Wampum

Matthew Yglesias, writing his Weekend Update at Tapped mocked a recent column by George Will characterizing it as follows:

In the current era of crisis, the nation needs to learn more about land use disputes in Connecticut.

The Will column is not actually about land use. Instead it is about the growing problem of local governments using the power of eminent domain to take property from one citizen for the benefit of a preferred person or company.

Eminent domain is the power of the government (federal, state, and local) to take property from citizens. Having the power to take private property is essential to the operation of government. It is a power necessary to build roads, construct water and sewer systems, build schools and parks, and provide electrical grids. Like all powers of the government, the constitution provides a check against its abuse. The Fifth Amendment to the Constitution provides, in part, as follows:

nor shall private property be taken for public use, without just compensation.

That provision provides two important checks on the power of the government to take private property. First, the taking must be for a public purpose. Second, the government must pay "just compensation" for any property it takes.

George Will is concerned about the public purpose provision. He tells the tale of a governmental taking of private property in Conneticut for a purpose that does not resemble the building of roads or sewer systems:

[C]onsider the life-shattering power wielded by the government of New London, Conn.

That city, like many cities, needs more revenue. To enhance the Pfizer pharmaceutical company's $270 million research facility, it empowered a private entity, the New London Development Corp., to exercise the power of eminent domain to condemn most of the Fort Trumbull neighborhood along the Thames River. The aim is to make space for expensive condominiums, a luxury hotel and private offices that would yield the city more tax revenue than can be extracted from the neighborhood's middle-class homeowners.

The taking of property by local governments on behalf of devdelopers or other favored groups is a growing problem.

Mike Wallace reported the following:

Jim and Joanne Saleet are refusing to sell the home they've lived in for 38 years. They live in a quiet neighborhood of single-family houses in Lakewood, Ohio, just outside Cleveland.

The City of Lakewood is trying to use eminent domain to force the Saleets out to make way for more expensive condominiums...

Jim Saleet worked in the pharmaceutical industry, paid off his house and then retired. Now, he and his wife plan to spend the rest of their days there, and pass their house on to their children.

But Lakewood's mayor, Madeleine Cain, has other plans. She wants to tear down the Saleets' home, plus 55 homes around it, along with four apartment buildings and more than a dozen businesses.

Why? So that private developers can build high-priced condos, and a high-end shopping mall, and thus raise Lakewood's property tax base.

The same thing is happening in Alabama as well:

In Alabaster (Alabama), on one side, there is some land owned and occupied by plain old citizens, some of whom have lived there for nearly half a century. On the other side, there is the Colonial Properties Trust, a development company, which wants to build a huge shopping center that includes a WalMart Super Store.

The problem is, some of the residents have no interest in selling their property. They see no reason why their lives should be disrupted just because a developer has chosen to build on their land.

Enter the city government of Alabaster. "You must sell," they harrumph. They insist that this project is "necessary" because it will bring in many times the tax dollars of the current residences. And if the landowners still refuse to sell, the city will use its power of eminent domain to condemn the land, force its sale at extremely low prices, and then the city will sell the land to Colonial, and the shopping center will be built.

The New York Times knows how to play the game:

In New York City, the venerable New York Times wanted to build a brand new headquarters in Manhattan. They selected a block which contained a number of established businesses and went about trying to convince the owners to sell. As in Alabaster, AL, some of the owners didn't want to sell because they would be unable to relocate their businesses with the amount of money they were offered. In due course the NYT, having much political power in the City, went to the politicians, who dutifly condemned the recalcitrant business's properties and turned it over to the Times.

The Christian Science Monitor provides additional examples:

• In Atlantic City, an entire black middle-class neighborhood was condemned and destroyed to make way for a tunnel to a new casino.

• Bremerton, Washington removed a woman in her 80s from her home of 55 years for the claimed purpose of expanding a sewer plant, but gave her former home to an auto dealership.

• West Palm Beach County in Florida condemned a family's home so that the manager of a planned new golf course could live in it.

There is no doubt that the beneficiaries of the local governments' use of eminent domain can do quite well. About a year ago, MB linked to a Nick Kristof column that discussed perhaps the most prominent beneficiary of a local government's use of eminent domain:

I have a stack of court documents from Arlington that portray the ''sordid and shocking tale'' of the Rangers stadium, as one lawsuit puts it. Essentially, Mr. Bush and the owners' group he led bullied and misled the city into raising taxes to build a $200 million stadium that in effect would be handed over to the Rangers. As part of the deal, the city would even confiscate land from private owners so that the Rangers owners could engage in real estate speculation.

''It was a $200 million transfer to Bush and Rangers owners,'' complains Jim Runzheimer, an anti-tax campaigner in Arlington.

William Eastland, a leading Republican in Arlington, is also outraged, and puts it this way: ''You're using public money for a private purpose.'' Mr. Eastland was a Bush delegate to the Republican National Convention in 2000 but still believes that the Bush group behaved shadily and against the public interest.

Local voters overwhelmingly approved the deal, so maybe we shouldn't get so exercised by star-struck local officials giving $200 million to rich baseball owners. But the most unseemly part of the deal was that Mr. Bush and the Rangers' owners conspired with city officials to seize private property that would be handed over to the Bush group.

''A group of wealthy and influential people threatened and traded their way into an unprecedented takeover of government power and private property in an awesome display of greed and avarice,'' charges a lawsuit by the landowners, in what strikes me as a fair recitation of events. Another suit charges that the deal ''can only be described as astounding, unprecedented and blatantly illegal.''
A copy of the secret agreement among Mr. Bush and the other Rangers owners shows that they intended to make money not just by running a baseball club but also by land speculation.

For example, one owner found a nice chunk of land and sent a memo suggesting that it ''sounds like another condemnation candidate if you want to work the site into your master plan,'' according to the court documents. Another of the owners' internal memos casts a proprietary gaze on a property and declares: ''We plan to condemn this land.''

For a group of financiers to go around town admiring properties and deciding which to seize through the government power of condemnation so that they can acquire free land and speculate on it is appalling. Even Kazakhstan would blush at such practices.

That deal made Mr. Bush rich as he netted more than $14 million in profit on his investment in the Rangers.

George Will thinks that the problem should be solved by a Supreme Court decision limiting the power of eminent domain to truly public projects such as roads, schools, sewers, courthouses, and parks. Will is surely correct but there is another aspect of the story I wish to highlight.

In each of the examples cited above, the developer had two ways to acquire desired property. First, the developer could pay what the market would bear for the land. Second, the developer could use political influence to have a local government acquire the land through the power of eminent domain.

As noted above, the Fifth Amendment of the Constitution requires that whenever the government takes private property, it must pay "just compensation." When local governments use eminent domain to benefit developers, they require the developer to reimburse the goverment for the amount of the "just compensation."

How is that amount determined? Through the legal system. At least here in Georgia, a jury decides on what is "just compensation."

Thus, in each of the examples listed, the developer decided that he would pay an amount to be determinbed by a jury rather than pay market price for the property. We recently wrote about home builders and developers in Texas who hate the jury system:

Developers and home contractors say juries cannot be trusted to fairly resolve these disputes between a builder and a buyer.

"The last place you want to go is the civil court system. The facts don't matter to a jury," said Bobby Bowling IV, a builder from El Paso and president of the Texas Assn. of Builders. "In court, the plaintiff's lawyer makes it rich versus poor. It's about the redistribution of wealth.

If developers really are afraid that juries act irrationally in favor of the little guy, why are they clamoring to have their land acquisition costs determined by juries rather than by market forces?