Strike balance with eminent domain laws: St Paul (MN) Pioneer Press, 4/2/06

By Edward Lotterman

The Minnesota Legislature, like those in many other states, wants to limit the power of local government to exercise eminent domain. This is good. Taking land from private citizens and transferring it to another private entity for "economic development" has become abusive. In curbing such abuse, however, we must not swing to the other extreme.

The U.S. Constitution recognizes societal benefits of giving government some power to take private property for public use. The Fifth Amendment requirement that no private property can be taken without "just compensation" acknowledges that legitimacy of the underlying power.

No one wants to remove the power of cities or counties to take land for roads, schools or parks. Many are outraged, however, by the growing practice of condemning useful homes or businesses so that land can be passed to some private developer.

In the controversial case in New London, Conn., the U.S. Supreme Court did not say such taking of property for "redevelopment" is good. The court merely said that state laws allowing it do not violate the U.S. Constitution, and states are free to pass laws to limit condemnation.

That is happening right now in the Minnesota Legislature and in several other states. On the whole, this is a good thing. Existing practices were unfair and economically inefficient.

At the same time, we need to recognize the implications of swinging to extreme limits on eminent domain powers of local government. Some want an absolute prohibition on taking any property for any use other than building public facilities.

At a gut level, this appeals to me personally. But we need to be clear-headed and think through the implications. Existing urban properties can become run-down. Time and the economy change. Businesses move away. Facilities become outdated.

In such a situation you might have nine property owners eager to sell to someone who wants to build a new facility. But if a 10th property owner is strategically located amid the rest and there is an absolute prohibition on exercising eminent domain, the sole holdout has enormous power.

If the holdout has an absolute right to keep the property, she is in a position not only to get top dollar for her own property but also to capture some of the potential value of the other sellers' properties.

One owner's tough bargaining can keep the nine others from making a desired and beneficial transaction.

Economics is about responding to incentives. In such holdout cases, the absolute ban on condemnation will reduce renewal and redevelopment in central cities and will increase development of lower-priced land on urban fringes. Neither is necessarily good for society.

The Legislature seems close to a reasonable balance between curbing existing abuses of eminent domain on the one hand and contributing to the stagnation of urban property on the other. If lawmakers carry this balance through to law, they should be applauded.

The Pioneer Press: http://www.twincities.com/mld/pioneerpress

Edward Lotterman is an economist based in St Paul: elotterman@pioneerpress.com