Big Business wants your house, and the government is going to take it from you and give it to them
By Timothy Sandefur
"With no power, of which they are possessed, do [legislatures] seem to be less familiar, or to handle less awkwardly, than that of eminent domain. . . . At times they fail, or seem to fail, to distinguish accurately between public and private ends, and if their terms and language be alone consulted, to pervert the power to uses to which it cannot lawfully be applied."
— Sherman v. Buick
(California Supreme Court, 1867)
Frank Bugryn and his three elderly siblings owned two houses and a Christmas tree farm in Bristol, Conn. The 32-acre family homestead had been in the family for over 60 years when city officials decided the land would produce more tax revenue if it were transferred to industrial use. Specifically, the city wanted to give the land to the Yarde Metals Corporation, which hoped the state highway frontage area would allow them to construct a large sign and entranceway. When the Bugryn family turned down the city's offers to buy the property, the city began eminent domain proceedings.
In May 1998, Bugryn and his family asked a state court to bar the condemnation of his property. "I don't want to go anywhere," he told the court. "My parents built the family house in 1939, and I built my own house on the property 42 years ago. I'm almost 78. Where am I going to go now?" But Mayor Frank Nicastro testified that the industrial park was "in the best interest of the future growth of the city," because it would "build up the tax base." The court denied the injunction, holding that the condemnations of the Bugryns' homes "do not . . . constitute serious or material injuries." In the face of unremitting pressure from the community, and particularly from the Hartford Courant, which editorialized repeatedly against them, the Bugryns appealed. But the Court of Appeals also refused to stop the taking, and the city continued its plans even when Yarde Metals chose to relocate due to the legal delays.
Finally, in 2004, when the family refused to leave their homes, the city initiated proceedings to evict them. Once again, the Courant decried them in an editorial, calling their resistance a "public farce," and a "melodrama," and denouncing the family for "stall[ing] and draw[ing] upon the public's sympathy." Meanwhile, 76-year-old Michael Dudko, husband of one of the Bugryn sisters, and a Polish immigrant who at the age of 15 had been taken from his home by the Nazis and forced into farm labor, suffered a relapse of cancer and died. After a nearby radio station ran a story about the Bugryns' plight, an anonymous, irate telephone call forced the police to post a guard in the mayor's office. Relations within the Bugryn family itself became strained; when one sister failed to leave her house in time, her nephew took the city's side, telling reporters "people are pointing the finger at the mayor and the council and city officials, but all they're really doing in taking the property is using an eminent domain system that was given to them by the legislature." The reverberating effects of eminent domain not only disrupted the family and community, it also bred a sense of disillusionment best expressed by Frank Bugryn himself, who told a reporter, "I'm a veteran of World War II, I fought for our freedom, democracy. But it seems 60 years later it doesn't work."
Eminent domain — the government's power to force a person to sell real estate against his will, at a price the government deems "just compensation" — is one of the most extreme forms of government coercion, and today, among the most common. Used for centuries for building railroads, highways, and post offices, eminent domain is now a multi-billion dollar industry, and a classic example of rent-seeking run amok. Governments throughout America routinely seize property to transfer it to private companies to "create jobs" and increase the tax base in a community. In 1999, the city of Merriam, Kan., condemned a Toyota dealership to sell the land to the BMW dealership next door. That same year, Bremerton, Wash., condemned 22 homes to resell the land to private developers. In one especially notorious case, billionaire Donald Trump convinced the government of Atlantic City, N.J., to condemn the home of an elderly widow so that he could build a limousine parking lot. As attorney Jennifer Kruckeberg puts it, "Whether you know it or not, your house is for sale. Corporations, using cities as their personal real estate agents, are proposing the following assignment: 'Find me your most prominent location, get rid of what is on it, help me pay for it, and maybe you will be lucky enough to have me move to your city.' Such is the state of the current eminent domain power."
With the eminent domain power unmoored, the power to redistribute property fell into the hands, not of the most deserving, but of the most politically adept.
