Wrecking Property Rights

How cities use eminent domain to seize property for private developers.

The corner of Country Club Drive and Main Street in Mesa, Arizona, doesn't look like much, but this dusty plot of land is at the center of a growing debate over property rights. Just a stone's throw from downtown, the corner has touched off a potentially precedent-setting legal tug of war whose implications extend far beyond Arizona. The case illustrates dramatically how the effort to redevelop America's cities has transformed eminent domain -- the government's power to seize private property -- from a narrowly construed last resort into a widely, almost routinely used development tool.

On one side of the legal tangle is the City of Mesa, angling every way it can to broaden its discretionary power to seize private property for whatever purpose it pleases. In this case, on land bureaucratically labeled "Site 24," the city wants to give five acres to local businessman Ken Lenhart and his associates.

Lenhart wants to expand his hardware store, and the five acres that make up Site 24 are an ideal location. The expansion, he claims, would boost his sales by $8 million in the first year. But Lenhart didn't want to pay the full market price for the land. He didn't even want to bother negotiating with the property owners.

After buying a few parcels at auction, he asked the city to condemn the rest and "sell" it to him at $4 per square foot. At the time the agreement was made, the full cash value of the properties averaged more than $8 per square foot, according to the Maricopa County tax assessor. The deal could net Lenhart a direct subsidy of at least $150,000 (and probably much more). The City of Mesa has decided that Lenhart's hardware store, a discount TV and electronics shop, and a few other small retailers and offices would be a better use of the property, so it's eager to make the deal.

Randy Bailey doesn't think it's such a great idea. Bailey is the sole proprietor of Bailey's Brake Service, a thriving enterprise that's been located on Site 24 for more than three decades. The family business has been around for more than 40 years, and Bailey has run it for 32. He doesn't even advertise; his customers just know to go to the brake shop at the corner of Country Club and Main.

Apparently, the city doesn't think Bailey's Brake Service contributes enough to the local economy to justify letting him stay. Now Bailey is hoping the courts will stop the city from using its power of eminent domain to improve Lenhart's bottom line. When the case first went to court, Bailey and his attorneys -- Clint Bolick and Tim Keller of the Institute for Justice, a Washington, D.C.-based public interest law firm -- were optimistic. After all, the Arizona Constitution states that "private property shall not be taken for private use." And Mesa's redevelopment director, Greg Marek, has admitted at trial and in official government documents that the city decides which properties to condemn based on whether someone in the private sector wants the land and has a project for it. That concession seemed to be a clear indication that private interests were driving redevelopment policy in Mesa.

Yet Bailey lost the first round, with Maricopa County Superior Court Judge Robert Myers ruling against him on April 30, 2002. (Full disclosure: I provided expert testimony for Bailey at the trial.) Myers stayed his ruling pending Bailey's appeal. At press time Bailey is waiting for a decision by the Arizona Court of Appeals, which heard oral arguments in June. "The three judges were very concerned about the trial court's decision not to apply the constitutional standards," notes Tim Keller, Bailey's attorney. "We hope to get a positive decision."

The U.S. Constitution, like Arizona's, attaches an important restriction to the taking of private property: It has to be "for public use." Yet cases like Randy Bailey's are becoming more and more common. Eminent domain is becoming a primary tool for promoting urban development. In the case of Mesa, it's the only tool. That's why attorneys throughout the nation are watching this case.

A Tool of First Resort

Lenhart targeted Bailey's property in 1996, when Wayne Balmer, at that point the city's community development manager, sent a memo to Charles Luster, then the city manager, noting that his department had received several inquiries from private companies to develop land near the downtown area. "Unfortunately," he wrote, "all of these sites are outside our Town Center Redevelopment Area" (emphasis in the original).

Not to worry. Working with other high-level officials, Marek, the redevelopment manager, simply rewrote the rules to accommodate the developers. Once Lenhart decided that Bailey's property was suitable for the expansion of his hardware store, the city redrafted Mesa's redevelopment plan to include the land at Country Club and Main. They designated the property "Site 24" and issued a request for proposals to redevelop the site.

Three development companies submitted plans. One was Redstone Development, owned by Lenhart. Another was Palm Court Investment, owned by Mesa Discount. The third was Watt Commercial Properties, a national operation, which proposed a complete redesign of the property, including 50,000 square feet of new retail and office space. The city decided to consolidate the proposals submitted by Palm Court and Redstone and to reject Watt's bid altogether. It then negotiated a development agreement that included the terms for sale of the property to Lenhart and Mesa Discount once it was acquired by the city. It also agreed to acquire Lenhart's old building and land as part of a land swap.

At the request of Palm Court and Redstone Development, the city proceeded to condemn 21 of the site's 26 parcels, including Randy Bailey's business, representing half the assessed value of the land. Lenhart is asking the city to acquire property worth two-thirds of the assessed value of his share of the development project.

It was a sweet deal for Lenhart. For the hapless property owners living and making their living on Site 24, the taste was decidedly sour. Bailey and his father approached Lenhart to see if the brake service could be incorporated into the development project. No deal: Lenhart dismissed them out of hand, telling them they had to talk to the City of Mesa.

The Baileys had never been approached by Lenhart, the City of Mesa, or any of the other investors about selling their property before or during the process in which the city issued its request for proposals to redevelop the site. To add insult to injury, Lenhart bought a property adjoining Bailey's building and proceeded to board it up. The set of small office spaces has gone unused for years, contributing to the run-down character of the corner. Lenhart, as landlord, was contributing to the blight that the city cited to justify condemning Bailey's property.

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