Property rights in a post-Kelo world

It used to be said that property rights, eminent domain, just compensation and the like were topics best left to the attorneys. There were plenty of questions over the years beginning with Oliver Wendell Holmes’ famous Pennsylvania Coal Co. v. Mahon (1922) decision which so unsatisfactorily failed to settle the debate about the difference between “regulations” and “takings.”

The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.

Then, for about 65 years, there was virtual silence about property rights until the late 1980s and early 1990s. Cases such as Nollan v. California Coastal Commission (1987), Lucas v. South Carolina Coastal Council (1992), Dolan v. City of Tigard (1994) defined what became known as “regulatory takings.” More importantly, they limited the scope of authority of the state as to what constituted a taking.

Citizens are traditionally compensated for takings by the “just compensation” clause in the Fifth Amendment of the U.S. Constitution. Regulations are not takings; their authority stems from police power originally stated in enabling legislation in the 1920s. Sometimes, however, as in the Michigan Poletown (1981) case, the debate shifted as to what constitutes “public use.”

Skip ahead to 2005.  The case of Kelo v. New London changed the debate once again. In a stunning 5-4 decision, the U.S. Supreme Court upheld the state court’s decision to permit the New London Development Corp., a private organization, to condemn Susette Kelo’s and six other families’ homes for the express purpose of “economic development.” You see, Pfizer, the pharmaceutical firm, wanted to expand its presence in Connecticut and build a $270 million global research facility. The controversy was that prior to this case, the power to take property was the exclusive right of the public and forbidden from usage by private firms.

Forget about the fact that Pfizer also negotiated an 80-percent reduction in property taxes for ten years on its existing facility. It also does not matter that in late 2009, Pfizer decided not to build the new facility after all and announced the company was moving out of New London. The important issue is: What does private property mean when one private party can use the state’s eminent domain authority to take another private citizen’s property?

The outcry by most state legislatures was loud, immediate and extensive. Forty-three states have since passed laws limiting or outlawing the use of eminent domain by private parties for economic development.  Seven states, including New York, New Jersey and Florida, however, continue to permit this practice. 

In September 2005, PAR’s Board of Directors issued the following Policy Statement in support of private property:

The Pennsylvania Association of REALTORS® recognizes that there are times when government may need to take private property for public use. Building hospitals, municipal buildings or public utilities exemplify these needs. PAR believes that government’s use of the eminent domain power should be limited and closely monitored. As the vanguard for the real estate industry in Pennsylvania, PAR will work diligently to protect an individual’s right to own and maintain property, and to appropriately limit the government’s reach and ability to take that property.

Laws were passed in Harrisburg in May 2006: Senate Bill 881 (“Property Rights Protection Act”) prohibited the use of eminent domain for “private enterprise” and narrowed the definition of “blight.” (House Bill 2054 amended the PA Eminent Domain Code with limitations.) The record shows that while the Senate bill was approved unanimously, it is limited by some exceptions for large cities. One review by a property rights citizens group in 2007 graded Pennsylvania only a B- in terms of its reaction to Kelo.

There is a new property rights case in the U.S. Supreme Court this session. Stop the Beach Renourishment v. Florida Department of Environmental Protection is a dispute between homeowners with beach-front property and the government. It seems after the renourishment program (i.e., replenishing sand on the beach due to erosion), the State of Florida now claims it owns the area between the waterfront property and the ocean. In a 5-2 decision, the Florida Supreme Court ruled for the state in its quest to protect natural resources and promote recreation areas.

The Wall Street Journal reported that in oral arguments, newly appointed Justice Sonia Sotomayer said, referring to the property owners, “None of your actual use rights, pleasure rights, or anything else has been changed.” But the more conservative justices are likely to see the issue differently.  Justice Samuel Alito is quoted as saying “Suppose that a city … wanted to attract more students who were going to the beach in Florida for spring break, and so therefore it decided to create a huge beach in front of privately owned homes.  You could have televised spring-break beach parties in front of somebody’s house.”

Watch for Justice Anthony Kennedy to be the key vote (although Justice Stevens has recused himself as a Florida property owner). If Kennedy joins the liberal wing, the lower-court ruling will stand. If he joins the conservatives, it will be a small but important victory in the post-Kelo environment.

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Tags: kelo, private, property, rights

This entry was posted on Wednesday, February 10th, 2010 at 6:00 am and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed.