The Volokh Conspiracy

Today is the fifth anniversary of Kelo v. City of New London, one of the most controversial decisions in Supreme Court history. In Kelo, a narrow 5-4 majority of the Court ruled that the condemnation of private property for transfer to other private individuals for purposes of promoting “economic development” was permitted by the Fifth Amendment, which allows government to condemn property only for a “public use.” Kelo was a flawed decision and it drew a massive political backlash. There are lesson to be learned from both.

I. The Shortcomings of Kelo.

In my view, Kelo was wrong both because it goes against the text and original meaning of the Constitution and because it embodies an unrealistic view of the political process. On the former point, this article by leading property rights historian Jim Ely does a good job of summarizing the relevant historical evidence. The Founders and early 18th and 19th century jurists disagreed among themselves about the exact meaning of “public use.” But there was widespread agreement that government lacked the power to condemn property owned by one private individuals and transfer it to another merely because the government claimed there might be some sort of public benefit.

Kelo was also mistaken because the majority justices wrongly assumed that the existence of a “plan” would minimize the likelihood that private interests would exploit the condemnation process to take from the politically weak. In reality, the political process makes it very easy for this to happen, as voters have great difficulty monitoring the quality of economic development takings. Moreover, the new owners of condemned property generally have no legal obligation to actually provide the economic benefits that supposedly justified the condemnation in the first place. This predictably results in condemnations that not treat property owners unjustly, but actually destroy more economic value than they create, as happened in the Kelo case itself. I develop these points in greater detail in this article.

More generally, it seems contradictory and self-defeating for courts to allow legislators to define “public use” as they see fit. The whole point of the Bill of Rights is to constrain government power. That objective is undercut if the scope of the rights to be protected is defined by the very government officials whose abuses are supposed to be constrained. It is a bit like appointing a committee of wolves to guard your chicken coop in a world where predation by wolves is the whole reason why you need guards in the first place. As Ely notes, “among all the guarantees of the Bill of Rights, only the public use limitation is singled out for heavy deference to legislatures.” Unfortunately, this is part of the Court’s more general policy of relegating constitutional property rights to second-class status.

II. The Post-Kelo Backlash.

Kelo generated a broader political backlash than any other Supreme Court decision in decades. As I explained in this article, over 80% of the public opposed the decision, and a record 43 states passed eminent domain reforms in the wake of Kelo. Many observers, including legal luminaries such as Richard Posner, argued that this backlash shows that judicial protection for property rights in this field is unneccessary.

Unfortunately, my work on post-Kelo reform also shows that the majority of the new laws provide little or no meaningful protection for property owners. In many cases, they ban Kelo-style takings for “economic development,” but allow the same types of condemnations to continue under the guise of combating “blight.” Blight, in turn, is defined so broadly that almost any area qualifies.

Several factors account for this result, including resistance by interest groups who benefit from unconstrained eminent domain power. In my view, a key problem is widespread voter ignorance that makes it difficult for most citizens to tell the difference between effective reforms and those are primarily for show. Given the overwhelming public opposition to economic development takings, I doubt that interest group lobbying could have prevented strong post-Kelo laws from being enacted if voters had been well-informed about the legislation in question.

The Institute for Justice, the libertarian public interest law firm that litigated Kelo, has a more optimistic take on the results of the backlash in its well-written report on the fifth anniversary of the case. Several of their points are valid. Thus, IJ points out that a number of state supreme courts have recently struck down Kelo-style takings under their state constitutions. This is true, though it’s hard to tell how much of this is the result of Kelo, and how much a continuation of a preexisting trend under which six state supreme courts ruled that way in the ten years before Kelo; with only two (including the Connecticut Supreme Court in Kelo itself) going the other way.

On the legislative reforms, there is perhaps less difference between my assessment and IJ’s than meets the eye. In this article (pp. 15-16), University of Illinois law professor Andrew Morriss has compared my evaluations of the state reforms with IJ’s and finds only three cases where there is a significant divergence (including one – Idaho – where I rated the reform law much more favorably than IJ did). I would perhaps add a couple more cases to this list that arose after Morriss’ paper was finished.

I also agree with IJ that a significant number of states (albeit, in my view, a minority) have passed strong reform laws and that we are today substantially better off than before Kelo. For example, I have long emphasized that reforms passed by referendum initiative tended to be quite strong. The main point of my analysis is to dispute claims that legislative reform is sufficient to address the problem, and take issue with various social science theories that predicted a much more effective backlash.

III. Lessons for the Future.

The Kelo experience offers several valuable lessons. First, there is the need to combine litigation and political action in any reform strategy. IJ and the broader property rights movement could not have been as effective if they had stuck to just one or the other. For example, most of the public would have remained unaware of the problem of eminent domain abuse if not for the media coverage generated by the Supreme Court case. Although preexisting Supreme Court precedent and eminent domain law in most states was even more hostile to property rights than the Kelo decision, the “rationally ignorant” general public was oblivious to this reality.

Second, the shortcomings of the Kelo backlash undercut the widely held belief that we don’t need judicial intervention to protect rights that are supported by majority public opinion. Although bolstered by such authorities as James Madison’s Federalist 10, this view has serious flaws that the Kelo experience highlights. A combination of political ignorance and interest group lobbying can easily lead to violations of rights that majorities value. It also makes it extremely difficult to correct those violations using the political process alone.

On a more positive note, the widespread political reaction to Kelo shows the potential for cross-ideological alliances on property rights issues. Kelo was denounced not only by conservatives and libertarians, but also by numerous left-liberal leaders and activist groups, such as Ralph Nader, Bill Clinton, Maxine Waters, the NAACP, and the Southern Christian Leadership Conference. They recognized that economic development and “blight” condemnations often target the poor and politically weak. It is unfortunate this potential alliance has been allowed to atrophy in recent years. Effective protection for property rights is unlikely to be achieved so long as the issue remains primarily a parochial concern of libertarians and conservatives.

Finally, I can’t resist pointing out that Kelo and the resulting backlash has been a great gift to takings scholars that just keeps on giving. For example, it enabled me to publish numerous articles, get offered various visiting appointments, and ultimately get tenure. I am currently writing a book on Kelo and its aftermath which is scheduled to be published by the Harvard University Press. And I owe it all to the justices in the Kelo majority.

As far as the public interest is concerned, I fervently hope that the the Supreme Court improves its takings jurisprudence. But when it comes to my own career interests, I hope the justices keep up the bad work!

CONFLICT OF INTEREST WATCH: As in previous posts on Kelo-related subjects, I want to note that I have written various pro bono briefs for the Institute for Justice. I also wrote a pro bono amicus brief in the Kelo case itself on behalf of the late Jane Jacobs.

In a recent post on Kaur v. Urban Development Corporation, the Columbia eminent domain case currently before New York’s state supreme court, NYU lawprof Rick Hills argues that the debate over eminent domain is largely meaningless. Kaur, like the Atlantic Yards case before it, addresses a key issue in takings law: whether the condemnation of “blighted” property for transfer to a private party qualifies as a “public use” under state and federal constitutions even if “blight” is defined so broadly that almost any area can be declared blighted and condemned.

