When It Comes to Eminent Domain, Don’t Trust the Washington Post

Surprise, surprise! The liberal Washington Post — one of the only two major newspapers that came out editorially to praise the Supreme Court’s wretched Kelo case in 2005 — is at it again. The Kelo case, as you may recall, approved the destruction of a well-maintained, unoffending lower middle-class neighborhood, ostensibly for the purpose of replacing it with upscale shops and condos (and a five-star hotel) to serve well paid employees at the Pfizer pharmaceutical corporation’s research center in New London, Connecticut, and in the process increase the tax revenues flowing to the city. But the municipal plans proved to be humbug. After wasting over $100 million in public funds, nothing was built on the site, and it is now a trash-strewn dump.

Ah you say, but the owners got paid. Maybe they did but the Washington Post doesn’t like that either. One of the historical flaws of eminent domain law has been that the “just compensation” promised in the 5th Amendment is neither just nor compensation — as Judge Richard Posner put it in one of his recent opinions, “[defined as fair market value], just compensation is less than full compensation.” (602 F.3d at 834).  Courts have conceded that reality repeatedly.

The most egregious aspect of that legal reality is the rule under which nothing is paid for businesses that are damaged or even completely destroyed by the taking.

But Virginians decided to do something about this injustice and in tomorrow’s election there is going to be an initiative on the Virginia state ballot, to amend the state Constitution to provide compensation for business losses — now deemed “noncompensable” in eminent domain cases (but not in others) even when they are substantial and cause bankruptcy of the business located on the taken land. Second, the Virginia amendment will also make substantial impairment of access compensable — an element of compensation that is paid in eminent domain cases in other states.

But even though these economic losses are inflicted in many eminent domain takings, they have not been compensable under the Virginia Constitution. So this initiative sounds like an opportunity for the citizens of Virginia to rectify an old, festering injustice: people’s property is taken for public use but their “just” compensation is at best incomplete. It is limited to “fair market value” of only the land and buildings. They are paid not a penny for other losses proximately caused by the forcible displacement of owners from their homes and businesses.

But of course, reality and elementary economics teach that the fact that these “incidental” economic losses are ignored in eminent domain cases, does not make them go away. The cost of the public project is the same whether the owners are fully compensated for all their demonstrable economic losses, or not. The only question is who pays? In other words, if a thief steals your car, he does not thereby lower the cost of transportation — he only shifts it from himself to his victim. And so it is here. Those uncompensated losses don’t disappear when the government inflicts them but does not pay for them. They are only shifted from the government where they belong as quid pro quo for the benefit it receives from the taking, to the victimized land owner who is left uncompensated or undercompensated.

The Washington Post also asserts that no other state pays condemnees for business losses. Not true. Alaska, and Louisiana do as a matter of state constitutional law, and a number of states (including Georgia, Louisiana, Michigan and California) provide for such compensation by statute.

And adding insult to injury, many eminent domain cases are used for redevelopment, which means that property is frequently taken from one business and given — yes, given, either free or at a large discount called “land writedown” — to another business that is more favored by the government. That part is not just wrong; it stinks to high heaven. If you want to read up on that, dig up the front-page, Wall Street Journal story, Dean Starkman, Take and Give: Condemnation Is Used To Hand One Business Property of Another, Dec.2, 1998, which describes that moral disaster area.

Bottom line: Courts have repeatedly conceded that as interpreted by them, the “just compensation” called for in the Constitution is neither just nor compensation; it is only “fair market value” of the taken dirt and bricks, and is so artfully defined that when awarded by courts it is less than it would be in a private, voluntary transaction. The U.S. Supreme Court conceded that much in the Kimball Laundry case. If you want to read up on what goes on out there, check out Gideon Kanner, “Fairness and Equity,” or Judicial Bait-and-Switch?, 4 Albany Gov’t. L. Rev. 38 (2011). It demonstrates how American government, marching under the banner of “fairness and equity,” can and does engage in outright kleptocracy.

So Virginians, who led the fight for American independence, are again in a leadership position, seeking to eliminate a gross injustice from American law. Good for them. We hope they win big.