The exploitation of eminent domain by such private interests is a relatively new phenomenon, and is explicitly prohibited by the U.S. Constitution, which holds that "private property" may be taken only "for public use." But a series of court decisions beginning in the first years of the 20th century, and culminating in the 1954 decision Berman v. Parker, eroded the "public use" limitation to such a degree that, as Richard Epstein once noted, some law professors have taken to replacing that clause with an ellipsis when writing out the text of the 5th Amendment.
In Berman, the Supreme Court held that eliminating slums was a public use because once the legislature deems a project worthy of its attention, that project is necessarily a public one: "[W]hen the legislature has spoken, the public interest has been declared in terms well-nigh conclusive," wrote Justice William O. Douglas for a unanimous Court. "In such cases the legislature, not the judiciary, is the main guardian of the public needs to be served by social legislation."
This level of deference from the Court had become standard fare for property rights and economic liberty by 1954. With the coming of the New Deal, the Supreme Court had decided to take a hands-off approach to regulations of economic rights, which it decided — without the slightest constitutional basis — were "lesser" rights, deserving only "rational basis scrutiny." Under "rational basis," a law regulating economic or property rights is presumed to be constitutional unless it is shown to lack a "rational relationship to a legitimate government interest" — a standard so advantageous to the government that laws hardly ever violate it. But if government's decisions regarding property rights are supposed to be related to a "legitimate government interest," what interests are not legitimate? Are there goals that are off-limits to the state, or beyond the acceptable use of eminent domain? Berman was followed by the Michigan Supreme Court's 1981 decision of Poletown Neighborhood Council v. Detroit, which held that the state could seize an entire working-class neighborhood and transfer it to the General Motors Corporation to build an automobile factory. Since the factory would "create jobs," and creating jobs is a legitimate government interest, the public use clause was satisfied. A few years later, the United States Supreme Court came to a similar conclusion in Hawaii Housing v. Midkiff, holding that the Hawaii legislature was within its constitutional limits when it wrote a law allowing renters to buy their landlords' property at a fraction of the actual value. Decisions like this rendered so little protection to property owners that the Ninth Circuit Court of Appeals once declared that "the whole scheme is for a public agency to take one man's property away from him and sell it to another. The Founding Fathers may have never thought of this, but the process has been upheld uniformly by latter-day judicial decision. . . . Our hands are tied — if the book on the procedure is followed."
By failing to define, let alone limit, the scope of "legitimate government interests," the courts sparked an explosion of condemnations in the service of any interest that the legislature decided to pursue. "The 'legitimate state interest' test in vogue today," wrote Epstein shortly after Midkiff, "is a bare conclusion, tantamount to asserting that the action is legitimate because it is lawful. . . . As such, it functions, at best, as a convenient label for serious inquiry, without defining the set of permissible ends of government action."
With the eminent domain power thus unmoored, the result was predictable to public choice theorists: the power to redistribute property fell into the hands, not of the most deserving, but of the most politically adept. As government became capable of transferring unlimited amounts of land between private parties, the business community began investing an ever-increasing amount in lobbying to persuade it to give the land to them. These companies portray the redistribution of land as a benefit to the community, in the form of job creation and increased funding for public services, as well as an eradication of "economic blight," a vague term attached to any neighborhood that is less than affluent but not an actual slum. Meanwhile, government officials have come to see their roles, not as defenders of the public's safety and welfare, but as sculptors of neighborhoods, for whom citizens and land are raw materials to be formed into the ideal community.
Boynton Beach, Fla., for example, is gradually implementing the "Heart of Boynton Redevelopment Plan," an immense redesign involving potentially hundreds of condemnations. After an attorney from the Pacific Legal Foundation attended a community meeting to challenge officials about the plan, City Redevelopment Director Quintus Greene gave a presentation to the city council entitled "Why We Are Doing This." Greene told the council that although the cities of Boynton Beach and Delray Beach have almost the same population, "when comparing median household incomes, Boynton Beach ranks lower at $39,845 than Delray at $43,371. Boynton Beach ranks higher in median household income than West Palm Beach at $36,774. . . . The purpose of this redevelopment, is to compensate for the loss of one of the City's major taxpayers. Our property tax values are meager compared to other cities and this redevelopment is our attempt to enhance property values within this City. Our choices are to expand our tax base, raise property taxes or reduce services to our citizens. . . . In Boynton Beach, there is a significant amount of property that pays little or no taxes. Given that reality, we must do other things to compensate for that loss of tax dollars."
