- "The right of a government or its agent to expropriate private property for public use, with payment of compensation."
"The right of eminent domain, or the state’s ability to seize land for public use (paying the owners fair market value), is longstanding. But over the years the phrase “public use” has taken on broader and broader meaning."
According to Norman Siegel, the civil-rights lawyer and former head of the New York Civil Liberties Union, a 1954 Supreme Court decision allowing land to be taken by a public agency put the court’s stamp on the urban-renewal boom that followed. A 1981 decision in Michigan, allowing a neighborhood to be condemned for a GM plant, transformed eminent domain into the voracious creature it is today. “From my perspective,” says Siegel, “eminent domain has run amok.”
Putting the squeeze on landowners in order to build a shopping center or marina may seem harsh, defenders of the use of eminent domain for private development admit. But they maintain that it's an essential tool for community revitalization, a means of reshaping shopworn inner cities and suburbs to meet new economic exigencies.
If local governments didn't have recourse to eminent domain, recalcitrant property owners could hold cities and developers hostage, demanding payment far in excess of fair market value, the legal standard for just compensation. Or "you could have an individual who at any cost, any price would not sell," observed Sherman Malkerson, a Twin Cities real estate broker who has served as a court-appointed commissioner in condemnation cases. "That may not be in the best interest of the community as a whole."
Condemnation powers make it easier for built-up communities to assemble large redevelopment tracts from multiple, individually owned parcels. If a few holdouts jeopardize the comprehensive plan, a condemning authority can acquire their property at fair market value (under state laws, landowners may also receive compensation for relocation costs), then resell it to a developer.
Such takings fulfill a legitimate public purpose, say proponents of eminent domain. Yes, for-profit companies—the developer, property management firms and corporate tenants—reap much of the benefit from government intervention in redevelopment projects. But putting land acquired by eminent domain to a higher, better use improves the welfare of city residents: Property values in the project area and surrounding neighborhoods rise; additional office workers and new homeowners buy groceries, shoes and DVDs from local merchants; increased tax revenues may help pay for public services and amenities that the city might otherwise be unable to afford.
Is the use of eminent domain for private development critical to the continued vitality of communities? If municipalities and port authorities no longer had a big stick, would frayed downtowns and dowdy inner-ring suburbs go into decline, starved of private investment and consumed by blight?
That's difficult to say, although recent history in Seattle, where a statewide ban on condemnation for economic development is in effect, suggests that cities can indeed prosper without resorting to eminent domain.
One thing is certain, however: Property targeted for taking is almost never as run-down and in need of redemption as condemning authorities say it is. Findings of blight are often a smoke screen for a local government's true motivation in moving to condemn private property—increasing employment and expanding the tax base. Under current law in most district states, it's easy for local officials to declare viable neighborhoods and commercial areas blighted and ripe for redevelopment.
Real or imagined blight was not an issue in the Kelo case; in condemning working-class homes to make way for a waterfront hotel, housing, marinas, and retail and office space, the City of New London never claimed that the neighborhood was dilapidated or even slightly seedy. City planners simply saw an opportunity to create more than 1,000 jobs and boost tax revenues in an economically depressed community. By a narrow 5-4 majority, the Supreme Court ruled that economic rejuvenation, in and of itself, fulfills a "public purpose.
The case confirmed what has been true on the ground in many cities in the district and around the country for at least 25 years: Local government can take private property for redevelopment virtually at will, as long as it can demonstrate some benefit to the community.
But from a regional or national perspective, using eminent domain to grease the wheels of private development is at best a zero-sum game and at worst a loss for the economy as a whole. The inescapable economic truth about government takings for private development is that without condemnation, the development would almost certainly have occurred somewhere else.
In practice, condemnation often results in a net economic loss, because eminent domain is routinely used in conjunction with TIF, tax abatements and other tax incentives designed to entice developers and major employers to build in a particular community.
The City of Richfield collected $1.9 million in incremental taxes from Best Buy in 2005—revenue that wouldn't exist if the campus had not been built. But only about $1.1 million of that money was actually spent on infrastructure and services that benefit city residents. Under the terms of the TIF agreement, the rest flowed back to Best Buy to pay off debt incurred in developing the campus. The city won't capture its full share of taxes levied on Best Buy's headquarters until 2026.
Giving away a portion of property tax revenue to local businesses means that cities have fewer resources to spend on law enforcement, snowplowing, schools and other public services that have been shown to stimulate private investment and business activity. In contrast, unsubsidized private development contributes fully to the local tax base. Assuming that civic leaders allocate resources wisely, the additional revenue finances public services that benefit city residents and the overall economy.
Basic economic theory states that markets operate most efficiently without government interference, and for many economists, that premise extends to the use of eminent domain to further redevelopment. Private businesses and investors, not politicians, are in the best position to decide when and where development should occur, said V. V. Chari, a professor of economics at the University of Minnesota and consultant to the Minneapolis Fed who has done research on eminent domain.
"We have learned through painful experience that in lots of situations, markets—individuals acting in their own self interest—lead to better outcomes than the outcomes that we can attain if governments or central planners undertake those kinds of activities," he said.
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