Hills argues that efforts to address this question are ultimately futile and tend to elide the really important issues:

[T]he doctrinal battle… [in Kaur] really is rooted in empty, incoherent blather that can never be a satisfying basis for a doctrine. “Blight” is an epithet in search of a definition, while “public use” is either merely a requirement of public benefit (in which case, it is judicially unmanageable) or a requirement of public title (in which case, it is a perverse encouragement of statist inefficiency).

The concepts of “public use” and “blight” ignore the real and fundamental dilemma raised by over-fragmented land — viz.: (a) land markets tend to do a poor job of re-assembling over-fragmented parcels but (b) assemblers use eminent domain to hog all of the post-assembly surplus, to the justified resentment of the dispossessed owners. Absent some assembly mechanism beyond arms’ length private bargaining, Manhattanville will be locked into drab industrial uses — gas stations, storage facilities, auto repair, etc — that, I strongly suspect, the owners themselves would quickly jettison if they could get a reasonable share of the “post-assembly” value. Getting rid of eminent domain will not vindicate these owners’ private property rights: It will simply insure that they can remain trapped in a collective action problem

Hills’ argument is interesting. But I think it is ultimately wrong on all counts.

I. Why a Narrow Definition of Public Use Does not Lead to “Statist Inefficiency.”

If, as I have advocated, “public use” is interpreted to require either government ownership of condemned property or at least a right of access by the general public (as in the case of land used by common carriers or public utilities), it will reduce “statist inefficiency,” not aggravate it. Such an approach would block takings like those in the Kelo and Poletown cases, where property was taken from politically weak owners for transfer to politically powerful ones. In the process, far more economic value was destroyed than created. In Poletown, for example, some 4000 people were expelled from their homes and dozens of businesses, churches and schools were destroyed, in order to give the land to General Motors to build a factory, which ultimately failed to generate anything remotely approaching the economic benefits that were promised.

Hills’ argument implicitly assumes that if government is not allowed to condemn property and transfer it to private entities, it will simply undertake the exact same condemnations and use the land for the same purposes itself. This, however, is highly implausible. If the whole purpose of the condemnations was to transfer the land to politically powerful interest groups, that objective won’t be accomplished if the government can’t give them the land they covet. If Detroit were forbidden to transfer Poletown to General Motors, it is hardly likely that the city would have still condemned it and then built a government-owned auto factory on the site. Almost certainly, the condemnation would never have been undertaken in the first place.

To be sure, sometimes public ownership can be a mere fig-leaf for control by a private interest group. In my article on Poletown, I discuss the hypothetical possibility of the government retaining ownership of the area, but giving GM a long-term lease for a nominal fee. Effective enforcement of public use limits on takings requires judicial policing of such subterfuges.

II. The Case for a Narrow Definition of “Blight.”

Hills is right to suggest that “blight” is a vague term. Still, it is more than just an “epithet.” As I argue in this article, there is a strong case for using government intervention (though not necessarily condemnation) to eliminate blight defined as conditions on one property that inflict serious harm on the entire neighborhood, for example by spreading disease. If the effects are spread out over a large area, private parties face a collective action problem in trying to alleviate them.

On the other hand, there is no good justification for using eminent domain or other government coercion to alleviate “blight” defined merely as a lesser degree of development than government bureaucrats consider to be desirable. Market competition can generally do a good job of determining which land should be developed and to what extent. Indeed, defining “blight” so broadly that virtually any area can be declared blighted and condemned will actually undermine development by rendering property rights insecure, thereby deterring investment. Such blight condemnations merely enable politically powerful interest groups to take property that they covet from the politically weak.

Even in genuinely “blighted” areas, condemnation is extremely problematic, often leading to the expulsion of poor and minority populations to benefit more influential groups. But the case for government intervention in such areas is at least a plausible one.

III. Why Private Developers (Usually) Don’t Need Eminent Domain to Prevent Holdout Problems.

Hills also makes the standard argument that we need eminent domain to prevent holdouts from blocking valuable assembly projects. I have answered this claim at some length in this article (204-10). Interested readers should also check out this excellent article by Notre Dame property scholar Daniel Kelly. To briefly summarize, Kelly and I point out that private developers can effectively prevent holdouts by assembling property using secret purchases that prevent potential holdouts from learning that a major assembly project is ongoing. Therefore, they cannot use that knowledge to try to extract so large a share of the profit that the project becomes infeasible. This is how Disney assembled the land it needed for Disney World. Of particular relevance to the Columbia University case, it is also how Harvard University has routinely assembled property it needed in the Boston area. Secret assembly doesn’t perfectly solve all holdout problems. But it does work quite well.

Not only does secret assembly alleviate holdout problems, it is also superior to eminent domain because it sifts out those development projects that create more value than preexisting uses of the land in question from those that do not. By contrast, the use of eminent domain often leads to the transfer of land to uses that are actually less valuable than those of the original owners, as happened in both Kelo and Poletown. If the current owners genuinely value the land more than the would-be developer does, we should actually want the holdouts to succeed. This point is well addressed in Kelly’s article.

Finally, I think that Hills also errs in suggesting that the main problem with eminent domain is that current owners don’t get enough compensation for their losses. Owners are indeed often undercompensated. Yet even perfect compensation would not eliminate the danger that unconstrained eminent domain power leads to takings that actually destroy more economic value than they create. The problem is not so much that developers “hog all of the post-assembly surplus,” as we often end up with a post-assembly loss.

UPDATE: At another time, I will comment on Hills’ and Michael Heller’s important and innovative proposal to operate eminent domain through “land assembly districts” that would give greater protection for current property owners than traditional takings. My general view is that LADs would in many places be an improvement over the status quo, but still inferior to strict enforcement of “public use” constitutional limits on takings. I intend to discuss LADs in some detail in the book on Kelo and public use that I am currently writing.

The New York Court of Appeals (which, despite the misleading name, is New York’s state supreme court), held oral arguments yesterday in Kaur v. New York Urban Development Corporation, the case in which New York City is trying to condemn a large amount of property in the Manhattanville neighborhood in order to transfer it to Columbia University. The Columbia Spectator has an interesting summary of the oral argument here.

Columbia and the government’s Urban Development Corporation are claiming that the property can be taken because it is “blighted.” However, a lower court decision recently invalidated the takings because that the studies that supposedly prove the existence of blight are flawed and may have been deliberately cooked up to justify a bogus taking.

I have been very critical of both the Columbia takings specifically (see here for the most recent post and links to earlier ones), and the more general use of broad definitions of “blight” to justify condemnation of virtually any property that might be coveted by politically influential businesses and other interest groups.
At the same time, for reasons I discussed here, I am not optimistic that the Court of Appeals will uphold the lower court’s decision.

In the recent Atlantic Yards case, the court endorsed the constitutionality of condemnations under an extremely broad definition of “blight” that would allow the taking of any property that might be “underdeveloped.” I think the Atlantic Yards decision was badly misguided. Among other things, it grossly misinterpreted the blight provision New York’s state constitution, which only allows condemnation of “substandard an insanitary” areas. Nonetheless, it is difficult to distinguish the Atlantic Yards case from Kaur. However, the Spectator’s description of the oral argument suggests that the judges were tough on both sides, which may indicate that they have some skepticism about the government’s position.