In plain English: throw poor folks out of their homes, and the city's median income will be higher. Well, that is undeniably true.
But this marriage of government and private industry doesn't just benefit bureaucrats eager to be seen as "creating jobs" and "cleaning up the community." It also yields enormous boons for companies that are adept at political persuasion. Recent articles in The Wall Street Journal and Mother Jones have detailed the enormous pressure that Home Depot, Bed Bath & Beyond, Wal-Mart, Target, and especially Costco, exert on governments to give them somebody else's real estate. These efforts can be extremely enticing to government officials pursuing "the vision thing," not to mention local residents desperate for new jobs. The plans are presented with a smooth and authoritative style — with sophisticated PowerPoint presentations including lovely artist's renditions of gleaming new streets and bustling pedestrian malls — that is hard for bureaucrats to resist. There's even a website, eminentdomainonline.com,, which bills itself as "an internet based business to government (b2g) clearinghouse for professionals in the eminent domain, right of way, and infrastructure development fields." If the lobbying efforts should include donations to mayoral election campaigns, and promises to fund giant public works projects on the side, so much the better. As one city planner told Mother Jones, "The reality is that you need to rely on developer interest in order to facilitate projects. We're not paying for this party." (Conveniently enough, the Internal Revenue Code allows money expended by a company seeking to persuade a city official to exert eminent domain to be deducted from the company's gross income when determining income tax liability.)
Industry uses sticks as well as carrots when prodding officials to use eminent domain on its behalf. The Poletown case is a prime example: GM presented its plan to the city in July of 1980. On Sept. 30, the city's Economic Development Corporation approved it. Eight days later, GM chairman Thomas Murphy wrote the mayor and the chairman of the Detroit Economic Development Corporation, strongly urging them to adopt the plan: "I firmly believe the prospect of retaining some 6,000 jobs, and the attendant revitalization of these communities is a tremendous challenge," he wrote, adding ominously, "it also is an opportunity and a responsibility which none of us can ignore." This letter and GM's other maneuvers, Michigan Supreme Court Justice James Ryan later said, "suggest the withering economic clout of the country's largest auto firm," and indeed Detroit was more than eager to do GM's bidding. Preliminary paperwork was finished within days, and the city council and mayor approved the final documents less than a month after Murphy's letter. Action in the courts moved with the same rare speed, culminating in oral arguments before the state Supreme Court on March 3, 1981, and a decision only ten days later. Meanwhile, wrote Justice Ryan, an "overwhelming psychological pressure . . . was brought to bear upon property owners in the affected area," as a "crescendo of supportive applause sustained the city and General Motors. . . . The promise of new tax revenues, retention of a mighty GM manufacturing facility in the heart of Detroit, new opportunities for satellite businesses, retention of 6,000 or more jobs . . . all fostered a community-wide chorus of support for the project."
Other cases present similar David-and-Goliath scenarios. In 2001, Mississippi redevelopment officials gave the Nissan Corporation 1,300 acres of state-owned land to construct an auto factory. When Nissan hesitated, the state condemned a middle-class black neighborhood to give Nissan another 23 acres. James Burns, Jr., executive director of the state's development authority, told the New York Times that the property was not actually a part of the project: "It's not that Nissan is going to leave if we don't get that land. What's important is the message it would send to other companies if we are unable to do what we said we would do. If you make a promise to a company like Nissan, you have to be able to follow through." Attorneys from the Institute for Justice, a Washington, D.C.-based libertarian law firm, managed to fight off the state, and the residents kept their homes. Less fortunate were the residents of the Toledo, Ohio, neighborhood that was taken to build a Jeep factory, which received the blessing of Ohio courts in the fall of 2004, or the property owners in Redwood City, Calif., where the city condemned land to build a movie theater. Knowing that a theater is probably not a "public use," the city declared it was really building a parking lot — and it just happened to include a theater above the parking lot.
