Wednesday, March 29, 2006

Politicians Rights

"Kansas City Mayor Kay Barnes told Missouri lawmakers Tuesday that her city couldn’t turn itself around without sometimes taking private property.

At a hearing on legislation that would change eminent domain law, Barnes said Kansas City had been circumspect in its use of the property condemnation process.

Still, she said, some economic development projects that benefit the city would not go forward without the use of eminent domain, a process that governments have long used to take private property for public use.

“We have to have the right of eminent domain” to use as a last resort, Barnes said."
Listening to politics and politicians is often disappointing and discouraging. A "right" is not something used as a last resort. Eminent domain is not a "right," and governments do not have "rights." Eminent domain is a power granted to government. Of course, accurately talking about eminent domain as a power makes it much easier for the average citizen to pay attention and to by worried, very worried. Therefore, a politician who wants to wield such a power might well prefer to hide the nature of the power by calling it a right.

[Tim Hoover, "Barnes defends eminent domain: legislators consider 'takings' law, Kansas City Star, Wed., Mar. 29, 2006]


"Businesses in a San Ramon redevelopment district are marked with a 'bull's-eye,' a new citizens' group contends -- not only because they are situated in a redevelopment area, but also because the city wants to re-establish eminent domain there.

A city plan to bring eminent domain back to part of north San Ramon has put a 'cloud' over the businesses and reduced their values, said Martinez attorney Scott Jenny, representing Citizens and Businesses of San Ramon Against Eminent Domain.

'Buyers are unwilling to invest in property where the city has placed the bull's-eye of eminent domain aimed straight at it,' Jenny wrote in a letter to the council. 'This cloud of condemnation will artificially decrease the value of the properties and businesses in the redevelopment area.

'Of course, if the property is eventually taken, the city's appraisers will use this decrease in the value of the properties and businesses against the property owners and businesses themselves, paying less for the property taken,' he wrote.

Jenny sent the letter as the City Council on Tuesday night considered amending the city's redevelopment plan to re-establish eminent domain.

The council unanimously approved a resolution that will enable it to formally adopt an ordinance re-establishing eminent domain."

I certainly believe the assertion that buyers are unwilling to invest in property when local government has approved the use of eminent domain "as a last resort" is likely to be true. It may well also be the case that local government may be able to take advantage of this through lower property valuations. I've noted on this blog before that government often seems to use the power of eminent domain as a threat in order to encourage property owners to sell cheaply rather than fight the taking.

I want to ask a bigger question here. If we accept the assertion that the threat of eminent domain reduces the incentive for buyers to invest in the short run, then aren't the same incentives present in the long run as well? With Court opinions such as Kelo, if people begin to think that private property can be taken for virtually any reason, not just for specific public uses, then aren't the mechanisms by which economic prosperity flourishes in our system of political economy significantly impaired?

[Scott Marshall, "Businesses, residents unite to fight eminent domain," Contra Costa Times Wed., Mar. 29, 2006]

Tuesday, March 28, 2006

More on the Golf Course Taking

Edward Herlihy has commentary with more information about the possible golf course taking. Here is his description of the reason for the taking:
"No, the mayor of North Hills wants to use the power of government to condemn Deepdale--whose members are a diverse group of people from all over the country and around the world--to make it an exclusive high-end golf course restricted to people who live in his small village and would be willing to pay thousands of dollars in yearly membership fees. The model is said to be the nearby Village Club of Sands Point, which is owned by that village. There you not only have to pay village taxes but membership dues to join. A full family membership at the Sands Point club costs $18,000 a year. If this is indeed the model for Deepdale, the club would become 'public' in name only but in truth would be every bit as exclusive as any private club."
It seems likely that my earlier assumption that the course was being taken to be turned into a municipal golf course was incorrect.

"The mayor even went on television twice recently to brag about his plan. He told WNBC reporter Greg Cergol that turning Deepdale into "a village golf course exclusively for the village residents" would be a nice "amenity" for them. According to the reporter, the mayor explained that "his goal" is "to turn Deepdale into a private club for his village's 5,000 residents." And he told Channel 12's Bill Mooney that his plan would "increase property values"--private property values--in North Hills.