The issue of broad definitions of “blight” is not limited to New York. It undermines protection for property rights in many other states as well. Since the Supreme Court’s controversial decision in Kelo v. City of New London, some 43 states have enacted laws banning or limiting the condemnation of private property for transfer to other private individuals in order to promote “economic development.” Unfortunately, as I explained at length in this article, most of these states’ laws define blight so broadly that virtually any area can still be designated as blighted and condemned. In other words, any property that government might want to take under an “economic development” rationale can instead be taken under a blight rationale.

UPDATE: NYU lawprof Rick Hills comments on the case and the more general questions it raises here. I disagree with several of Rick’s points and will try to address them in a later post, time permitting.

Vanderbilt lawprof James Ely – a leading expert on constitutional property rights – has an interesting column on the relevance of property rights to the current Supreme Court nomination:

In seeking a replacement for retiring Supreme Court Justice John Paul Stevens, President Obama indicated that he wanted to name someone in the Stevens mold. Among the qualities of Justice Stevens that Mr. Obama hoped to find in a successor, the president noted “a keen understanding of how the law affects the daily lives of the American people.”

However, in at least one important area of constitutional law – the rights of property owners – Justice Stevens’ record fell woefully short of protecting the interests of average citizens. In fact, Justice Stevens consistently dismissed property rights claims and voted to strengthen government control over the lives of individuals….

Justice Stevens’ propensity to minimize the rights of property owners was demonstrated vividly in his opinion in the controversial case of Kelo v. City of New London (2005). At issue was a city economic redevelopment plan under which land acquired from residents through eminent domain would be transferred to private parties for the construction of new residences, stores and recreational facilities…. Pfizer Corp. helped instigate the redevelopment plan in the hope that the new facilities would benefit its planned new headquarters. The area slated for redevelopment was a middle-class neighborhood that was not blighted or dilapidated. A few of the neighbors challenged the condemnation on grounds that it was not permissible under the takings clause of the Fifth Amendment, which limits the exercise of eminent domain to “public use.” Writing for the court majority, Justice Stevens rejected this argument and upheld the taking of property for economic development purposes. He stressed heavy deference to governmental determination of what amounted to public use and was especially impressed with the notion that this taking was part of a development plan….

Because Justice Stevens barred courts from attempting to “second guess” the quality of a plan, as a practical matter, municipalities could easily prepare a plan that in reality benefited private interests. There is yet another problem with the Stevens opinion. The very purpose of the Bill of Rights is to safeguard individuals from abuses of governmental power. Broad deference to the officials it is intended to restrain is inconsistent with this purpose.

In Kelo, Justice Stevens virtually eviscerated the public use limitation of the Fifth Amendment at the federal level. Under his reading of public use, legislators appear to have almost unlimited power to take homes and businesses for economic development. The beneficiaries likely will be corporations and others with political clout…..

The framers of the Constitution and Bill of Rights believed that protection for private property was essential for self-government and individual liberty. In sharp contrast, Justice Stevens invariably manifested statist thinking about the property rights of individuals. His legacy is a testament of how far we have wandered from the constitutional vision of the framers.

Hopefully Elena Kagan, Mr. Obama’s nominee to replace Justice Stevens, holds a more balanced view of the importance of property rights in the American constitutional order. As in many other fields of law, however, Ms. Kagan’s record with respect to property rights is a blank slate. It certainly would be appropriate for senators at Ms. Kagan’s confirmation hearing to ask about her thoughts on this subject.

As I have argued previously, there is a potential for fruitful left-right alliances in this area. Many left-wing organizations and activists, including the NAACP, Rep. Maxine Waters, and Ralph Nader, vehemently opposed the Kelo decision because they correctly recognized that giving government unconstrained power to condemn property and transfer it to private parties would tend to victimize the poor, minorities, and the politically weak.

In The Audacity of Hope, President Obama wrote that “[]o]ur Constitution places the ownership of private property at the very heart of our system of liberty…. The result of this business culture has been a prosperity that’s unmatched in human history.” Unfortunately, his first Supreme Court nominee, Sonia Sotomayor, had a very poor record on property rights, as I explained in my Senate testimony at her confirmation hearings.

As Ely points out, Elena Kagan has almost no record in this field. Hopefully, her relative openness to ideas that depart from liberal orthodoxy might come into play here.

In the federal Supreme Court, property rights issues have split the justices along left-right lines over the last thirty years. But as the left-wing reaction to Kelo demonstrates, such a division is not inevitable. In some state judiciaries, liberal judges have voted to enforce tight state constitutional restrictions on eminent domain and exclusionary zoning, a point I discussed in the last part of this article.

If he is so inclined, it is not too late for President Obama to start appointing relatively pro-property rights liberals to the federal courts. Breaking the ideological logjam that has hobbled federal judicial protection of constitutional property rights would be an admirable example of change we can believe in.

UPDATE: Readers interested in this subject should check out Ely’s excellent 2005 article “Poor Relation Once More: The Supreme Court and the Vanishing Rights of Property Owners,” where he critiqued several of Justice Stevens’ important opinions in this area in more detail. Ely’s book The Guardian of Every Other Right is perhaps the best general history of constitutional property rights, and is must-reading for students of the field.

The last property owner in the condemned Atlantic Yards area of Brooklyn, New York has agreed to sell his land in order to avoid the condemnation of his property by the city government [HT: Josh Blackman]:

The last man standing in front of the Atlantic Yards bulldozer has stepped aside.

Daniel Goldstein — founder of the anti-Atlantic Yards group Develop Don’t Destroy Brooklyn and plaintiff in numerous unsuccessful suits against the $4.9 billion project — has reached an agreement with the project’s developer, Forest City Ratner, to move out of his condo on Pacific Street in Prospect Heights.

Mr. Goldstein confirmed that he would receive $3 million from Forest City. He bought his condo in 2003 for $590,000, but the state seized title to it under eminent domain last month, leaving Mr. Goldstein facing eviction. Mr. Goldstein said he would move by May 7.

He had told The Brooklyn Paper in an article published Wednesday morning that his lawyer would fight the condemnation or “get fair market value and just compensation” for the apartment, as eminent domain law requires when the state seizes property. He had said the state had previously made a lowball offer of $510,000 to him.

Goldstein may have received a higher than market value price for his land in exchange for agreeing not to speak out against the development project anymore:

According to executives who have been briefed on the negotiations, Mr. Goldstein also agreed to a highly modified form of the gag agreement that Forest City had initially imposed on those it bought out, under which he would step down as spokesman for Develop Don’t Destroy Brooklyn.

Mr. Goldstein said that he retains his right to free speech but is no longer allowed to “actively oppose the project.”

“There’s no end to the criticism and opposition to the project,” he said.

The release from Forest City was short on specifics and did not even speak Mr. Goldstein’s name.

“We are not going to discuss the details of the agreement,” Joe DePlasco, a spokesman for the developer, said in the statement.