The precise amount of money involved in the eminent domain industry is impossible to assess, but Mother Jones' Gary Greenberg notes that one project in Ohio — an attempt to condemn 13 acres for the benefit of a shopping mall called Rockwood Pavilion — involves about $125 million in planning and construction costs, and promises the local city some $1.5 million per year in tax revenue once completed. Multiplied by countless cases, as well as the legal expenses and the detriment to property values caused by a city's unpredictable tendency to exert eminent domain, the costs are incalculable.
Eminent domain abuse can have perverse social consequences, too. One of the most commonly voiced justifications for eminent domain is that it is necessary for cleaning up unsightly neighborhoods, which include "adult" businesses or other low-class uses. But in 1997, a consortium of Las Vegas casinos persuaded the city to take the retail property owned by Greek immigrants John and Carol Pappas to build a parking lot for the "Fremont Street Experience," a pedestrian mall including such adult attractions as the "Topless Girls of Glitter Gulch." Moreover, the concept of "blight" is so elastic that economic interest groups can easily exploit it. A mall in St. Louis was recently determined to be blighted, despite the fact that it was 100% occupied and had $100 million in annual sales. And a prep school in Wisconsin was declared blighted despite its elite $10,000 tuition price (which conveniently enough qualified it for a $5.6 million tax-exempt bond issue).
Costco, the nation's leading corporate abuser of eminent domain, has persuaded cities across the nation to engage in such transfers. Lancaster, Calif., tried to condemn a 99 Cents store to transfer it to Costco, even though Costco already had a store in the same mini-mall with the 99 Cents store. The city did so, not on the grounds that the property was blighted — it wasn't; in fact, it's probably the cleanest 99 Cents store in America — but on the grounds that the neighborhood might be blighted in the future, if the government did not act now. A federal court struck down this condemnation (an extremely rare occurrence) after noting that "by Lancaster's own admissions, it was willing to go to any lengths — even so far as condemning commercially viable, unblighted real property — simply to keep Costco within the city's boundaries. In short, the very reason that Lancaster decided to condemn 99 Cents' leasehold interest was to appease Costco. . . . " It is impossible to tell how many properties Costco has taken through eminent domain because the company hasn't released exact figures and has tried to stifle shareholder attempts to reverse the company's policies. But the cases abound. Institute for Justice lawyer Dana Berliner, who recently published a catalogue of some 10,000 instances of eminent domain abuse, reports that "of the big-box retailers, Costco shows up the most." But the company is unrepentant. Asked for an explanation, Costco senior vice president Joel Benoliel told investors that if they didn't exploit eminent domain, "our competitors . . . would . . . and our shareholders would be the losers."
It's hard to deny that assertion. So long as the power is available to the highest bidder, Costco executives would violate their duty to investors to withdraw from the scramble for other people's land. Although it is easy to damn powerful companies so insensitive to homeowners unable to afford a legal defense — a Costco attorney once told the city council of Lenexa, Kan., that the property he wanted condemned was "not much of a neighborhood, anyway" — the blame rightfully rests on the courts that have gradually erased the public use clause.
But in confronting this problem, the courts suffer from a serious intellectual handicap, which dates back to the Progressive Era at the opening of the 20th century. During this period, leading intellectuals came to reject the individualistic natural rights premises of the American founding. As Michael McGerr writes, the Progressives "wanted not only to use the state to regulate the economy; strikingly, they intended nothing less than to transform other Americans." But remaking Americans meant inverting the premise that the state was a tool of the people. John Dewey, philosophical champion of the Progressives, denounced "the notion that there are two different 'spheres' of action and of rightful claims; that of political society and that of the individual, and that in the interest of the latter the former must be as contracted as possible." Such a notion, he said, would be replaced with "that form of social organization, extending to all the areas and ways of living, in which the powers of individuals shall not be merely released from mechanical external constraint but shall be fed, sustained and directed."
