer to deliberate on reform of Indiana’s     .
    “In eminent domain,” notes Notre Dame        statutes, members may want to consider the      .
law professor Nicole Garnett, “there is no       following guidelines to ensure, regardless      .
means-end scrutiny at all. (The courts)          of the Supreme Court ruling, that Indiana       .
don’t even bother to check to see if the         statutes properly balance private property      .
government is advancing a public use.            rights and the public interest:                 .
They wash their hands of it. They don’t ask                                                      .
if economic development could be done            Require a Clear Public Use                      .
another way.”                                                                                    .
                                                    Lawmakers should ensure that eminent         .
    Supporters of eminent domain disagree.       domain is used only when there is a clear       .
“The fact is that in the average community       public use that will result from the project.   .
in the typical state, the system is working                                                      .
                                                 Projects should have public access, or pro-     .
well,” claims the American Planning              vide a public service or facility (or “public   .
Association’s policy guide to takings. “Prop-    good”) that cannot be provided by the           .
erty rights advocates are waging a guerrilla                                                     .
                                                 private sector.                                 .
war of sound bites, misleading ‘spin doctor-
ing’ and power politics which characterizes      Use Only as a Tool of Last Resort               .
government at every level as evil empires of                                                     .
bad intent.”                                        Legislators should ensure that eminent       .
                                                 domain is used only when other, voluntary       .
    Finkle, the president of the International                                                   .
Economic Development Council, echoed             options have been exhausted and where           .
these concerns. The Institute for Justice in     the acquisition of the property is essential    .
particular, he claims, has “done a great job     for the project to move forward.                .
of taking the absolute horror cases and                                                          .
publicizing them.” For the most part, Finkle     Use When Faced With Imminent Public             .
and other redevelopment advocates claim,         Endangerment                                    .
eminent domain is used reasonably and            Ensure Private Benefits Are Incidental to       .
appropriately.                                   the Project                                     .
    Nevertheless, a few recent court cases                                                       .
                                                    Finally, private benefits should not be      .
may signify a trend toward stricter scrutiny                                                     .
of local government decisions. The fact that     the primary consequence or benefit of the       .
the U.S. Supreme Court heard Kelo vs. New        eminent domain action, nor should it be the     .
                                                 primary purpose or intent.                      .
London at least recognized there are sev-                                                        .   Indiana Policy Review
eral substantive issues that need to be                                                          .   Summer 2005

                                          PAGE SEVEN
                                .   COVER ESSAY
                                .                                                                  THE COURTS
                                .                                                                        Less scrutiny
                                .                                                                 for eminent domain
The 5th Amendment’s             .      The Supreme Court ruled in a 5-4                     power is limited by the public use
                                .   decision last month that local gov-                     requirement of the 5th Amendment.
limitation on eminent           .
                                                                                                This limitation serves to protect
                                .   ernments may seize homes and busi-
        domain guards           .   nesses for private economic develop-                    property owners from being singled
   against the abuse of         .   ment. Justice Sandra Day O’Connor                       out, recognizes that fair market value
  public authority and          .   wrote the dissent, arguing that cities                  will often not make property owners
  the corruption of our         .   shouldn't have unlimited authority                      whole, assures that the fundamental
                                .   to take property simply to accommodate           right to exclude will not be violated with-
    democratic process.         .
                                .   wealthy developers.                              out a compelling public purpose, and guards
                                .      “Any property may now be taken for the        against the abuse of public authority and
                                .   benefit of another private party, but the        the corruption of our democratic process.
                                .   fallout from this decision will not be ran-          Reliance on heightened scrutiny in emi-
                                .   dom,” Justice O'Connor wrote. “The benefi-       nent domain cases will not significantly
                                .   ciaries are likely to be those citizens with     handicap the government in the pursuit of
                                .   disproportionate influence and power in          its legitimate purposes. Numerous states
                                .   the political process, including large corpo-    have applied heightened scrutiny on the
                                .   rations and development firms.”                  basis of their reading of either the 5th
                                .      She was joined by Chief Justice William       Amendment or of the comparable provi-
                                .   Rehnquist, as well as Justices Antonin Scalia    sions of their own constitutions. Notwith-
                                .   and Clarence Thomas.                             standing their heightened scrutiny in pub-
                                .      This foundation had joined the Cascade        lic-use cases, all of these states have been
                                .   Policy Institute as amici curiae in support of   able to promote economic development,
                                .   the petitioners in the related City of New       protect their environments, and pursue
                                .   London vs. New London Development Cor-           other public purposes in competition with
                                .                                                    the other states.
                                .   poration. The following is a summary of the
                                .   argument made in that brief.                         In reviewing the claims of property
                                .                                                    owners under the public use limitation of
                                       T   his U.S. Supreme Court’s standard of
                                           review in regulatory takings cases
                                    should be applied in eminent domain cases.
                                                                                     the 5th Amendment, the Court should
                                                                                     demand that governments utilize the least
                                                                                     burdensome means available. In the in-
                                .      The reasons that call for heightened          stant case, the Court should find that the
                                .   scrutiny when a regulatory taking is alleged     City of New London has exceeded its
                                .   apply with equal force when the govern-          legitimate authority in condemning the
                                .   ment seeks to condemn private property           petitioners’ property for immediate lease to
                                .   through its eminent domain powers.               private developers. Individual lives and
                                .      While the public purposes that might be       livelihoods should not be so easily sacri-
                                .   served by eminent domain are the same as         ficed to the profits of other private parties
        Indiana Policy Review   .   those that might be served through the           and the abstract prospect of economic
                 Summer 2005    .   general police power, the eminent domain         development and increased tax revenues.

                                                                             PAGE EIGHT

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