Goldstein’s land and a great deal of other property in the area was condemned in order to transfer it to politically influential developer Bruce Ratner, under an extremely dubious rationale of alleviating “blight.” I criticized the recent New York state supreme court decision upholding the condemnation in this post; back in 2008, I commented on the federal court decision upholding the condemnation against challenges under the Takings Clause of the federal Constitution.

In my view, that federal decision was probably dictated by the Supreme Court’s 2005 decision upholding economic development takings in Kelo v. City of New London. The state decision, by contrast, was deeply flawed because it was based on a ridiculously broad definition of “blight” according to which virtually any area could be declared blighted and condemned; for reasons I explicate in my earlier post, such blight condemnations almost certainly violate the New York state constitution. Unfortunately, many other states also define “blight” just as broadly. Ultra-expansive definitions of blight have undermined the effectiveness of the majority of the many eminent domain reform statutes enacted since Kelo.

On the plus side, Goldstein’s dogged resistance to these condemnations helped focus public attention on the problem of eminent domain abuse. The state court decision upholding it is an important setback for property rights. However, many other state courts have gone the other way over the last 15 years. During that time, numerous state supreme courts have invalidated Keo-like “economic development” takings under their state constitutions – including Illinois, Michigan, Montana, Ohio, Oklahoma, and South Carolina (see this article for cites to these cases). Only the Atlantic Yards case and the Connecticut Supreme Court’s narrow 4-3 decision in Kelo itself have gone the other way.

UPDATE: Please don’t bother pointing out that the New York state supreme court is officially called the Court of Appeals. I know this, and was using the term “supreme court” as a generic term for the highest court of a jurisdiction. That way, I can avoid confusing readers who are not familiar with New York’s extremely confusing terminology.

UPDATE #2: Goldstein has issued this statement about the agreement, in which he denies agreeing to stop criticizing the Atlantic Yards takings and development project [HT: Scott Bullock]:

Contrary to press reports I have not given up my First Amendment rights or my involvement with Develop Don’t Destroy Brooklyn. (Ratner, though he tried to hide it, did require this of nearly all those who sold their homes to him years ago, and they agreed to it.) Ratner and ESDC tried very hard to force me to agree to give up those rights and the work I do with the organization I helped found. It wasn’t enough, I guess, for Ratner to decimate my neighborhood, take my home, and kick me out, they also felt they had to cut out my tongue. For nearly 3 hours of talks mediated by Judge Gerges I refused to accept any kind of gag order. I would not have taken any amount of money to do that, and I did not.

I did agree to give up my title as “DDDB spokesman”, but that’s just a title. And I did agree to remove my name from one outstanding lawsuit which remains in court despite that. Otherwise I can do and say whatever else I want, and my agreement explicitly states that I have maintained my First Amendment rights.

Nicole Gelinas has an interesting article on the expansive use of “blight condemnations” in New York. As she points out, New York courts have defined blight so broadly that virtually any area can be designated as such, and then condemned. This has created massive opportunities for abuse by politically connected interest groups who can use eminent domain to get the government to take property they covet.

Gelinas has an extensive discussion of two famous recent New York blight condemnation cases: the Atlantic Yards case, and Columbia University’s efforts to acquire property through condemnation in Manhattanville. I have written about both extensively. See here for my analysis of the Atlantic Yards decision, and here for the Columbia case. Both posts include links to earlier cases.

Unfortunately, New York is far from the only state that defines blight broadly enough to justify the condemnation of almost any area. As I discuss here and here, numerous other states have similar laws. This enables many state legislatures to pretend that they have banned Kelo-style “economic development” condemnations even as they allow them to continue under the guise of alleviating blight.

For years, the site of the property condemned in the controversial Kelo v. City of New London case has stood empty. Now however, there are recent reports that the city of New London has found a developer interested in building townhouses on the site (see here and here) [HT: my RA Eva Choi, and Michael O'Malley of the Yale University Press].

Several previous plans to develop on the condemned property have gone under. In November, the Pfizer Corporation, whose lobbying helped instigate the initial takings, announced the planned closing of its headquarters in New London. That step further reduced the likelihood that anything will be built in the area. It remains to be soon whether the townhouse development will work out better than these previous efforts. At present, it is not clear how much the new project will cost taxpayers, and a news report indicates that “[c]onstruction on the project will not occur any time soon.”

Even if the townhouses are eventually built, it is unlikely that they will generate enough development to offset the value of the numerous homes and businesses wiped out by the condemnations, the opportunity cost of having the area lie empty for years, and the over $80 million in public funds already expended on the project.

Ironically, much of the condemned area was a lower-middle class residential neighborhood before the takings, and New London’s current plan is to use the land for roughly the same purpose. The City could have “achieved” this result at far lower cost simply by leaving the neighborhood alone in the first place. Taken as a whole, the Kelo story exemplifies the ways in which “economic development” takings not only victimize property owners, but also often destroy more development than they create (see also my more extended discussion in this article, which cites figures for the costs of the Kelo takings).

UPDATE: This article from the New London newspaper The Day gives more details, and says that the townhouse plan would not actually include any of the condemned land (though it would use some former federal government-owned land that was included in the redevelopment plan that also led to the condemnations):

The Stillmans’ [the developers'] plans call for two-story townhouses with peaked roofs and small porches close to the sidewalk. Garages and parking spaces would be in the back of the housing units, which would be clustered along East and Chelsea streets.

The housing would sit on 6.5 acres that used to be part of the Naval Undersea Warfare Center and were not involved in the eminent domain takings. It is adjacent to Fort Trumbull State Park and the Coast Guard Station.

The Stillmans said they would develop most of the townhouses for a “relatively upscale rental market” and would pursue marketing analysis to fine-tune the parameters of the development.

This suggests that the land taken by eminent domain would remain unused even if the townhouses are ultimately built.

In response to popular demand, The University of Chicago Federalist Society has posted a podcast of my recent debate on Kelo and post-Kelo eminent domain reform with former U of Chicago Law School Dean Saul Levmore. Current UC Dean Michael Schill moderated. The podcast is available here. A good time was had by all, and I got some interesting new ideas for my planned book on Kelo and its aftermath. I am grateful to the UC Federalist Society for organizing this event, and to Dean Levmore and Dean Schill for their excellent participation.

I would like to briefly comment on a point Dean Levmore made that I didn’t get a chance to address at the debate. He claimed that “90 percent” of people whose property is condemned are happy about it (perhaps because they get high compensation). I would very much like to know the source for this statistic. Most studies of eminent domain compensation suggest that undercompensation is very common. For an excellent recent example, see this article by Yun-chien Chang, which finds that a majority of New York City takings involved less than fair market value compensation.

Many property owners actually value their land above the market price, which is one reason why they continued to own it in the first place instead of selling. So even fair market value compensation often won’t fully offset their losses. Studies of victims of blight and economic development takings (some of which I noted in the last part of this article) show that many of them end up far worse off than before. In that same piece, I also explained some reasons why even fully adequate compensation would not eliminate all the dangers of Kelo-style economic development takings.

