Eminent domain

The US Constitution authorizes the state to take real estate by force.

This power is called eminent domain.

The Fifth Amendment to the US Constitution limits the power of eminent domain:

private property may only be taken by the state for a public use, and with just compensation.

That power has been extended to alleged public benefits,

forcibly transferring real estate to another private owner.

This confiscation of real estate is called a “taking.”

Zoning and other regulations are not considered takings

unless most of the value is taken.

Redevelopment agencies use eminent domain.

Funding is from tax increment financing:

the RDA gets the higher property tax from increased property values.

The often "redevelop" sites that are not blighted.

Most of the funds do not go to more housing.

There was a famous takings case in 2005 that went to the Supreme Court.

Kelo v. the City of New London.

The city of New London, CT, attempted to take a house belonging to Susette Kelo

for a redevelopment project.

The pharmaceutical company Pfizer Inc. announced a $300 million research facility to be built in the New London Area,

which would draw new business to the area.

The New London Development Corporation (NLDC) proposed an

integrated development plan, and the city council authorized the NLDC to use

the power of eminent domain in the city's name.

Most property owners agreed to sell, but 15 refused.

The city condemned these houses.

The Supreme Court ruled 5 to 4 in favor of the city.

The majority argued that “public use” means "public purpose",

even if the project is undertaken primarily by private companies and individuals, as long as it produces general benefits

in the form of increased economic development or greater tax revenue.

This created a lot of interest and movements to restrict takings.

Justice O'Connor expressed the concern that a broad application

of eminent domain is not only subject to abuse

but actually creates incentives to avoid the marketplace

and good faith negotiations altogether.

In her vigorous dissent, Justice O'Connor, joined by three other justices,

argued that "[u]nder the banner of economic development, all private property

is now vulnerable to being taken and transferred to another owner, so long as it

might be upgraded.

Legal scholar Richard Epstein suggests incorporating the theory of public goods

to clarify and limit the concept of public use,

Justice Thomas in his separate dissent in Kelo

echoed Professor Epstein's sentiment.

Kelo and Its Discontents:

The Worst (or Best?) Thing to Happen to Property Rights

Edward López and Sasha Totah

The Independent Review

Washington and Lee Law Review

“Imminently Eminent: A Game Theoretic Analysis of Takings

Since Kelo v. City of New London” by Alex Hornaday

Legislation on eminent domain for economic development in the United States

began with the Mill Acts of the eighteenth and nineteenth centuries.

The Mill Acts allowed a mill owner to construct a dam to power a mill,

even though the dam flooded his neighbors' land and rendered the land unusable, so long as the condemning owner paid damages.

Courts found the grist mills to be of public interest and upheld the Mill Acts because regulations required them to be open to any paying customers.

Maryland's Mill Act of 1719 took the first step towards private-to-private takings by extending its mill protections to privately owned mills for iron production.

In the late 1800s, railroads and other infrastructural projects

that enjoyed the power of eminent domain

easily passed the public use requirement,

and the development of widespread transportation

led to an accelerated industrial development.

In Berman v. Parker (1954), the Supreme Court examined an act that allowed the government to "employ all means necessary and appropriate" to address "conditions existing in the District of Columbia with respect to

substandard housing and blighted areas.

Petitioners argued that because their property was commercial

and not "slum housing," and because the project was to be managed

by a private agency, the redevelopment plan was for private use.

The Court found that the act served legitimate ends

in that it ensured public health, safety, and morality.

The Court then stated that because the ends were within the authority

of the legislature, "the right to realize it through the exercise of eminent domain

is clear" because "eminent domain is merely the means to the end. '

One of the most prominent state decisions endorsing a very broad interpretation

of public use is Poletown Neighborhood Council v. City of Detroit, 1981.

The Michigan Supreme Court upheld a taking

"to alleviate and prevent conditions of unemployment and fiscal distress.”

Because the benefit to the residents of invoking eminent domain to assist in

economic development was clear, the court found that the project was a

legitimate object of the legislature.

In 2004, the Michigan Supreme Court revisited the issue

in County of Wayne v. Hathcock.

The Court determined that Poletown was an anomaly and should be overruled.

The court tightened the public use requirement in Michigan, only allowing it in three circumstances: (1) the creation of instrumentalities of commerce; (2) the requirement that the recipient remain accountable to the public in its use; or (3) the elimination of a public concern such as blight.

Kelo has emboldened local authorities

to implement more aggressive land-use policies.

California is also known for eminent-domain abuse.

If a city deems a property “blighted,” it may

be transferred to developers through eminent-domain proceedings.

In Hercules, California, in 2006, the city council voted to seize

property acquired by Wal-Mart, to prevent it from opening a store in town.

In Yolo County, the government exercised its right of eminent domain

on a 17,300-acre ranch whose owners had planned

to develop small segments of the property while conserving the rest.

One week after Kelo, Oakland officials evicted a tire shop

and an adjacent auto repair shop,

whose owners had been resisting eminent-domain takings,

to clear the site for new high-rise housing.

Strong eminent-domain powers make policy decisions vulnerable

to rent-seeking dynamics,

which can lead to abusive uses of power.

Land-use policymakers attract political pressure from developers

looking for a less costly way to acquire land.

Local officials get to plan development according to their subjective preferences, and bureaucrats further their careers by taking credit for economic-development.

After Kelo, several states enacted legislation to restrict eminent-domain powers.

Some of these are laws with bark but no bite,

with vague and encompassing definitions of blight and public use

and by broad deference to local legislative majorities.

The Problem with the Holdout Problem

Edward J. López* and J. R. Clark**

Even though the courts have focused on free riding as the source of market failure, the policy that free riding would justify is taxation

not taking of property through eminent domain.

A repurchase right grants a property owner the first opportunity to buy back

part or all of a previously condemned property

if the government’s initially stated use changes after the condemnation.

Evidence shows that the burden of development takings

(and urban renewal programs of an earlier vintage)

falls disproportionately on areas that are poor and feature high degrees

of racial heterogeneity and income inequality.

The poor are also less able to mount political resistance to takings.

The problem with the holdout problem is:

it is strictly a prima facie argument for justifying eminent domain,

ignoring the potential for inefficiencies that may emerge

when political authorities are empowered to substitute for market exchange.

The unrestricted regulator can have an incentive to use eminent domain

on non-holdouts, and developers will thereby have the incentive to rent seek.