Judging from the concerns she expressed during oral arguments in Kelo v. New London, Justice Sandra Day O'Connor is not inclined to impose limits on local governments' ability to reassign property rights in the name of economic development. But she did ask a question that highlighted the need for such limits.
Defending the condemnation of homes and businesses to make way for a grandiose redevelopment plan that includes a luxury hotel, condominiums, a health club, office space, and a riverside esplanade, the city of New London, Connecticut, points to the taxes it expects these upscale properties to generate. If the prospect of higher tax revenue justifies the forced transfer of property from one owner to another, O'Connor asked, would it be appropriate for a city to decide that a Motel 6 must give way to a Ritz-Carlton?
"Yes, your honor, it would be," replied Wesley Horton, New London's lawyer.
Justice Antonin Scalia sought to clarify the principle guiding the city's use of eminent domain: "Are we saying you can take from A and give to B if B pays more taxes?"
"If they are significantly more," Horton said.
That qualification is comical, since politicians never have trouble predicting whatever benefits are needed to justify taking land on behalf of private developers. Displaced homes and businesses cannot be unbulldozed when the government's estimates prove to be wildly inaccurate.
In any case, as Institute for Justice lawyer Scott Bullock noted in his argument on behalf of the New London families who refuse to move, "Every home, church, or corner store would produce more jobs and tax revenue if it were a Costco or a shopping mall." If local governments can transfer property based on their judgment of which uses will produce the most taxes and jobs, no one's property is secure.
The Fifth Amendment, which says private property may not "be taken for public use without just compensation," is supposed to protect people from such arbitrary redistribution. But compensation often falls woefully short of just. In dictating the price, for example, the government does not consider the very thing that supposedly justifies the condemnation: the highly profitable use to which the developer will put the property.
In a new Reason Foundation paper, Samuel R. Staley and John P. Blair note that local officials also have been known to "hire appraisers that will low-ball property valuations; use the threat of eminent domain to intimidate property owners to sell at below-market rates; compensate property owners at assessed valuation even though market values are significantly higher; avoid paying relocation costs for businesses and homeowners; ignore the value of 'good will' and other intangible value implicit in a business's reputation or location; and/or underestimate start-up and marketing costs [incurred] after a business move." Staley and Blair cite cases where local governments offered property owners a fraction of what they ultimately agreed to pay under court order or threat of legal action.
And as the Cato Institute's brief in the New London case notes, a government's idea of just compensation does not take into account the subjective value of a home or business, which a voluntarily negotiated price necessarily would. We can be sure the New London home of Wilhelmina and Charles Dery, where she was born in 1918 and where they have lived together for half a century, is worth more to them than the city's estimate of its market value.
The other limit imposed on eminent domain by the Takings Clause—that the property must be taken for "public use"—is even less respected. By declaring the elimination of urban blight a "public use" in 1954, the Supreme Court opened the door to ever-more-creative definitions of blight, culminating in the argument used in cases like this one: The neighborhood may not be blighted now, but it could become blighted if we don't intervene.
Cato's brief persuasively argues that blight should instead be addressed under the government's police power, which includes the authority to force property owners to eliminate nuisances. While it seems unlikely the Court will take that approach, which would require it to renounce a five-decade-old precedent, several justices (including O'Connor) also seemed reluctant to draw a line between true blight and mere economic decline.
"You could say if economic depression continues for several years [you] have blight," said Justice Anthony Kennedy. "Blight is in the eye of the beholder."
That's sort of the problem.