Levmore is right that overcompensation is also problematic, since it might lead to people lobbying for their property to be condemned. That, however, rarely happens in the status quo, which is yet another indication that undercompensation is far more common than the reverse.

It’s possible that I misunderstood Levmore, and he simply meant to say that 90% of people whose land is condemned don’t contest the taking in court. That may well be correct. But if so, it is largely the result of the high cost of litigation and the low likelihood of winning, rather than actual satisfaction with the condemnation.

This Thursday from 12:15 to 1:30, I will be debating former University of Chicago Law School Dean Saul Levmore on Kelo v. New London and post-Kelo eminent domain reform – the biggest political backlash generated by any Supreme Court decision in many decades. Current UC Dean Michael Schill will moderate.

I am in the process of writing a book on Kelo and its aftermath, so this will be a good opportunity to present some of my ideas. It’s not every day that I get to present at at an event with this many Chicago deans taking part.

UPDATE: I previously posted the wrong links for my articles Kelo on post-Kelo reform. The mistake has been corrected.

Most commentators have interpreted the movie Avatar as having an anti-capitalist message. Libertarian economist David Henderson, however, claims that it is actually a defense of property rights. Though I must reserve judgement until I see the movie, I am skeptical that Henderson’s interpretation is either the message intended by the producers or the one most American viewers come away with. However, it’s interesting that Henderson’s interpretation is exactly how the film was perceived by many in China, where the government has forcibly expelled millions from their homes in recent years, in order to make way for various development projects [HT: one of Henderson's commenters here]:

BEIJING: The bull-dozers await at the gates. An evil corporation sends its guards, using every possible threat to move the residents from their land. But all resistance is futile. The people watch in horror, as their homes get torn down to rubble and they are forced to relocate.

This is a not-so-unfamiliar storyline in China where forced land acquisitions by influential real estate companies are rarely away from the headlines. Here, home demolitions are arguably the most controversial of social issues, and widely regarded as the biggest cause of social unrest.

This also happens to be the plotline of James Cameron’s epic blockbuster film ‘Avatar,’ which opened in China last week and has seemingly taken the country by storm.

A week on after its January 4 release, the show is set to break all records at the Chinese box-office….

[M]any film critics and bloggers have also been struck by the close resonance the film’s plotline has had for many cinema-goers here.

“China’s demolition crews must go sue Old [James] Cameron, sue him for piracy/copyright infringement!,” one blogger wrote at the website Tianya.com.

At least a dozen movie-goers The Hindu interviewed after one screening in Beijing’s Sanlitun district said they were moved by the story, particularly its close parallels to the land conflicts that are common in many of China’s cities.

The resonance was so deep that some film critics here dismissed the plot-line as “too common.” “Some Chinese movie critics think that while the movie is not bad, parts of the plot were too mundane,” the popular and controversial writer Han Han said. “I completely disagree, because brute-force eviction is unimaginable for audiences in other countries because they think that it can only happen on alien planets. Or in China.”

The film’s release here also happens to coincide with a number of high-profile demolition cases, which have recently stirred debate about land rights….

The only difference between Mr. Cameron’s film and land conflicts in China, cinema-goers said, was the plot’s denouement.

“The humans actually failed to successfully evict and demolish [the aliens]?,” one blogger wrote. “Truly embarrassing. Why didn’t they send China’s chengguan [security guards] there?”

I previously blogged about massive property rights violations in China here and here. As American cases such as Kelo v. City of New London prove, China isn’t the only country where “brute force eviction” is used to drive out homeowners and businesses for the benefit of influential interest groups. Nonetheless, the massive scale of the Chinese abuses dwarfs anything that has happened in the US. And it should also be noted that forcibly displaced Chinese generally get much less in the way of procedural rights and financial compensation than is available to their American counterparts. Today’s China is a vast improvement over the Mao era, when the government didn’t recognize any private property rights at all and slaughtered its people by the millions. But there is a long way to go before most ordinary Chinese truly have secure property rights. Though our own problems aren’t nearly as severe, we need stronger protection for property rights on this side of the Pacific Ocean as well.

George Will has written a Washington Post column on the abuse of “blight” condemnations in New York:

On Aug. 27, 1776, British forces routed George Washington’s novice army in the Battle of Brooklyn, which was fought in fields and woods where today the battle of Prospect Heights is being fought. Americans’ liberty is again under assault, but this time by overbearing American governments.

The fight involves an especially egregious example of today’s eminent domain racket. The issue is a form of government theft that the Supreme Court encouraged with its worst decision of the past decade — one that probably will be radically revised in this one.

The Atlantic Yards site, where 10 subway lines and one railway line converge, is the center of the bustling Prospect Heights neighborhood of mostly small businesses and middle-class residences. Its energy and gentrification are reasons why 22 acres of this area — the World Trade Center site is only 16 acres — are coveted by Bruce Ratner, a politically connected developer collaborating with the avaricious city and state governments.

To seize the acres for Ratner’s use, government must claim that the area — which is desirable because it is vibrant — is “blighted….”

The Constitution says that government may not take private property other than for a “public use….” In 1954, however, in a case concerning a crime- and infectious-disease-ridden section of Washington, D.C., the court expanded the notion of “public use” to include removing “blight.”

Since then, that term, untethered from serious social dangers, has become elastic in the service of avarice….

I discussed the state high court decision upholding the Atlantic Yards condemnations in this post. For my earlier analyses of the case, see here and here. Will’s column also discusses the recent court decision striking down Columbia University’s efforts to use eminent domain to acquire supposedly “blighted” property, a case I discussed here.

As I explained in the earlier posts linked above, New York jurisprudence is perhaps the most hostile to property rights in the entire country. However, the general problem of overbroad definitions of blight exists in many states. Unconstrained definitions of “blight” undermine the efficacy of many states’ post-Kelo eminent domain reform laws, which forbid “economic development” condemnations but allow the same types of takings to continue under the guise of blight alleviation, an issue I discussed in detail in this article.

It is fortunate that a columnist as prominent as Will has taken up this issue. Hopefully, his contribution will increase awareness of the problem.

The New York Court of Appeals has issued its opinion in Goldstein v. New York State Urban Development Corporation, an important property rights case. The 6-1 decision upholds the condemnation of numerous properties in Atlantic Yards project area in Brooklyn for the purpose of transferring them to powerful developer Bruce Ratner, who plans to use most of the land to build a new stadium for the New Jersey Nets and to construct “luxury” housing. This outcome is not surprising. As I explained in this post, where I predicted the result, New York courts are among the most hostile to property rights of any in the country. New York is also one of only seven states that hasn’t enacted eminent domain reform of any kind since the federal Supreme Court’s controversial 2005 decision upholding “economic development” condemnations in Kelo v. City of New London.