The Progressives thought society should mold individuals in a manner best suited for the survival and flourishing of the state. It was during this period that various devices for controlling citizens — everything from the Pledge of Allegiance to eugenics and forced sterilization — were introduced. In his great book on this era, "The Metaphysical Club," Louis Menand explains just how opposite the Progressive idea was to the views of the Founding Fathers. To the Progressives, "Coercion is natural; freedom is artificial. Freedoms are socially engineered spaces where parties engaged in specified pursuits enjoy protection from parties who would otherwise naturally seek to interfere in those pursuits. . . . We . . . think of rights as privileges retained by individuals against the rest of society, but rights are created not for the good of individuals, but for the good of society. Individual freedoms are manufactured to achieve group ends. This way of thinking about freedoms helps explain why the . . . [Progressives] were indifferent to the notion of individual rights."
The Progressive Era began to dissolve the public-private boundary by holding that the things we think of as rights are really just permissions granted by society and revocable whenever society decides. Understandably, this period brought a corresponding explosion in the use of eminent domain. In 1923, for the first time, the Supreme Court held that government could condemn land not just for necessities, but for mere recreational facilities like scenic highways. A California court held in 1911 that "[g]enerally speaking, anything calculated to promote the education, the recreation or the pleasure of the public is to be included within the legitimate domain of public purposes" served by eminent domain.
In short, the Progressive goal of "remaking Americans" meant breaking down the limits on state power. The difference between "legitimate" and "illegitimate" government interests was accordingly dissolved. Since government would "extend to all the areas and ways of living," it would now be free to do "anything calculated to promote . . . the pleasure of the public."
It is no coincidence that the Progressive Era was the first time the word "blight" was applied to economic stagnation. The Progressives saw society as an organic whole, with each person a cell. Thus the term "blight," originally a term for a plant disease, was applied to neighborhoods that failed to perform to the standard the society desired. Private businesses were no longer private, they were a tool by which society produced a certain standard of living, and if they failed to do so, society could simply revoke the permission (formerly called property rights) and give that land to someone else.
With the boundaries of "legitimate government interests" erased, New Dealers built on the Progressives' work by establishing the concept of judicial deference. In previous decades, courts had been willing to block the more extreme Progressive social experiments, but in the 1930s they took a more deferential view. Louis Brandeis, a Progressive attorney who had once coined the term "right of privacy," was appointed to the Supreme Court, where he would instead declare that "in the interest of the public and in order to preserve the liberty and the property of the great majority of the citizens of a state, rights of property and the liberty of the individual must be remolded, from time to time, to meet the changing needs of society." President Roosevelt's other appointees (including Justice Douglas, who would later write the Berman decision) agreed not only that government could "remold" the "liberty of the individual," but that courts should not stand in the way. The result was the creation of "rational basis scrutiny."
Today, courts are unable to decide whether an asserted "government interest" is legitimate or illegitimate. Indeed, the Supreme Court has confessed that "our cases have not elaborated on the standards for determining what constitutes a 'legitimate state interest.'" But without such an elaboration, it is impossible to determine whether a law is "rationally related to a legitimate state interest." Since anything at all might qualify as a "legitimate interest," anything subject to this test will receive a pass from the Court. The result is that government's power to manipulate individuals, and their property, is limited only in the rarest possible circumstances.
There is reason for optimism, however. The severest abuses of eminent domain have already forced many people to reexamine their views about the lesser stature of property rights. When the Michigan Supreme Court indicated its willingness to reconsider its Poletown decision, the ACLU joined forces with the Pacific Legal Foundation urging the court to declare eminent domain abuse unconstitutional. The court agreed, unanimously overruling its decades-old decision. To permit the condemnation of land "solely on the basis of the fact that the use of that property by a private entity seeking its own profit might contribute to the economy's health" would "render impotent our constitutional limitations on the government's power of eminent domain," said the court. "Poletown's 'economic benefit' rationale would validate practically any exercise of the power of eminent domain on behalf of a private entity. After all, if one's ownership of private property is forever subject to the government's determination that another private party would put one's land to better use, then the ownership of real property is perpetually threatened by the expansion plans of any large discount retailer, 'megastore,' or the like."
