Friday, June 24, 2005

Evicted homeowners are "just skin on the sidewalk"

The former New London Development Corporation President, Claire Gaudiani, justified the NLDC's eviction of families, and the destruction of their homes, in the Connecticut Fort Trumbull neighborhood (quoted in an Institute for Justice backgrounder):

Anything that's working in our great nation is working because somebody left skin on the sidewalk.

You won't be able to visit the web site of the New London Development Corporation today - it's mysteriously been taken down. That's the organization that was given the authority to evict homeowners from their New London homes. If you could get the the NLDC website, you might find "amidst the cheerful descriptions of exciting developments, transformational changes, and new 'street furniture'...photographs of a bright red and white demolition machine tearing down a cozy brown home."

Here's my summary and analysis of the Kelo v. New London case:

Pharmaceutical company Pfizer announced in 1998 that it would build a new research plant in New London. As an incentive to locate the plant in New London, Pfizer was promised $118 million in federal and state subsidies. The plant was completed in 2001 on land lying along the Thames River in New London, and bordering the 90-acre Fort Trumbull neighborhood.

Meanwhile, the New London City Council approved a development plan to acquire the Fort Trumbull neighborhood through eminent domain, and to build there a hotel, private office space, and high-income housing. The council then granted authority to create and implement a development plan to the New London Development Corporation, a private non-profit organization.

The day before Thanksgiving, 2000, Fort Trumbull homeowners found eminent domain papers on their doors signed by the New London Development Corporation, informing them that the City of New London was seeking their homes.

Most of Fort Trumbull's residents left. Only seven properties remained amid a sea of dirt. The lots of three homes were slated for development as office space, but another four lots weren't slated for any development. Because the development plan hadn't been finalized, the NLDC had no specific plan for those lots. "It simply wanted to acquire the land, bulldoze the homes and businesses, and then sell it to developers," said the Institute for Justice. "How can you have a 'public use' for taking someone's property, which the Constitution demands, when you don't know what that use will be?"

The Institute for Justice led the fight for the remaining homeowner's rights, asserting its commitment "to litigation that will restore judicial protection of private property rights - the basic right of every American to responsibly use and enjoy his or her property."

In March 2002, the Superior Court of New London ruled in favor of four property owners. On appeal, the Connecticut Supreme Court ruled 4-3 in favor of New London. Summing up the court's decision, the IJ said the court decided that "so long as a government body declared it was in financial hardship and that a private development company promised its plan would deliver jobs and taxes, the private-private takings were constitutional."

The last time the Supreme Court heard an eminent domain case was 1954. In Berman v. Parker, the Court decided the application of eminent domain could be extended beyond the requirement of "public use," to allow the removal of slums for the "public purpose" of eliminating blight and redeveloping a minority neighborhood in southwest Washington, D.C. The Court ruled that acquired land could be resold to private developers.

Over the years, other jurisdictions have expanded the opening created by the 1954 decision, gradually broadening the definition of blight to include areas that are simply not as economically affluent as the government would like.

Now, with the Supreme Court's Kelo v. New London decision, the Court legalized despotism, according to George Will (whom it pains me to quote). The power of the government can now be wielded by society's wealthiest interests to take the most precious asset from their economic lessers - their homes. The Court decided that, yes, the government can take one owner's property and give it to another owner who intends to use it for a more profitable use.

The intended use of property for a more "profitable" use, however, in itself provides the optimal solution to the problem. From an economic perspective, if a prospective owner wishes to use someone else's property for a more profitable activity, he should be willing to spend a sum up to the future value of the property. Everyone has a price they're willing to accept. The buyer should be forced to negotiate with the seller.

Instead, what the Supreme Court has done is to allow a prospective owner to confiscate property for a sum that probably only matches its current value. The Court is short circuiting the negotiation process, taking away the seller's right to bargain. This amounts to "legalized theft," remarked Dana Berliner, an Institute for Justice attorney. "Economic development projects are often crapshoots," said Berliner. "Maybe they'll work. Maybe they won't." So it follows that applying eminent domain to private development shifts the costs and risks of economic development to others.

The Fifth Amendment states, "nor shall private property be taken for public use, without just compensation." The intent was to provide a way for the government to acquire land so that vital public projects, for things like roads and sewers which benefit many people but require a right of way, would not be impeded by private owners. By requiring a "public use" justification for the confiscation of private property, the amendment also intended the use of eminent domain to be a rare event, providing citizens with protection from government tyranny.

Note that one of the significant complaints of the Fort Trumbull residents was that a private organization, the New London Development Corporation, accountable to no one, was issuing the eminent domain notices.

I pose the following questions which remain unsatisfactorily answered by the Supreme Court:
What is a public good?

Does creating more jobs and raising additional tax revenue constitute a public good?

Who should be allowed to decide if a development project is a public good, and whether that public good outweighs the private loss?

How much should the government have to pay to acquire private property for public development projects?

In particular, to those who number among the more strident wing of the property rights movement, what are the limits of private property rights, and when does private use infringe upon the public benefit?