This goes way beyond Kelo. The planned condemnation of Deepdale, if accomplished, would violate the Takings Clause of the Fifth Amendment to the Constitution, which prohibits the government from taking private property unless it is for a "public use," even when the property owner is justly compensated for the taking. Although Kelo gave local governments significant leeway in determining what a proper "public use" is, it did not abandon all limitations on what is allowable. The Supreme Court took care to emphasize that local governments must still act for a valid "public purpose" in taking property, and may not do so merely "to benefit a particular class of identifiable individuals." Yet that is exactly what North Hills seeks to do with Deepdale: It wants to condemn a private golf course so that its residents can use it as their own de facto private golf club and thereby increase their property values. No court has ever upheld such a taking, and no court could reasonably do so under Kelo."
Boy, I would like to think he is correct in his analysis of Court opinions. It seems to me that this specific taking should be considered unconstitutional, but I'm afraid it is not clear the Court will say that it is. After all, the local government will apparently become the property owner. In the Kelo case after the property was taken it would become owned by another private individual, not by government. If government owns the property, is it clear we can say it is not in "public use?"

Tuesday, March 21, 2006

Endowment Effect & Just Compensation

William Fischel ["The Offer/Ask Disparity and Just Compensation for Takings: A Constitutional Choice Perspective," International Review of Law and Economics 15:187-203, 1195] discusses a proposal by others that the endowment effect, or the offer/ask disparity, suggests that compensation for eminent domain takings should be in an amount that is greater than market value.

The endowment effect, or offer/ask disparity, has been observed in experimental economics. The idea is that a person requires a significantly larger value to compensate for giving up something in her possession than she would be willing to pay to gain the same thing. If this observed behavior is applied to the question of the appropriate value to compensate for a taking by the power of eminent domain, the idea would be that we should presume the market value would reflect the lower value of "offer" and not the higher value of "ask" that is required to get a person to give up something they already own.

I think there are two key points that Fischel argues on this issue. (1) He notes that ". . . a thorough account of forced transfers of property has to take account of both sides of the ledger." (p. 192) He suggests we don't want to look just at the person who is compensated because the money for compensation comes from taxpayers. Looking at "both sides of the ledger" suggests that overcompensation for the taking implies unjustified takings from the taxpayers. (2) He looks to history to suggest that in deciding on the constitutional wording of the power of eminent domain, the offer/ask disparity was recognized and considered and the constitutional choice was for just compensation to be defined as market value.

Taking up the second point first, I'm not persuaded by his suggestion and analysis. He does two things in this regard. First he looks at the Bill of Rights to the U.S. Constitution. Here are a few of his observations:

"The framers . . . .said little about why they implicitly accepted market value. . . " (194)

"My modest aim in this section is to point out that the framers and ratifiers were in an ideal position to see all sides of the taking issue. . . ." (194)

"But they were also in a position to realize that the burdens of overcompensation would be borne by themselves. . . ." (194)

"The federal just compensation clause was adopted by people who were in a position to consciously choose higher or lower compensation. But that is less persuasive than evidence that they actually considered other arrangements." (195)

I agree that his discussion of implicit acceptance and of ideal positions to choose between the offer/ask alternatives is simply not very persuasive. Here I also note that the Takings Clause uses the phrase "just compensation," and as such perhaps we should consider the normative grounds for determining justice when something owned by someone is taken from them by force. This refers to the first point noted above, and I take this issue up below.

The second approach he takes is to examine the debates about eminent domain with respect to state constitutions. He explains that there were state constitutional conventions that worried about excess compensation, and therefore that in state conventions people did weigh both sides of the ledger. I'm not persuaded with this because state constitutions, generally, do not require super majority votes. This is the author's point when he notes that state constitutions are more democratically determined.