Significantly the Court concluded that the property in question could be condemned because it is “blighted” and blight alleviation is a “public use” recognized by the New York Constitution, thanks to a constitutional amendment allowing the condemnation of slum areas. This despite the fact that it is very far from being a slum of any kind, and much of it is actually middle or lower middle class housing. Indeed, the opinion itself notes (pg. 14) that the Atlantic Yards area “do[e]s not begin to approach in severity the dire circumstances of urban slum dwelling” that led to the enactment of the blight amendment. To get around this problem, the Court held that “blight” alleviation is not limited to “’slums’ as that term was formerly applied, and that, among other things, economic underdevelopment and stagnation are also threats to the public sufficient to make their removal cognizable as a public purpose” (pp. 15-16, quoting a 1975 decision).

Obviously, virtually any area occasionally suffers from “economic underdevelopment” or “stagnation” and therefore could potentially be condemned under this rationale. Moreover, even under this expansive definition of blight, the decision states that courts can only strike down a condemnation if “there is no room for reasonable difference of opinion as to whether an area is blighted.” With respect to any neighborhood, there is nearly always “room for reasonable difference of opinion” as to whether the area is “underdeveloped” relative to some possible alternative uses of the land in question. Defining blight this broadly and then deferring to the government’s determination of whether such “blight” actually exists effectively reads the public use restriction out of the state constitution. I highly doubt that New York state constitutional amendment allowing condemnation of “substandard and insanitary areas” (Article XVIII, Section 1 here) would have passed had it been understood to mean that virtually any area could be declared blighted and condemned. As with most other blight condemnation laws, the amendment was sold to the public as a tool for eliminating “slums” (a point the majority concedes).

Allowing government agencies to declare virtually any area “blighted” and then condemn it at will is an abdication of judicial responsibility to protect constitutional property rights. As Judge Smith points out in his dissent:

The whole point of the public use limitation is to prevent takings even when a state agency deems them desirable. To let the agency itself determine when the public use requirement is satisfied is to make the agency a judge in its own cause. I think that it is we who should perform the role of judges, and that we should do so by deciding that the proposed taking in this case is not for public use.

Unfortunately, New York is not the only state that has come to define “blight” so broadly that virtually any property could be condemned. The same pattern is evident in numerous other states, including many that claim to have banned “economic development” takings since Kelo.

The case is also significant because it is the first major state supreme court defeat for property rights on a public use issue since Kelo. Over the last 10 years, the tide had been going the other way, with more and more state high courts applying restrictive definitions of “public use” and forbidding economic development takings of the kind upheld in Kelo, including important decisions in Ohio, Oklahoma, and Michigan, among others. Hopefully, Goldstein will not be the start of a counterrevolution.

UPDATE: I addressed the earlier federal litigation on this taking in this 2008 post, where I noted that the Second Circuit’s decision upholding the condemnation under the federal Constitution was probably required by Kelo, and also discussed some of the policy flaws with the Atlantic Yards project.

UPDATE #2: I have corrected a mistake in Judge Smith’s title (which is indeed, “Judge” and not “Justice,” as I originally stated). Just as New York confusingly refers to its supreme court as the Court of Appeals, while using the term “supreme court” for its trial courts, it also denies its high court judges the title used in most other states. In addition to issuing dubious property rights decisions, New York courts also have terrible nomenclature.

Journalist Jeff Benedict is the author of an excellent book on the Kelo condemnations, that I reviewed here. In this Hartford Courant op ed, he discusses the Pfizer Corporation’s recent decision to close down its headquarters in the New London, Connecticut neighborhood where it had previously played a key role in instigating the notorious condemnations that led to the Kelo litigation:

I’m often asked if I’d consider writing a novel. My answer is always no, truth is better than fiction … and often harder to swallow.

Consider the bitter pill that Pfizer Inc. slipped New London this week. Barely a decade after constructing a $300 million research and development headquarters in the city, the pharmaceutical giant announced it was shutting down the facility. Just like that, New London will lose 1,400 jobs and become home to a gigantic, vacant office park that sprawls over a 24-acre campus.

Never mind that an entire residential neighborhood was bulldozed by New London to change the look of a 90-acre landscape around the Pfizer campus. And never mind that along the way the city used eminent domain to drive out homeowners and then fought a costly eight-year legal battle against holdouts Susette Kelo and her neighbors that went all the way to the U.S. Supreme Court….

After all the shouting, the developer ran out of money and the city has zero prospective replacements. Barren weed fields are all that exist where homes once stood.

Now that all of New London’s best-laid plans have been laid to rest, Pfizer is leaving, too. It’s tempting to suspect a connection. After all, let’s not forget that Pfizer never wanted to make its corporate home on the edge of New London’s urban Fort Trumbull neighborhood. “Pfizer wants a nice place to operate,” one well-connected Pfizer employee famously told a reporter shortly after New London officials courted the drug company. “We don’t want to be surrounded by tenements.”

What Pfizer wanted next door is what drove New London’s plan to raze buildings and replace them with a five-star hotel, a health club and spa, office space and upscale housing. At one point, Pfizer even talked about guaranteeing 50 percent occupancy at the hotel. The state did its part to sweeten the deal by kicking in close to $100 million in public money to the project, some of which was used to acquire and demolish private homes.

In the end, the Pfizer facility is the only thing that went up, although many would argue that a lot of taxpayer money went up, too — in smoke, that is. At least Pfizer employees haven’t had to look at tenements for the past 10 years. But how are those brownfields looking about now?

I have previously written about Pfizer’s withdrawal from New London and its role in the Kelo takings in this series of posts, and in a recent New York Times forum.

The New York Times Room for Debate blog has a forum on the implications of Pfizer’s decision to abandon its New London headquarters. Pfizer and its New London facility had previously played a key role in instigating the condemnations that led to the Supreme Court’s decision to uphold the use of eminent domain for “economic development” in Kelo v. City of New London. My contribution argues that Pfizer’s role in the Kelo takings and their failure to produce any actual development bolsters the case for strengthening protection for property rights. Here’s an excerpt:

Far from producing the promised “development,” the condemnation of private property in New London under Kelo damaged the local economy by destroying homes and businesses and wasting taxpayer money.

This result should not have been surprising. Government planners who undertake “economic development” condemnations have strong incentives to approve takings that benefit well-connected interest groups, even if they end up destroying more development than they create. Usually, as in Kelo, those targeted for condemnation are poor or politically weak.

I previously wrote about Pfizer’s role in the Kelo case and its recent withdrawal from New London here, here and here.

Over at the Land Use Prof Blog, property scholar Matt Festa has a good discussion of the implications of Pfizer’s decision to close down its New London headquarters for the ongoing debate over the use of eminent domain to promote economic development. As I explained in this post, the construction of this Pfizer facility was at the center of the firm’s successful efforts to lobby for the condemnations that eventually resulted in the Supreme Court’s controversial decision upholding “economic development” takings in Kelo v. City of New London.

Festa suggests that this experience, as well as other cases such as the notorious 1981 Poletown condemnations where some 4000 Detroit residents were forced out of their homes so that General Motors could build a new factory, may lead local governments to be more skeptical of economic development condemnations that depend on a single big firm for their viability:

Politicians and planners might be more cautious about hitching their redevelopment wagons to one big private entity. I’m as enticed as anyone by the idea of revitalizing a downtown/waterfront/etc. with a grand scheme that involves jobs, tax revenues, public-private partnerships, mixed-use development, walkable urbanism, transit, and the creation or enhancement of public space. But if the plan is based around promises from Pfizer, or GM, the incoming sports team, or any other single private entity or group, then the whole plan risks failure if the private actors decide to go elsewhere . . . When these plans fail to deliver, both the eminent domain power and the public fiscal resources are wasted.