This last question raises for consideration the battle which is being fought with increasing animosity toward government regulations which attempt to protect wilderness areas for wildlife and future generations. Most recently here in Louisiana, the Vitter provision inserted into pending coastal restoration legislation would allow private owners the ability to log cypress on their properties without any government oversight.

At the same time, the ability of cypress forests to regenerate is in doubt; a broad coalition of citizens is beginning to value the intrinsic value of cypress forests for their beauty, and as a vital habitat for fisheries, migratory birds, and the mythic ivory-billed woodpecker; and the use of cypress trees for something as mundane as lawn mulch when measured against the lost value of healthy forests is being questioned.

Connecticut is not the only place where property owners are being threatened with eminent domain claims. Dana Berliner recently documented as many as 10,000 cases of eminent domain being used (or threatened use) in 41 states.

I hope the prevalence of these cases forces the Supreme Court to soon reverse its ill-considered decision.


At 6/26/2005 10:18:00 PM, Blogger Tony B said...

I guess I would consider myself to be one of the more strident defenders of property rights. My thoughts on the subject are that if the government has a genuine interest in the property that they should pay the fair market value. I would define this to be what the prospective seller and the government voluntarily agree to.

In the case of takings by regulation such as the cypress example that you cited, I would say that if the government (and purportedly all of us) get the benefit of someone not logging the cypress trees on their land then we should be the ones who bear the cost, not the landowner. If a landowner was presented with an offer of as much as he would make from logging his land for having NOT logged it, I think very few people would turn this down.

I would apply this line of market thinking to the Endangered Species Act as well. If we all benefit from having a spotted owl on someone's land, I think we should be willing to pay for it (this as well as my previous example would also have the benefit of making us think more about what we actually care about if WE have to pay for it). I think the better way to go about this would to pay bounties for species that we want to encourage. As the law stands now, if someone finds an endangered species on their land they have the perverse incentive to "shoot, shovel, and shut up." Pay people $5k or whatever if they can prove they got one to live on their land. It puts the incentive in the proper direction.

At 6/27/2005 06:56:00 AM, Blogger Schroeder said...

Very good points Tony (and thanks for the visit). I especially appreciate the latter point about unintended consequences of the endangered species act.

I'm not going to say I disagree, but I won't say I fully agree either.

I go back and forth on the idea of creating a "market" for environmental assets valued by society. There at least three issues, however, that come up which cause me to question this approach.

First, it is very difficult to place a market value on an environmental asset. For an asset that can't be traded (and therefore attain an equilibrium price), and where other "externalities" such as the good feeling people get from knowing that a species exists, or where future generations aren't able to enter into the negotiation for a solution (i.e., what "damages" they might sue for, or alternately, what price they might pay to protect an asset), there can never really be a fair value placed on that asset.

Second, just because someone owns a plot of land has never, throughout history, meant that that owner can do whatever they want with that piece of land. Generally, I can't, for example, start drilling for oil on my land, or start strip mining for coal, just because I feel like it. As a matter of land ethics and (non-market) land values, there is an instrinsic bargain we enter into (or should) with our neighbors and future generations, that we will do no harm to them, and whenever possible, leave the land as we found it. In many cases, society has deemed some assets so valuable that specific activities have been banned, and special park areas set aside. Where society has established such rules, a consensus has been reached by the community about what an owner can and can't do, and there are penalties for violating those rules - for violating the rules of the tribe. In such cases, we simply accept that some activities are banned, and that those activities are so reprehensible that no market could be conceived which would justify them.

As an analogy, we ban murder. I can't say, well, I don't like such and such a person, and I've got a million dollars to compensate the family, so I'm going to kill that person.

Finally, it simply is the case that society could not possibly pay for every asset in the environment that it values. So much would have to be invested that taxes would have to be raised, the economy would crawl to a standstill, and there would still be valuable assets that would be destroyed. After all, what are taxes but a way to finance the public goods that we, as a society, cherish. Well, if we cherish something, we should all be able to agree that we won't destroy it without have to pay someone for it. And anyone who disagrees with the larger society should have to pay the penalty. Furthermore, although we have a well-defined legal regime protecting private property in this country, it was not necessarily always so. The government has been called upon in many instances to enforce property rights. That protection is a double-edged sword. We can't expect protection, and at the same time, tell the society that provides that protection to go screw itself when considering regulating activity on the land. We truly only own what society allows us to own through the legal (and physical) protections provided.

I appreciate, as you say, that there are still people who break the law. I wish it weren't so, but I don't think many people would agree that we should pay criminals not to steal and murder. Nor should we as a society have to pay to protect environmental assets that we cherish.

The market is an imperfect mechanism for many things. I recognize and appreciate cases where a market incentive can more efficiently guide personal behavior, but the market, after all, is nothing more than a monetized manifestation in law of a society's will. If that will is that there should be no monetary value assigned to something, well, then owners have to live with it.

It's a very tough issue to sort out, but I'm afraid that the New London decision harms the cause those who would say the government should be able to apply laws to what people do with their land, even though I stridently disagree with the Supreme Court's decision.


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