I like to think that a document is not a constitution unless ratification of the document requires some form of a super majority vote. It is the requirement of a super majority vote that I suggest places those voting into a "constitutional setting." The requirement of a super majority vote to ratify a constitution means that it is much more likely that what becomes part of the document is truly in "the public interest," and much less likely that the constitution is framed in ways that are to the benefit of special interests (or factions in the language of James Madison). The debates in conventions with respect to state constitutions would not fall within a constitutional setting unless a super majority vote to approve was required. Thus, I am not persuaded by a discussion of the issue at hand from the perspective of state constitutional debates.

Now let's turn to his first point. It seems to me that noting in some experimental economics settings that there is an offer/ask disparity has little relevance to the question of "just compensation" required by our constitution. I seems that a sound way to define "just compensation" in the context of taking private property would be to debate the issue in a true constitutional setting. Imagine a situation in which a proposed position on compensation for government forcefully taking private property had to garner 3/4 of all votes to be approved. How likely is it that the approved definition would rely on the idea that there could be overcompensation because the taxpayers might have to pay a larger amount of money?

In some ways I suppose this suggestion would seem reasonable. After all, money is taken from taxpayers, which seems much like the property taking that is this cause of this discussion. On the other hand, we all clearly know who owns the property which gets taken. We know that by definition because we all consider it to be private property which is taken for public use (according the the Takings Clause). And we know who is taking the private property. It is the government which is acting, presumably, on behalf of the public and therefore on behalf of the taxpayers. It is the government, acting on behalf of the rest of the taxpayers and the rest of the community, which is taking something that belongs to the person who is forcibly having property removed from her possession. It seems to me the question of just comes to mind not because taxpayers may have to pay more taxes, but rather because it is the taxpayers who are being allowed to forcibly take property owned by another. Using force in this way seems by definition unjust, and therefore, I think justice does not require one to balance the ledger with respect to taxpayers. I think it unlikely that balancing the ledger would garner a super majority vote of support in a true constitutional setting.

Yet, there might be an analysis by which I would find much greater sympathy for the taxpayers when "just compensation" is required because government takes what is privately owned by others in the community. We might argue that both the individual from which the property is taken, as well as all the taxpayers who have money taken from them for taxes to pay compensation, are treated unjustly. Here we might choose to say that the government's taking of private property is really not on behalf of the taxpayers and on behalf of the rest of the community. We might choose to say that the politicians and government officials are taking the property of others, and they are then paying the constitutionally required compensation by taking still more property (via income or sales taxes perhaps) from others in the community. After all, the politicians and government officials are making choices and they are not being required to pay just compensation out of their own pockets. In this case, I would like to look at both sides of the ledger that Fischel points to, but I would draw a different conclusion. My conclusion would be that if we are concerned for the taxpayer as well as the person who has her property forcibly taken from her, then we should simply not give government the power of eminent domain. No taking of private property would seem just, whether compensated or not, if this normative view of the situation makes sense.

Does this normative view make sense? I think this view makes a great deal of sense when private property is taken and transferred to other private property owners. In cases such as those of the Kelo opinion, it seems that government takes land from some, gives it to others, and then pays for the constitutional requirements of "just compensation" by taking from still others. Such situations seem far distant from any thought of the just of use government's coercive power.

And, here, finally, we are looking directly at the constitutional language written into the Takings Clause. If private property is taken for public use, then indeed, the politicians and government officials are acting on behalf of the rest of the community. We know this because the taken property becomes a road or a park which can and will be utilized by all members of the community. But, even in this case, the question of the just use of force to take property from others seems to call for a much different discussion than what follows from noting an experimental disparity in offer/ask.

Friday, March 10, 2006

Municipal Golf Course

I noted yesterday that a city government was exploring the use of eminent domain to take a private golf club, for the purpose of turning the course into a public golf course. The takings in the Kelo opinion were said to be for the public purposes of economic development. Of course the term public purposes is not the term found in the Takings Clause. The term in the takings clause is public use. If government takes a private golf course to then be the owner and manager of the course, and if government then says the course is a municipal or public golf course, wouldn't government be taking private property for public use?