I hope he is right. But I fear that this analysis may be too optimistic. The Kelo and Poletown takings occurred in large part because politically influential corporations (GM and Pfizer) lobbied for them in the first place. One of the designers of the Kelo development plan described Pfizer as the “10,000 pound gorilla” behind the taking (quoted in this article, pg 266). If the true purpose was to benefit these firms rather than promote development that benefits the general public, future “politicians and planners” might not be deterred from undertaking similar actions in the future merely because the promised long-term development could fail to materialize. To be sure, voters may eventually punish them at the polls. But, as I argued here and here, years are likely to pass before the project’s failure becomes clear. By that time, public attention is likely to have moved on to other issues, and the politicians who originally approved the taking may no longer even be in office.

It hasn’t gotten much media attention, but last week, Texas voters overwhelmingly approved Amendment 11, an eminent domain reform measure that purports to ban “economic development” takings of the kind the Supreme Court upheld in Kelo v. City of New London. Texas badly needs stronger protection for property rights, since it has a long history of eminent domain abuse, including recent examples documented by the Institute for Justice (the libertarian public interest firm that represented the property owners in Kelo) in this report.

Unfortunately, the new Texas law is one of a long series of eminent domain reforms that fall short of actually forbidding the kinds of abuses they supposedly target. The amendment does forbid the taking of property for “the primary purpose of economic development or enhancement of tax revenues.” , But it continues to permit condemnations in areas with “urban blight.” And, as I document in this article (pg. 2124), Texas is one of many states where the definition of “blight” is so broad as to include virtually any property that the government might want to condemn. Indeed, Texas’ definition counts as “blighted” any area that, due to a wide range of possible causes, creates an “economic or social liability to the municipality” where it is located. This includes any area that creates an “economic . . . liability” because of insufficient development. Furthermore, the new Amendment still allows the power of eminent domain to be wielded by private organizations if they are “granted the power of eminent domain under [state] law.”

Amendment 11 is a small improvement over Texas’ previous almost completely toothless post-Kelo reform law (which I discussed in this article, pp. 2124, 2135-37). The main positive change is that “blight” now has to be shown on a property by property basis. Previously, local governments could simply declare an entire area blighted and then condemn any property within it, even if there was nothing wrong with that particular tract. However, the impact of this improvement is likely to be minor, at best, given the ease of proving the existence of proving “blight” under Texas’ definition of the term. Amendment 11 also closes the previous law’s loophole allowing takings for “community development.” However, the broad blight exemption undercuts this improvement as well. “Community development” takings can easily be couched as “blight” takings.

Why did Amendment 11 turn out to be so ineffective? One possible explanation is that, under the Texas Constitution, a proposed amendment has to get the approval of two thirds of the state legislature before being submitted to a popular referendum. In my recent article on post-Kelo reform, I found that eminent domain laws that go through the state legislature are far less likely to impose meaningful constraints on condemnation than those that are enacted by an initiative process in which citizen groups can place propositions on the ballot directly. State legislators have strong incentives to water down eminent domain reforms so that takings that benefit influential interest groups can continue. And widespread political ignorance makes it difficult for voters to tell the difference between laws that actually ban economic development takings and those that merely pretend to do so, while allowing them to continue under a different name.

The Pfizer Corporation has announced that it will close down its headquarters in New London, Connecticut. [HT: my former student Josh Blackman, and other VC readers]. As our regular readers may recall, Pfizer played a key role in instigating the notorious condemnations that led to the Supreme Court’s decision upholding the taking of private property for “economic development” in Kelo v. City of New London. Pfizer lobbied state and local governments to undertake the condemnation so that the land could be transferred to developers who would build facilities that were expected be useful to the firm and its employees. The head of the New London Development Corporation – the quasi-governmental agency that ordered the takings – had close ties to Pfizer and was married to a Pfizer executive.

The Kelo condemnations inflicted great harm on the people who lost their homes and businesses and led to the expenditure of some $80 million in public funds. To date, however, nothing has been built on the site, and there is no prospect that anything will be in the foreseeable future. Pfizer’s decision to leave New London makes it even less likely that anything productive will be done with the condemned land anytime soon. So far, the main beneficiaries of the Kelo takings seem to be the feral cats who have settled in the area. Far from producing the “economic development,” the Kelo condemnations have actually damaged the local economy by destroying taxpaying homes and businesses and expending large amounts of public money for no return.

For reasons I discuss in much greater detail in this article, this outcome should not be surprising. State and local governments that undertake “economic development” condemnations have strong incentives to approve takings that are expected to benefit well-connected interest groups even if they destroy more development than they create.

The New York Court of Appeals – the state’s highest court -is about to consider an important property rights case, Goldstein v. New York State Urban Development Corporation. The case involves a challenge to the condemnation of large amounts of property for the purpose of transferring the land to influential developer Bruce Ratner, who plans to use most of it to build a stadium for the New Jersey Nets (which he owns), and “luxury housing.” The targeted property owners argue that these takings are not for a “public use,” as the New York state constitution requires. Certainly, the case is a fairly egregious example of the use of eminent domain power to benefit private interests. I wrote about this taking in a 2008 post addressing the federal court case in which the Second Circuit Court of Appeals upheld these condemnations under the federal Constitution (as it was required to do, given the Supreme Court’s decision in Kelo v. City of New London):

…[T]he fact that much of the condemned land is to be used to build a sports stadium raises serious red flags about the true likelihood that the general public will benefit from the condemnation. Numerous studies by economists show that public subsidies for stadium construction create no economic benefits for the general public….

Second, the court claims that the creation of “affordable housing” for the poor is one of the public benefits to be expected from the project. The project will indeed create some new housing units (in addition to the stadium). However, as the Second Circuit opinion concedes (pg. 15), almost 70% of the new housing units will be “luxury” units for the wealthy, and the remainder is mostly not guaranteed to be ever built and is still intended for the “middle class” rather than the poor. Like the stadium, the housing portion of the project seems likely to be a straight redistribution of wealth from the current residents of the area to the very wealthy Mr. Ratner and the types of wealthy people who will be able to afford to buy the luxury housing he intends to build. To say the least, it is hard to discern any genuine public benefit here.

The Second Circuit also justifies the takings on the basis that they will serve to alleviate “blight.” New York City has indeed designated much of the area condemned area as blighted. However, the validity of this designation is debatable at best (the plaintiffs pointed out that much of the land in the area is among the most valuable in Brooklyn). . . . New York is one of many states with a definition of “blight” so broad that it can encompass virtually any property. Even if the area really is “blighted,” it doesn’t necessarily follow that the current owners and residents should be expelled and their land transferred to a politically powerful developer. Cities have many other options for alleviating genuine blight that do not infringe so greatly on property rights. At the very least, there is no good reason to condemn the 50% of the project area that even the city acknowledges to be free of blight….

