June 26, 2005

Kelo Disaster

A lot of people online are angry about the Kelo decision handed by the Supreme Court that entrenched the right of states to use eminent domain against non-blighted neighborhoods if the state believed it would increase tax revenues. Many instances of eminent domain involve replacing a perfectly safe and clean homeowner or businessowner with a denser residential area or a bigger business - both intended to market to more upscale consumers - thus bumping up revenue for the city.

Of course, condemning a used-car dealership to replace it with a new BMW dealership (it happened in a town in Kansas recently) isn't exactly "public use" as the Fifth Amendment states. That's a private use, even if some locals benefit directly and many benefit indirectly from the tax revenue. What's funny is that the lefties on the Court along with kennedy found for the city of New London, even though private usage of eminent domain is overwhelmingly done for corporations, real estate developers and wealthy businesses at the expense of homeowners, small businesses and others like local churches. It's a distinctly un-left result, at least compared to how they see themselves, to legitimize a practice that explicitly empowers wealthier and larger groups against less-wealthy and smaller groups. But that's how it works - after all, how would tax revenue be improved if it were the other way around.

This is a blanket negation of property. You no longer own your home, you merely paid to live there and at any moment the state or county can come in and uproot you if they want to use THEIR land differently. That's the essence of the decision; states and cities can decide when people ought to move, rather than the property owners in question.

Most people opposed to the decision don't come up with an exact view of what the Fifth Amendment really requires with regard to eminent domain. I've been searching since the decision came down yesterday and I've found lots of information but very little in the way of a comprehensive alternative. I believe I've formulated one, however.

1) Right off the bat, let's reaffirm one principle. Property is a constitutional right. That's important to remember and explicitly acknowledge.

2) Since property is a right, any eminent domain taking - assuming it's just - would have to be done through due process. The Fifth Amendment and the Fourteenth Amendment make this explicit.
The Fifth says: "No person shall... be deprived of life, liberty, or property, without due process of law..."
The Fourteenth says: "...nor shall any State deprive any person of life, liberty, or property, without due process of law..."
Given these two passages (and the Ninth Amendment, which I apparently cite in almost every single hypothetical court opinion) the right to property exists, and it's given ironclad protections through due process. Any eminent domain taking, even if it's valid, must go through the courts for due process. In other words, you have to sue somebody to get their property, and they get all the regular Fifth and Sixth Amendment protections. This protects property owners from the horror stories about people who had seven days to contest takings attempts or who bought property without being told that it had already semi-secretly been condemned via eminent domain.

3) "Public use" means that the government cannot simply fork it over to somebody willing to pay more taxes. Eugene Volokh brought up a good point that it's often better to have private entities contracting public services rather than have the government do the job itself, and that a definition of public use forcing the government to take over the high-end restaurants, car dealerships and housing complexes would perversely create a larger government despite such a check on government. That concern aside, public use must mean something. It really doesn't make sense that the only limit from those two words is that any property taken must result in something better than that which came before it - better, after all, is defined by the legislatures and not the courts. Public use means some government operation like for example roads; it doesn't just mean something that some of the public would like (especially since the legislature would be the barometer of whether the public likes it). In Kelo, the developers do not meet this requirement; if they want to develop the area, let them offer as much money to the holdouts as it takes.

4) "Just compensation" means repayment that is fair, right, appropriate or based on sound reason. Usually the courts say this means the market value. It's important for the government in question to consider the costs of replacement; the example that comes to mind is US v. Cors (1950), a WWII incident where government demand had dramatically increased the cost of tugboats but the Supreme Court let the government get away with paying a pre-war price for a legally stolen tug. That was a flawed finding, because "just comepnsation" must include the cost of replacement, and the tug owner could not have purchased a new tug solely with the compensation he received because no tug seller would accept the argument that prices USED to be lower.

However the replacement costs are not the sole indicator either. In US v. Felin (1948) the government, as part of FDR's statist-syndicalist war government, seized a large amount of pork products after the producer refused to sell them at the government's price ceiling (which was below the cost of making the products). Similarly, SCOTUS heard in US v. Commodities Corp. (1950) a case where pepper had been seized and compensated at the artificial price ceiling. This is incredibly wrong, both legally and morally. First of all, the cost of initial investment must act as a minimum standard, by simple logic. If person paid $100 for supplies he then turns into processed pepper then the government owes him $100 in compensation - including any associated costs of labor and capital (like machinery maintenance). But beyond that, it's flat out morally wrong to let the government announce a price ceiling and then, when producers refuse to be forced out of business by the government, to seize their stuff at the price they themselves set.

Compensation is holistic and isn't limited to the monetary value of the thing that was legally stolen by the government; just compensation must be at least enough to cover all costs of relocation and replacement, and to make sure that the lives or businesses of those expelled are disrupted as little as possible If this sounds like a high hurdle then that's only because it is. "Just" means morally right as well as legally valid and reasonable. The most appropriate way, of course, is to secure the consent of the homeowners by increasing the offer until they agree and sign over their property.

But the minimum for just compensation should follow all the steps on this check list: a) start the compensation from the market value as determined by comparable properties; b) the compensation must be high enough to meet all replacement costs, including any costs of relacation or acquiring new permits, or of advertising the new location for a serized business, or of increased transportation costs for a sized home; c) the compensation must be at least the production costs, even if such value is not represented in the market value of the home, and production costs include improvements, labor, capital and other significant factors; and d) government price ceilings on the seized property cannot lower the compensation and must be disregarded as much as is reasonably possible (this does not apply to price controls on goods and services related to improving or producing the property, which are not a factor here).

Those are the fourt things I would hope to find in an eminent domain case that would lay out the board principles that restrict this governmental power. Of course, beyond that I'd hope to see something else: a constitutional amendment banning eminent domain. Unfortunately, the Fifth Amendment seems to be fairly clear that takings are allowed, as the Founders set to restricting its abuse, and not to prohibiting it outright. I think we need to clear that up. Here's a proposed amendment I found that I scribbled in the back of Judge Andrew Napolitano's book Constitutional Chaos (I highly recommend it to all).
    The right of the people to be secure in their property and assets from eminent domain and takings for public use or public benefit, shall not be infringed, nor shall property or assets be seized except in punishment of a crime and through due process, nor shall the Congress or the several states take any action that substantively depreciates the value of private property without paying full compensation.
Of course, if we really did this then the Sixteenth Amendment would have just been repealed. What else is a tax but taking assets for public use? Obviously this wouldn't pass without some new wording to allow the hated income tax - and all taxes, except for user fees - to continue. Something like "This amendment shall not be so construed as to affect the power of the Congress or the states to lay and collect taxes" would do the trick.

On a related takings issue that wasn't part of Kelo, the government also ought to be forced to pay proportional compensation for partial takings, like when they decrease the value of property by some regulations or law limiting the use of that property. A partial limit on the whole of a property is equivalent to a whole taking of a portion of a property. If the government regulates away half the value of a piece of property then it owes just compensation, the same as if it had taken half the property outright. Either way, the government took half the value and you deserve to be compensated for the infringement of your property rights.


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