Politics

Domain Poisoning

How states and localities lost ground after their Supreme Court win on eminent domain--a tool they can use to turn around dying or dangerous neighborhoods.
by | July 2007
 

For Bonnie Pannell, eminent domain was a last resort. As a city council member in Sacramento, Pannell had been struggling to clean up Franklin Villa, the city's most crime-infested neighborhood. The housing complex was made up of low-slung four-plexes built as senior housing in the 1960s, but the rental units had gradually been taken over by absentee landlords. Over time, they fell into decline and the neighborhood degenerated into a dangerous den of gangs and drugs. There were so many shootings that pizza shops and the local newspaper refused to deliver there.

Pannell managed to get more police to patrol the neighborhood and an armed checkpoint installed at the entrance. She solicited the development's five homeowner associations for help, but their boards were fractured and ineffectual. To make Franklin Villa a livable place again, Pannell believed that the city needed to gain greater control over its management. To that end, she urged the city housing agency to buy up units in the development whenever they became available, a strategy that evolved into an aggressive plan to acquire 464 units-- about half of the housing--in the heart of Franklin Villa. Most of the 200 or so owners sold willingly, but the city had to invoke its powers of eminent domain to "take" about 50 of the units. The owners were paid what a jury decided was just compensation.

The city turned the properties over to a nonprofit corporation, which rehabbed the units, installed security cameras and removed alleys, carports and other havens where criminals lurked. The nonprofit also hired a private firm to manage the rentals and do the sort of tenant screening that individual landlords had neglected to do on their own. Franklin Villa, renamed Phoenix Park when it reopened last year, is still a place where Sacramento's poorest people live. But the number of police calls in the neighborhood has declined by half, and the community is coming back to life. "Drive by now and there are kids playing outside," Pannell says with satisfaction. "They don't have to stay inside hiding in the bathtub from gunshots."

If the story of how Sacramento used eminent domain to revitalize a desperate neighborhood sounds unusual, it isn't. Lots of cities have seized property in order to create affordable housing or to revitalize declining neighborhoods. But most of the eminent-domain stories that have been making the news of late are tales that add up to a stinging indictment of takings.

That narrative--told simply, powerfully and repeatedly by well- organized property-rights advocates--is that City Hall pols and bureaucrats are quick to bulldoze the humble homes of ordinary citizens and give their land to influential commercial interests that then go on development sprees to enrich their own pockets. What's more, the story goes, this kind of eminent domain abuse is so rampant that every American should be afraid that his or her home is next on the takings list.

To be sure, some of the scare scenarios have come true--and they've been well covered in the press. What aren't well covered, however, are the many cases where local governments use eminent domain in ways that make it hard to tell David from Goliath. "When you hear stories about eminent domain, it's always about somebody's home," says John Shirey, executive director of the California Redevelopment Association. "It's never instances where we're dealing with slumlords and industrial polluters. You don't see those stories on Fox News."

The current backlash against eminent domain stems directly from Kelo v. New London, the controversial U.S. Supreme Court decision that was handed down a year ago. Local governments won that case: The court upheld a Connecticut city's right to take land for economic development purposes, as distinct from more traditional public uses such as highways or schools. Yet local governments have been losing in the court of public opinion to the point where the U.S. Congress and legislatures in nearly every state have taken up bills that would strip those powers away. The proposals don't stop with outlawing the kinds of controversial cases dominating the media coverage. Many would also prevent cities such as Sacramento from repeating the success of Franklin Villa.

The stakes may be even higher than that. In several states, property- rights advocates are linking a more radical agenda to the current outcry against eminent domain. They want governments to compensate landowners for "regulatory takings"--that is, for example, when environmental rules or zoning decisions decrease the value of someone's land. The language is similar to a controversial measure Oregon passed two years ago along these lines. If passed by other states where such initiatives are being proposed, they would make some tools local governments lean on for growth management too expensive to use. None of this has anything to do with the Kelo case, but voters in California and at least six other states may nevertheless see initiatives this November that tie the two issues together.

Given the twists and turns of the past year, California's Shirey now finds himself wishing that local governments had never won the Kelo case. If the Supreme Court decision had gone the other way, he suggests, it would have been a one- or two-day media story. "It would have been reported as, 'The Supreme Court today voted to protect homeowners,' and that would've become dull very quickly," he says. But the decision went the other way and that has opened up the opportunity for the story to be told in very emotionally stirring ways and those tellings have not died down--a year after Kelo. "We'd be better off," Shirey says, "if we lost the case and the opinion had been limited to Connecticut."