Suppose we decide the answer is yes. Doesn't taking a private golf course to turn it into a public golf course seem to be something we don't want government to have the power to do?

Thursday, March 09, 2006

Who Has An Idea For Mr. Smith's Land?

LA Daily News - Santa Clarita:
"In order to develop three sites viewed as key to improving downtown Newhall, the city may resort to invoking eminent domain if officials aren't satisfied with the property owners' plans for their land.

Such decisions will be up to the Santa Clarita City Council, acting as the city's redevelopment agency. The agency will look at current uses, developer's proposals and the property owners' plans for high-profile sites in the deteriorating business district.

'The property owners could choose to proceed or the city could do a request for proposals to develop the community project that would have the greatest impact to revitalize downtown,' said Paul Brotzman, the city's director of community development."

What does this sound like? Doesn't it sound like a city council is sitting around looking at property that belongs to others, assuming that it can decide how people use their own property?

And, what's even worse, we have parcels of land owned by private individuals, and it sounds like the city council is going to ask for project proposals from other people for the utilization of those parcels. "Hey, is there any body out there that would like to do something with Frank Smith's parcel at Fifth and Main? Just let us know what you have in mind, and if we like your idea, we can get the parcel for you!"

Taking Private Golf for Public Golf
"Lawsuits were filed Tuesday aimed at stopping an affluent suburban village from using the legal concept of eminent domain to take over a privately owned golf course."
Wow, taking a private golf club to turn it into a public golf course. Now I'm really getting angry about eminent domain abuse.

And there's this:
"Wilson said in a statement that the takeover "has nothing to do with a master plan that promotes the public good or eliminating blight, issues usually behind eminent domain. Rather, it is a naked grab for private property in an apparent effort to satisfy the private desires of a few elected officials."
No kidding? Politicians would be like that?

[Frank Eltman, "Lawsuits in eminent domain fight over suburban golf club,", March 7, 2006.]

Eminent Domain & Love Canal

Bruce Yandle tells the story of Love Canal which includes an interesting aspect that involves eminent domain. Of course, Love Canal is a hazardous waste site near Niagara Falls, N.Y.

Love Canal was originally created to supply water to hydroelectric generators. Later the area was purchased by Hooker Electrochemical Company, which became Hooker Chemicals and Plastics Company later still. In 1942 Hooker began using Love Canal to dispose of wastes.

In 1946 the Niagara Falls Board of Education told Hooker Chemical it was interested in purchasing the Love Canal parcel of land so it could build an elementary school there. Apparently Hooker said it was not interested.

In 1952 the Board of Education once again asked Hooker if it would sell the parcel. In addition, the Board indicated that it would use condemnation proceedings against the site if Hooker refused to sell voluntarily. Interesting, eh? Now it gets even more interesting:

"Hooker documented the waste stored in the canal and sold the parcel to the city for one dollar. The deed of transfer indemnified Hooker for all potential future liabilities and claims. The transfer also called for continued testing of the chemical waste site. With the passage of time, the Board of Education built a grammar school in the vicinity of the canal and sold the unused land to a residential developer. Documentation of the chemical wastes disappeared in the transaction.

Twenty-four years after Hooker had sold the land and following heavy highway construction and an unusually wet winter, residents of the Love Canal community began to experience problems with soil upheavals, chemical burns and contaminated groundwater. Homes were invaded by chemical wastes; grass and other vegetation died. Panic swept the residential community. In 1978 , Love Canal was declared a national disaster area, the elementary school was closed, 800 families were evacuated, and Hooker Chemical Company was targeted as the villian." (p. 78-79)

Tuesday, March 07, 2006

Don't Kelo My House
"The latest blowback comes from South Dakota, whose Governor this month signed a law prohibiting the state from using its power of 'eminent domain' to take private property for private economic development. No exceptions. No loopholes. The bill passed by unanimous vote in the state senate and 67-1 in the house."
Wow. Only 1 legislative no vote. Now, that's a super majority.