Only months later, the United States Supreme Court agreed to hear Kelo v. New London, a case challenging Connecticut's attempt to seize a neighborhood for the benefit of Pfizer. Although it is impossible to predict what the court will do, there are three main possibilities. The first is that the court may allow government to redistribute private land of New London residents to a private company on the grounds that any benefit to the public is good enough. Second, it might hold, on very narrow grounds, that in some cases, the private benefit is just too extreme to be labeled public. This seems the most likely outcome, but it is an unsatisfying one, because it would leave the important question unanswered. The third and least likely option is that the court could invest serious thought into the difference between what is public and what is private, and could declare that attenuated social effects of private behavior aren't enough to make it into a public concern. Just because a private business affects the public in some way doesn't make it the government's business. If the court embraced this view, the answer to the Kelo case would be obvious: of course a private company is not a public use, even if the public likes to purchase its products.
It is not impossible that this will happen. In Lawrence v. Texas, the Supreme Court declared that alleged harm to society by private, adult, consensual sexual activity is not enough to allow the state to pry into people's private bedrooms. It would be refreshing indeed if it also said that alleged social effects of private business interests are not enough to make a private business into a public use. But, again, I think it unlikely. Such a decision would require the court to reexamine old and politically volatile assumptions which trace back to the Progressive abandonment of America's founding principles. To city planners, your neighborhood is theirs to shape as they please. The fact that a business uses condemned land for its own profit is irrelevant to them because private businesses are public uses, in their minds. They are the tools by which society creates jobs and provides people with goods. President Eisenhower once warned the nation about the military-industrial complex, but today local governments are wrapped up in the Costco-WalMart-Home Depot complex. They believe in what they call "partnerships" between government and private industry in which government and corporations decide the shape and layout of whole neighborhoods, with no regard for the rights of the landowners who stand in their way.
But even a favorable outcome in Kelo might come too late to help Curtis Blanc of Liberty, Mo. Through his company, Mid-America Car, Inc., Blanc owns a well-maintained brick warehouse which he leases for $1 per year to two charities: In As Much Ministries, and Love, Inc. These ministries feed more than 400 families per month — despite one city council member's statement during a council meeting that "there are no poor people in Liberty." But the council has other plans for Blanc's land: it wants to construct a business district on "Liberty Triangle," which consists of 88 acres of land, including Blanc's warehouse. The first phase of the Triangle project has already begun, and a 160,000-square-foot Lowe's home improvement store recently opened. Steve Hansen, the city's public works director, recently told businesses that those which generate high sales tax income for the city will be allowed to remain in the area, but that "most of the businesses that are there now are not high sales producers" and will be condemned to make way for companies that will raise tax revenue for the city. Blanc has received a final notice from the city requiring him to sell his property, or face condemnation. Still, Blanc is hopeful. Along with the Bugryn and Pappas families, he agreed to be represented by the Pacific Legal Foundation in a friend of the court brief in the Kelo case which urges the court to breathe new life into the "public use" clause.
It is very sad that we have come this far. For the Supreme Court of the United States to declare that "our cases have not elaborated on the standards for determining what constitutes a 'legitimate state interest'" is a shocking statement. Two hundred years after the founding, with the Declaration of Independence and the Federalist Papers at hand, and with the experiences of the Revolution, the Civil War, the World Wars, and the civil-rights movement behind us, we ought to know what a legitimate state interest is. As Hadley Arkes has put it, "this late in the seasons of our experience, federal judges should not be in need of this kind of instruction, on the rudiments of constitutional government. . . . [The Founders] did not expect that the main instruction would have to be offered to the lawyers and the judges themselves, and to the resident wits in the schools of law. . . . But that project has become, in our own day, steady work."
Liberty: www.libertyunbound.com
Timothy Sandefur is a staff attorney at the Pacific Legal Foundation, where he has written friend-of-the-court briefs in the Michigan and United States Supreme Court eminent domain cases.
Pacific Legal Foundation: www.pacificlegal.org