A CAMPAIGN IS BORN

The Kelo case came out of New London, Connecticut, where the city had seized 15 private properties, including the home of Susette Kelo, in an effort to assemble land for a mixed-use waterfront development. By a 5-to-4 vote, the Supreme Court said that New London had the right to do this. Justice John Paul Stevens, writing for the majority, cited precedents in case law going back 50 years. "Promoting economic development is a traditional and long-accepted function of government," he wrote.

Most groups representing local governments, along with many legal experts, believe that the Kelo decision merely validated a power local governments have long exercised. "When everyone woke up the day after that decision," says Jason Jordan, who's been following the issue for the American Planning Association, "local governments didn't have one new power as a result."

If anything, the decision may have added a few additional rules and suggestions. For example, Justice Stevens stressed the importance of comprehensive planning and meaningful community input, noting that eminent domain is not a power to be used rashly. Stevens also said that states could impose tighter restrictions on eminent domain if they wished.

Stevens' measured words were not the message most Americans heard. Instead, it was Justice Sandra Day O'Connor's passionate dissent that made headlines and set the tone for dozens of editorial cartoonists. "The specter of condemnation hangs over all property," she said. "Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall or any farm with a factory."

Scott Bullock, the lawyer who argued Susette Kelo's case before the court, immediately saw that O'Connor had handed him a gift. Bullock works for the Institute for Justice, an Arlington, Virginia-based public-interest law firm with a libertarian bent. The Institute had been quietly crusading against economic development takings for about a decade, typically by taking on pro bono clients who, like Susette Kelo, put a human face on a complex legal issue. But the cause had never gained much national traction. That changed immediately when the court issued its opinion last June 23. "I read the dissenting opinions and saw the reaction to the decision across the political spectrum," Bullock recalls. "And I realized that there's a real opportunity here to take what was a terrible decision and turn it into something that was very positive for property owners."

Exactly six days after the court's ruling, Bullock announced that the Institute for Justice would spend $3 million--nearly half of its annual budget--on a campaign to overturn Kelo state by state. The drive would be carried out by the Castle Coalition, the Institute's political arm that takes its name from the adage that a man's home is his castle.

The "Hands Off My Home" campaign--equal parts public relations, grassroots organizing and legislative lobbying--has been very effective at finding local partners and sustaining the public's post- Kelo outrage. In Minnesota, for example, Castle teamed with the state car dealers' association this spring to erect 150 billboards in the Minneapolis-St. Paul area showing a silhouetted man raising his arm to halt a bulldozer. And, taking a page from the playbook of Grover Norquist, the anti-tax crusader who asked public officials to take a pledge not to raise taxes, the Coalition asked governors, state legislators and city officials to sign pledges not to use eminent domain for economic development.

The Institute characterizes any economic development taking as a case of "abuse," regardless of the merits of individual cases--or the Supreme Court's legal blessing. The spin has infused media coverage with the sense that eminent domain is a monstrous government power that is raging out of control. Most polling since Kelo puts public support for limiting eminent domain in the 80 to 90 percent range.

ON THE DEFENSIVE

At every stage of the post-Kelo public relations battle, local officials have found themselves outmaneuvered. They pointed to eminent domain success stories such as Baltimore's Inner Harbor, where the city turned a decayed neighborhood into a productive tourism and retail business center. But property-rights advocates were able to take that example and turn it on end by describing the Inner Harbor as an outdoor shopping mall overrun with national chains, further proof that eminent domain benefits powerful interests.

"The message that you have safeguards in a robust and transparent planning process is a hard one to make," says the APA's Jordan. "Our side lacked the kind of compelling human face behind the story."

That's what Sacramento's Pannell and any resident who witnessed Franklin Villa's transformation to Phoenix Park offers. If the Institute for Justice argues that cities abuse eminent domain with abandon, Sacramento's example suggests otherwise. It was used, Pannell says, when there was "no other recourse to make change."

Franklin Villa's metamorphosis also indicates that eminent domain cases often land in a gray area somewhere between a "pure" public taking of land for a highway and the projects where the land ends up in the hands of big business. It may well sound questionable for a government to take a Motel 6 and give it to Ritz-Carlton, as Justice O'Connor wrote, but is it egregious to condemn a slumlord's unkempt condo and give it to a nonprofit low-income housing developer?

