THE FIGHT OVER EMINENT DOMAIN
It has long been accepted that government can take property, with just compensation, for public purposes. If governments could not do this, a single intransigent property owner could permanently block the building of a road, the assemblage of land for a park, the building of a school, and the like. But within this overall understanding there is much room for what the term public purpose means.
The Urban Renewal program (see Chapter 11), which got underway shortly after passage of the Housing Act of 1949, used eminent domain in a new way. Local governments would take private property to assemble blocks of land for projects and then, when site development work had been done, sell or lease the land to developers, who then built housing or commercial buildings. This meant that eminent domain was used to transfer property from one private party to another private party, rather than from private party to government. The private-party-to-private-party transfer occasioned much resentment. In time a property owner went to court to prevent an Urban Renewal agency from taking his or her property for this purpose. The case was appealed to the U.S. Supreme Court, and in 1954 in Berman v. Parker the Court found against the plaintiff. That is, the process was constitutional.
That decision seemed to settle the matter, but resentment simmered. Half a century later in 2005, in Kelo v. New London [Connecticut], the issue came to the Supreme Court again, and again the Court found against the plaintiff. In effect, the Court affirmed Berman v. Parker. But this time the decision unleashed a torrent of anger against the eminent domain process and its real or imagined abuses.
In the year after the Kelo decision, all 44 state legislatures that met in that year (not every state legislature meets every year) took up eminent domain bills. Of the 44 legislatures, 28 passed bills restricting the use of eminent domain.11 There was considerable variation among the bills, but the most common feature was language that restricted the rights of state and local governments to take private property if it was to be transferred to another private party. Generally, there were a few exceptions to this so that private property could be transferred to a common carrier, which would include, for example, railroads and pipelines, and to utility companies. But the sorts of transfers done in Urban Renewal And Community Development programs were banned. Many of the states specifically banned private-party-to-private-party transfers for "economic development" purposes, effectively saying the same thing in different terms.
To some degree, how you feel about this legislative overruling of Kelo will be a matter of your overall political stance. If you basically trust government and if private property rights are not that sacrosanct to you, you are likely to feel that the Kelo decision was right and the state legislatures made a mistake. If you feel the reverse on those two matters, then you are likely to be pleased to see the state legislatures, in effect, reverse Kelo. In short, the more to the left you are politically, the more likely you are to be happy with Kelo, and the more to the right you are, the more likely you are to be happy to see it canceled out. Beyond the ideological, there was resentment against the whole process of eminent domain because of instances in which government agencies treated property owners in a high-handed manner or in which the private-party-to-private-party transfer process was abused. The potential for a sweetheart deal in which a politically well-connected developer profits unduly from such a transfer is very real.
In addition to the bills passed by state legislatures, there were in 2006 a number of referenda intended to restrict the use of eminent domain. Of these, nine passed, often by large majorities, and two failed. One of those that passed, Arizona 207, also carried language that drastically expanded the definition of a regulatory taking. Basically, the referendum stated that if a restriction on the use to which property could be put reduced the value of that property after the owner had purchased it, the owner was entitled to compensation. There were a few exceptions, such as for matters of public health and safety.
The restrictions on the use of eminent domain and the expansion of the definition of regulatory taking are separate issues, and you could argue that if they were to be put up for referendum they ought to be separate, since that would give the voters maximum freedom of choice. But in fact they were bundled together so that the voter could vote on them only as a pair. Whether the regulatory taking definition would have passed had it been separate is an open question. As a matter of political strategy, those who favored it were shrewd in getting the two items bundled together, since their cause clearly benefited from a groundswell of anger against the perceived abuses of eminent domain.
You may wonder where things stand, given that the Supreme Court upheld Kelo, but legislation and referenda blocked that which Kelo had allowed. The answer is quite straightforward. All the Supreme Court said is that private-party-to-private-party transfers via eminent domain cannot be blocked on constitutional grounds. But when a state chooses to ban them, then they cannot be done in that state.
What is the planner's stake in all of this? Regardless of what one feels about the rightness or wrongness of the state bans on private-party-to- private-party transfers, it is clear that states and local governments have lost one important tool for a variety of community and economic development purposes. Urban Renewal, as described in Chapter 11, would have been a very different, and probably much smaller, program had such transfers not been possible.
How the part of Arizona 207 that pertains to regulatory taking will play out in practice is not yet clear, for inevitably there will be a court case, the loser will appeal, and that entire process will take a while.