Monday, January 23, 2006

Somin on Kelo

Ilya Somin (George Mason University - School of Law) has posted Controlling the Grasping Hand: Economic Development Takings After Kelo on SSRN.  Here's the abstract:

The Supreme Court's controversial recent decision in Kelo v. City of New London upheld the condemnation of private property for purposes of "economic development." This Article argues that Kelo was wrongly decided and that courts should forbid condemnations for economic development.

Part I analyzes the flaws of economic development takings generally. Such condemnations allow politically powerful interest groups to "capture" the condemnation process for the purpose of enriching themselves at the expense of the poor and politically weak. Economic development takings are especially vulnerable to abuse because their rationale can justify almost any condemnation that transfers property to a commercial enterprise. Several other aspects of economic development takings also exacerbate the danger.

This Part also shows that the need to eliminate "holdout problems" that could block desirable assembly projects cannot justify permitting economic development takings. In most cases, private developers can prevent holdouts by such noncoercive methods as assembling property in secret and adopting precommitment strategies that prevent holdouts from using their bargaining power.

Part II considers the major alternatives to a categorical ban. While these proposals are not without merit, none can prevent eminent domain abuse as effectively as forbidding the economic development rationale altogether. The first such alternative, adopted for a time by courts in Michigan and Delaware, is to require heightened scrutiny in cases where the condemnation power is used in a way that benefits identifiable private interests. Unfortunately, the heightened scrutiny test is not an adequate bulwark against the dangers of economic development takings, and may in some cases actually exacerbate those risks. The same weaknesses bedevil academic proposals to impose "means-ends" scrutiny on takings, which bear a considerable resemblance to the heightened scrutiny test.

Increasing the compensation awarded to property owners targeted for condemnation is another possible alternative to a ban. While this idea has some merit, it is almost impossible to accurately calculate the appropriate amount of compensation for "subjective value." Moreover, even a perfect compensation formula cannot offset the damage inflicted by economic development takings on taxpayers and the community as a whole.

Many defenders of the Kelo decision advocate procedural protections for property owners as an alternative to vigorous judicial enforcement of public use limitations on takings. Though such protections have real value, they are unlikely to be an adequate substitute for a judicial ban on economic development takings.

Lastly, it is possible that strong judicial review of economic development takings is unnecessary because localities that abuse their eminent domain powers will be disciplined by interjurisdictional competition in a federal system. While exit rights are a valuable tool for forcing governments to respect the needs and interests of citizens, they have only limited utility in protecting property rights in land because real property is an immobile asset that owners cannot take with them when they "vote with their feet."

In Part III, I consider the Supreme Court's decision in Kelo. In advocating broad deference to local governments on public use issues, the Kelo majority unfortunately ignored the serious defects in the political processes that control economic development takings. The Court's analysis of history and precedent also has significant weaknesses, particularly in its heavy reliance on early twentieth century precedents that were based on "substantive due process" rather than on the Takings Clause of the Fifth Amendment. Nonetheless, Kelo actually represents a modest improvement on the Court's previous public use decisions, by holding out the possibility of at least slightly greater judicial scrutiny.

A final important aspect of Kelo is the strong political reaction against it, which has led Congress and numerous state legislatures to consider legislation restricting the use of eminent domain. Unfortunately, my analysis shows that most of the proposed legislation is likely to have little or no effect and may simply represent "position-taking" intended to mollify public opinion without actually constraining the use of eminent domain.

Part IV strikes an additional note of caution, showing that even a categorical ban on economic development takings is not a comprehensive solution to the underlying problem of eminent domain abuse. A ban on economic development takings can potentially be circumvented in several ways, most notably because such bans still permit condemnations to alleviate "blight." Courts in many states have already defined blight so broadly that the definition could encompass virtually any property. The blight exception to the ban on economic development condemnations must be carefully limited, lest it swallow the rule.

Ben Barros

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A very interesting article, and one destined to advance the debate.

However, as a professor of urban planning, I would have to take issue with an implication of the paper.

In his defense of a categorical ban on economic development takings, Prof. Somin lists alternatives to categorical bans, but does not fully explore something along the line of improved procedures and participation in public, comprehensive redevelopment planning.

Later in the paper, Prof. Somin seems dismissive of the majority's holding that, in Kelo, there was no favortism or back-room dealing of large-scale corporate real-estate interests and that the redevelopment plan was "carefully formulated." (Actually, as plans go, it wasn't all that great).

I think Prof. Somin is dismissive of the role that a "carefully considered development plan" can have in overcoming the perception or reality of private deal-making or favortism. Alas, however, I think the American public shares his skepticism.

The language in the majority's decision in Kelo was initially thought of as a boon for the planning profession: here was the court endorsing comprehensive, rational public planning as important and legitimate. Certainly, planners are (or should be) in the forefront of resisting efforts of special interests to manipulate local governance for their own interest, rather than the public interest. Planners have believed that a good planning process can overcome special interests to acheive a greater public interest.

Everyone knows that there are clear cases of eminent domain for which were nothing more than "serving the interests of the politically powerful at the expense of the weak," to quote Prof. Somin.

The question is: are ALL economic development takings merely serving politically powerful interests at the expense of the weak?

Here is where we urban planners have really failed to make the case to the public, and have lost our case post-Kelo: I imagine if one surveyed most Americans, they would overwhelmingly beleive that urban economic development and redevelopment strategies do not serve the larger public interest and do not protect the interests of the weak. The would also, probably, beleive that public planning does NOT solve this favortism issue, but rather is an attempt to cloak in legitimacy the back room deals of real-estate interests and politicians. Given the public outrage over Kelo, planners may have won the court case but have certainly lost the public debate.

The fact is, the public is overly skeptical of claims that economic development according to a "carefully considered development plan" is any different from economic development takings for special interests.

But we must make the case that there is a distinction, and find a way to improve the planning process and convince the public of the need for urban economic redevelopment. And, yes, that means making the case that public-private partnerships for urban redevelopment must involve at least a limited ability to use eminent domain.

I have said it before on this blog, but it bears repeating: those who would support categorical bans and eminent domain for economic development would give to a single land owner the ability to veto revitalization of our cities.

I still think the holdout problem is not solved unless condemnation is a real option. Certainly, we should try everything possible before condemnation proceedings. And, in truth, most redevelopment site assembly is accomplished without condemnation. It is simply true that the possibility of condemnation induces holdouts to sell, without necessitating actual condemnation. A categorical ban on economic development takings would lead to more, not fewer, holdouts.

Posted by: Kurt Paulsen | Jan 23, 2006 8:45:04 AM

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