Sacramento officials believe that it would be impossible to repeat the success of Franklin Villa under proposed initiatives and legislation that would disallow handing condemned land over to private parties. That's because they pulled off the redevelopment using a complicated public-private partnership. After exercising its condemnation powers, the city turned the properties over to a nonprofit corporation it formed that operates as a legally separate entity. The nonprofit scraped together $84 million by pooling city, state and federal funds, selling tax credits to private investors and leveraging a few big bank loans. Such is the complex calculus of low- income housing deals today: Cities don't have funds to build and own public housing in a purely public sense anymore, and banks won't lend unless the cities take on the risk. So, a hybrid model has evolved.

"The nonprofit owns and operates these properties as affordable housing," says Anne Moore, executive director of the Sacramento Housing and Redevelopment Agency. That would not be allowed, she notes, under many of the eminent domain-limiting bills proposed in the legislature or the initiative planned for November's ballot.

Tim Sandefur, a lawyer with the Pacific Legal Foundation in Sacramento, doesn't have much sympathy for her argument. Sandefur, along with the Castle Coalition and other property-rights advocates in California, has been pushing lawmakers to limit eminent domain to traditional public uses only. "They come up with examples that pull on the heart strings," Sandefur says. "Either way, the answer is the same: Government has no legitimate authority to take property from people who earn it and give it to those who don't. Whether the people who receive it are nice or not, it's a violation of people's property rights."

So far, the California legislature has held off on passing any eminent-domain legislation. That's not been true in at least 18 states this year, where lawmakers have responded to Kelo in a variety of ways. Several, such as Idaho and South Dakota, passed broad prohibitions on transferring condemned property to private parties or using it to boost tax revenues. Georgia, Indiana and Wisconsin tightened the definition of "blight" in order to limit the circumstances under which takings can happen. A number of states have tweaked procedural issues. Georgia and Utah required elected officials--not appointed redevelopment boards--to make takings decisions. Indiana, Kansas and Missouri bumped up the amount of compensation that people are entitled to when their property is condemned.

Scott Bullock, of the Institute for Justice, is pleased with some of what he's seen in the states, particularly the flat-out bans of the sort passed in Idaho and South Dakota. But he says local governments have been more successful than advertised at watering down the Institute's reform efforts. They have, he suggests, an advantage "in their political clout and their knowledge of working the legislative process."

The next battleground in a number of states is the ballot box. Californians are likely to see an initiative that goes well beyond Kelo by linking the eminent-domain cause with regulatory takings language. That measure is juiced with out-of-state money and, barring a technical disqualification, should soon be certified for the November ballot.

Similar initiatives are now circulating in Arizona, Idaho, Missouri, Montana, Nevada and Oklahoma. Logistical support and some funding for these efforts is coming from Americans for Limited Government, an Illinois-based group that is also pushing TABOR initiatives--tax and spending limits--in several states. Much of the seed financing has come from Howard Rich, a New York developer whose last foray into state politics was to promote term limits. According to campaign finance records, Rich's Fund for Democracy gave at least $1.5 million to the California petition drive, $295,000 to the drive in Missouri and $25,000 in Arizona. "I've long been an advocate of property rights," Rich says. "I own real estate, and I thought this Kelo v. New London decision was the worst decision I've seen in my life."

What does a regulatory taking have to do with Kelo? Rich answers only that "regulatory takings are about as popular as the Kelo fix." He goes on to say, "When someone owns property and some local bureaucrat lowers the value of that property, there's something wrong with that in the American system and it needs to stop."

If Rich and others hope the Kelo backlash will help them advance a broader property-rights agenda, it wouldn't be the first time they've tried to use Kelo that way. In the heat of the eminent-domain debate, regulatory takings bills passed one of the legislative chambers of South Carolina and Wisconsin. In Minnesota, waste haulers attached "inverse condemnation" language to the house's eminent-domain bill, which would have required municipalities to compensate them if they do their own garbage collection. Tim Dowling, a lawyer with the Washington-based Community Rights Counsel, says, "Kelo is being used as a Trojan horse for a lot of unsavory proposals."

The gambit could backfire. The sort of regulations property-rights advocates are targeting, such as downzoning, are also some of the basic tools communities use to control sprawl and preserve open space. Voters across the political spectrum are angry about Kelo, but are they willing to throw growth controls in the waste bin, too? Loraine Wallace Rowe, an organizer for a California initiative drive that focused solely on the Kelo issue and didn't make the ballot, doesn't think so. "There's a lot of Democrats and others," she says, "who feel that those regulations are important for quality of life."

California's John Shirey is more direct. "It's an over-the-top reaction to the Kelo decision," he says, "and an effort by people to take advantage of the public's furor in order to get things they would never get during normal times or through a considered legislative process."

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