Supreme Court’s Take on Takings Was Predictable but Disappointing

Published on: August 22, 2005

“This land was your land, but now it’s my land….” That cynical rewrite of the popular folk song overstates the case, but it accurately reflects the angry reaction to the U.S. Supreme Court’s recent decision in Kelo v. New London, Connecticut, affirming the right of a local government to take private property to further an economic development plan.

The public outcry notwithstanding, the decision was really a logical extension of existing judicial precedent, highlighting rather than changing the prevailing judicial view of government’s eminent domain authority to compel one individual to sell his/her property to another. While the decision was unfortunate, it would have been more surprising had it gone the other way.

At issue in Kelo and in the seminal Supreme Court cases preceding it is the takings clause embedded in the Fifth Amendment to the Constitution, which says simply: “…nor shall private property be taken for public use without just compensation.” The phrase is short but the significance is huge, establishing two principles: A governmental taking of private property must be related to a “public use”, and the property owner whose land is taken must receive “just compensation” for it. While most eminent domain battles have involved the formula for determining just compensation, Kelo challenged the definition of public use.

Lowering the Bar

For many years, public use was defined narrowly to include, for example, government buildings, hospitals, schools, highways, and other facilities the public could actually and literally “use.” But the courts have gradually lowered the threshold for determining what constitutes a “public use” that will pass Constitutional muster under the takings clause. That movement began with a 1954 decision (Berman v. Parker) in which the Supreme Court ruled that an urban renewal project that cleared a “blighted” neighborhood, achieved a “public purpose” that justified taking the property of residents and business owners who did not want to sell voluntarily. Since then, the public use/public purpose standard has evolved further (or been distorted, depending on your view) to permit takings deemed to produce a less direct “public benefit” in the form of jobs and tax revenues generated by economic development projects.

The plaintiffs in Kelo attempted to reverse that trend, and they had a compelling case on which to base their challenge: A homeowner who refused to sell the home she had occupied all of her life, and a viable neighborhood that New London officials wanted to eliminate, not because it was blighted, but because it stood in the way of a waterfront development expected to generate much-needed jobs and tax revenue for the economically depressed city.

The Kelo plaintiffs, supported by an unusual coalition of liberal civil rights groups and conservative private property activists, argued that the current, overly-broad definition of eminent domain authority makes the principle of private property meaningless; an office building will always produce more tax revenue than a residence, they said, and the owner of a larger home will always pay more taxes than the owner of a smaller one.

A Divided Court

New London officials, backed by city planners and city and state officials nationwide, countered that eminent domain is an essential economic development tool, adapted for modern planning needs, but still consistent with the Constitutional takings framework. A sharply divided Supreme Court agreed.

Writing the majority opinion in the 5-4 decision, Justice John Paul Stevens argued that a broad judicial definition of what constitutes a valid “public purpose” for eminent domain takings is well established, reflecting the court’s traditional deference to state and local governments in this area. “For more than a century, our public use jurisprudence has wisely eschewed rigid formulas and intrusive scrutiny in favor of affording legislatures broad latitude in determining what public needs justify the use of the takings power,” he wrote.

Rejecting the argument that economic development benefits are too indirect and too amorphous to qualify as the “public use” the Constitution requires, Stevens said, “There is no principled way of distinguishing economic development from the other public purposes we have recognized….Clearly there is no basis for exempting economic development from our traditionally broad understanding of public purpose.”

An Impassioned Dissent

In the view of the four dissenters, there was every reason for the court to reject that traditionally broad understanding of government’s eminent domain authority, and no excuse for the high court’s failure to restrain its use. “Nearly any lawful use of real private property can be said to generate some incidental benefit to the public,” Justice Sandra Day O’Connor wrote in an impassioned rejection of the majority opinion. “If predicted (or even guaranteed) positive side-effects are enough to render transfer from one private party to another constitutional, then the words ‘for public use’ do not realistically exclude any takings, and thus do not exert any constraint on the eminent domain authority,” O’Connor argued.

She also slammed the majority position that the federal courts should not intrude in the debate over what constitutes a valid public purpose – a debate that, Stevens said, belongs properly in state legislatures, not in the federal courts. “States play many important functions in our system of dual sovereignty,” O’Connor agreed, “but compensating for our refusal to enforce properly the federal constitution (a provision meant to curtail state action, no less) is not among them.”

The Kelo plaintiffs and critics of the court’s decision have argued that the court’s acceptance of a broad “public use” definition could permit takings motivated primarily (if not obviously) by a desire to enrich one private party at the expense of another – precisely the “taking from Peter to give to Paul” transaction the takings clause is supposed to prohibit. Stevens acknowledged that risk, but argued that in this case and in general, the existence of an “integrated development plan” confirms the existence of a valid public purpose. The absence of such a plan “would certainly raise a suspicion that a private purpose was afoot,” Stevens agreed, but such hypothetical situations “can be confronted when they arise,” he reasoned. “They do not warrant the crafting of an artificial restriction on the concept of public use.”

Expanding on that point in a concurring opinion, Justice Anthony Kennedy also conceded the possibility of “private transfers in which the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebuttable or otherwise) of invalidity is warranted under the Public Use Clause.” Confronted with such a situation, Kennedy said, the courts “should treat the objection as a serious one and review the record to see if it has merit, though with the presumption that the government’s actions were reasonable and intended to serve a public purpose.”

A Meaningless Test

That suggestion drew a scathing response from O’Connor, who said Kennedy’s ill-defined test for detecting “impermissible” takings was one that “only a stupid staffer” would fail to pass.

The majority’s refusal to narrow the definition of public use opens the door to unbridled eminent domain takings, O’Connor continued, and “the specter of condemnation hangs over all property.” The result, she warned, will be a kind of reverse Robin Hood effect, benefiting those “with disproportionate influence and power in the political process,” and harming “those without the advantage of money or influence. The government now has license to transfer property from those with fewer resources to those with more,” O’Connor concluded. “The founders cannot have intended this perverse result.”

Actually, it’s not at all clear that Kelo will have the “perverse result” that O’Connor and others fear. If anything, the decision seems more likely to flash a yellow light than a green one on takings, encouraging government officials to exercise more restraint rather than less in using their eminent domain authority. As one commentator noted, “A roomful of angry people will have an impact on a City Council.” And the decision has clearly made a lot of people very angry.

Although the court didn’t change the scope of government’s eminent domain authority, the media coverage has highlighted a power that many people did not realize government possessed, leading an array of strange bedfellows to join a chorus demanding relief. In response, legislators in several states have already proposed measures narrowing the definition of “public use” or otherwise restraining the taking authority. At the federal level, Congress is considering bills that would bar the use of federal funds for state and local development projects that involve the taking of private property.

One would hope that Kelo will not mean open season for economic development takings after all. But while its impact may be limited, or at least more limited than some fear, the Supreme Court’s decision was unfortunate, nonetheless. It would have been far better if the court had used this case not to affirm the existing takings standard, but to raise the Constitutional bar a little, moving more toward the old-fashioned, “common sense” definition of public use that Justice Clarence Thomas advocated in his separate dissenting opinion.

“The most natural reading of the [Takings] Clause,” Thomas suggested, “is that it allows the government to take property only if the government owns, or the public has a legal right to use, the property, as opposed to taking it for any public purpose or necessity whatsoever.”

A Common Sense Approach

That would certainly be much closer to what the Constitution’s framers had in mind. They didn’t envision urban renewal, shopping malls, or waterfront developments, but they had a healthy respect for private property and a healthy fear of the potential for the abuse of governmental power – both reflected clearly in the Takings Clause.

In the ‘wild west’ days, when the railroad came through undeveloped territory, the developers of that time simply shot ranchers who refused to sell their land. Developers don’t shoot recalcitrant property owners today, but the government’s eminent domain authority gives them a hammer that has the same effect – it forces people who don’t want to move to get out of their way. A tougher taking standard would require developers to do what a capitalist society expects them to do when an owner refuses to sell – up the ante. If the developer offers $500,000 for a property that appraises for $100,000, most people will say, “Where do I sign?” Raising the bar on takings won’t impede development, as some contend, but it will ensure that the developers who benefit from these projects have to pay the premium they should pay to convince owners to sell their property voluntarily.

Government officials and city planners argue that such restraints on eminent domain will allow a few “hold-outs” sitting in the middle of a planned development to extort large sums from the developers. But it’s the developers who are forcing the owners to leave; no one is forcing the developers to build on that site. If they don’t want to pay the owner’s price, they can build elsewhere, and owners who don’t want to sell for what the developers are offering should be similarly free to reject the offer. That’s how a free market is supposed to operate; eminent domain short-circuits that free market dynamic.

Adopting a more limited and more rational definition of “public use” would restore common sense and balance to the eminent domain equation. The reaction to the Kelo decision may help achieve that goal.

The decision may also force Congress and state legislatures to re-examine the concept of “just compensation.” The idea that an appraisal conducted in an eminent domain context will produce anything approaching “just compensation” for property the government is taking is inherently flawed. It fails to consider that the owner is being denied the freedom to choose the timing and circumstances of the sale, which are key to determining any property’s fair market value. There is no “willing buyer and willing seller” in an eminent domain scenario; there is a buyer who wants the property and an owner who has no choice but to sell it. A Republican Congress may well decide that we need a different and fairer formula for determining how these owners should be compensated – and who knows where that discussion may lead.