In this case, as in Kelo itself, the court took account of the claimed benefits to the general public, but explicitly refused to consider the massive costs (pp. 13-15). Ignoring cost is a requirement under Kelo. But it is not a good way of determining whether a planned condemnation is actually likely to serve a “public use” – even if “public use” is defined broadly to include indirect public “benefits….” Ignoring costs is a blank check for local governments to undertake condemnations that benefit politically powerful interests while imposing the costs on taxpayers and the politically weak.

Finally, the Second Circuit notes that “Ratner was the impetus behind the [condemnation] Project, i.e., that he, not a state agency, first conceived of developing Atlantic Yards, that the Ratner Group proposed the geographic boundaries of the Project, and that it was his plan for the Project that the ESDC [government agency undertaking the condemnations] eventually adopted without significant modification.” The court is probably right to conclude that this is not enough to prove that the taking was a “pretextual” one under Kelo. At the very least, however, such a pattern of events should trigger heightened judicial scrutiny of the government’s true purposes in undertaking the condemnation.

Damon Root of Reason has some more details here:

In December 2003, Bruce Ratner, a New York real estate tycoon and owner of the New Jersey Nets basketball team, announced his long-simmering plans to build a 22-acre “urban utopia” in central Brooklyn, featuring more than a dozen office and apartment towers rising as high as 60 stories, a 180-room hotel, and a fancy new basketball arena for Ratner’s Nets to call home…..

So Ratner did what most politically-connected elites do when they run into trouble: He turned to the government—including his old Columbia law school pal Gov. George Pataki—for a bailout. More specifically, Ratner partnered with the Empire State Development Corporation (ESDC), a controversial and embattled state agency with the power to bypass zoning laws and seize private property via eminent domain.

It’s a classic case of eminent domain abuse. Ratner isn’t planning to build a bridge or a road or any other legitimate public project that might permit the forceful taking of private property. He wants to build a basketball arena, sell tickets to the games (not to mention sell broadcast rights, advertising space, concessions, and merchandise), and make a big fat profit. That’s not public use, it’s private gain.

Furthermore, state officials have gone out of their way to put those profits in Ratner’s hands. Consider that when the project was officially announced in 2003 there was no mention of blight, which is the state of extreme disrepair frequently cited by the ESDC to trigger an eminent domain taking under state law. Two years later, however, Ratner and the ESDC started claiming that the neighborhood was “blighted.” Yet by that point Ratner had already acquired many of the properties he wanted (thanks to eminent domain) and left them empty, thus creating much of the unsightly neglect he now cites in support of his project.

Moreover, the ESDC report counted minor things like “weeds,” “graffiti,” and “underutilization” as evidence of blight….

New York case law is among the most hostile to property rights in the entire country, allowing the condemnation of virtually any property for any reason. For example, a 2001 state appellate court decision ruled that Times Square was blighted, allowing the condemnation of property there for the purpose of transferring it to the New York Times to build a new headquarters. New York is also one of only seven states that have enacted no eminent domain reform law whatsoever since the Supreme Court’s controversial 2005 decision upholding “economic development” condemnations in Kelo. For these reasons, I am not optimistic about the property owners’ chances in this case. However, the litigation might still do some good by focusing greater attention on eminent domain abuse in New York. Moreover, there is always the possibility that the state supreme court will change its ways, as several other state high courts have done in recent years.

The US Court of Appeals for the Second Circuit recently decided Goldstein v. Pataki, a case challenging the condemnation of homes and other property in Brooklyn for the purpose of transferring them to developer Bruce Ratner, owner of the New Jersey Nets. Ratner plans to use the land to build a new stadium for the Nets, as well as other facilities, including some 2250 new housing units.

Not surprisingly, the Second Circuit upheld the condemnations. Under Kelo v. City of New London, they had very little choice. As I discuss in great detail in this article, Kelo mandates very broad judicial deference to the government in determining whether a condemnation is a genuine “public use” under the Fifth Amendment. Any potential benefit to the general public is sufficient, even if it is greatly outweighed by the project’s cost.

The case nonetheless reveals some of the serious shortcomings of Kelo and related precedents. Goldstein v. Pataki is a correct application of Kelo; it is also an example of the sort of abuse that more robust judicial protection of property rights could prevent.

First, the fact that much of the condemned land is to be used to build a sports stadium raises serious red flags about the true likelihood that the general public will benefit from the condemnation. Numerous studies by economists show that public subsidies for stadium construction create no economic benefits for the general public (see, e.g, this book published by the liberal Brookings Institution).

Second, the court claims that the creation of “affordable housing” for the poor is one of the public benefits to be expected from the project. The project will indeed create some new housing units (in addition to the stadium). However, as the Second Circuit opinion concedes (pg. 15), almost 70% of the new housing units will be “luxury” units for the wealthy, and the remainder is mostly not guaranteed to be ever built and is still intended for the “middle class” rather than the poor. Like the stadium, the housing portion of the project seems likely to be a straight redistribution of wealth from the current residents of the area to the very wealthy Mr. Ratner and the types of wealthy people who will be able to afford to buy the luxury housing he intends to build. To say the least, it is hard to discern any genuine public benefit here.

The Second Circuit also justifies the takings on the basis that they will serve to alleviate “blight.” New York City has indeed designated much of the area condemned area as blighted. However, the validity of this designation is debatable at best (the plaintiffs pointed out that much of the land in the area is among the most valuable in Brooklyn). As I discuss in this article, New York is one of many states with a definition of “blight” so broad that it can encompass virtually any property. Even if the area really is “blighted,” it doesn’t necessarily follow that the current owners and residents should be expelled and their land transferred to a politically powerful developer. Cities have many other options for alleviating genuine blight that do not infringe so greatly on property rights. At the very least, there is no good reason to condemn the 50% of the project area that even the city acknowledges to be free of blight (see pg. 14).

In this case, as in Kelo itself, the court took account of the claimed benefits to the general public, but explicitly refused to consider the massive costs (pp. 13-15). Ignoring cost is a requirement under Kelo. But it is not a good way of determining whether a planned condemnation is actually likely to serve a “public use” – even if “public use” is defined broadly to include indirect public “benefits.” Like those in Kelo, the Goldstein takings seem highly likely to create more costs than benefits for the general public. Ignoring costs is a blank check for local governments to undertake condemnations that benefit politically powerful interests while imposing the costs on taxpayers and the politically weak.

Finally, the Second Circuit notes that “Ratner was the impetus behind the [condemnation] Project, i.e., that he, not a state agency, first conceived of developing Atlantic Yards, that the Ratner Group proposed the geographic boundaries of the Project, and that it was his plan for the Project that the ESDC [government agency undertaking the condemnations] eventually adopted without significant modification.” The court is probably right to conclude that this is not enough to prove that the taking was a “pretextual” one under Kelo. At the very least, however, such a pattern of events should trigger heightened judicial scrutiny of the government’s true purposes in undertaking the condemnation. The fact that this kind of special interest-driven project receives only the most cursory possible judicial scrutiny is one of Kelo’s many shortcomings.