Property Class Notes 1/8/04

 

We’re talking about eminent domain and in particular about a particular clause in the Fifth Amendment: “nor shall private property be taken for public use, without just compensation”.

 

Just compensation

 

Why do we have just compensation?  Here’s a guy from Poletown who is quite unhappy.  He wanted $15 million for his house as his just compensation.

 

But why give him squat?  Who drafted the Constitution?  In a sense, this is an anti-democratic provision.  It’s designed to frustrate—at least in certain circumstances—the will of the majority.  The minority have certain rights no matter how unpopular they are.

 

There is very little written and almost no debate about this provision.  It was the least discussed provision of the Bill of Rights.  Most people believe, however, that this provision was put into the Constitution to prevent radical redistributions of wealth from the large landowners to the majority.

 

It becomes sort of a wash: if a majority of the people want to take farms in Virginia and make them into public lands, they could do it but they have to pay for.  While you may shift land to money, you’re not going to have a radical redistribution of wealth, at least through this procedure.

 

Another reason for just compensation is that taking people’s property is in some sense demoralizing.  It not only makes them unhappy and seems unfair but also is demoralizing in the sense that if your property is subject to being taken without just compensation, there is little incentive to improve the property.  It would be foolish to invent a lot of money in property if it could be taken by the government at any time without compensation.

 

Public use or purpose

 

Here’s a question: why isn’t just compensation enough?  Why do we combine “just compensation” with the “public purpose” or “public use” requirement?  We may consider land unique and thus, in some sense, irreplaceable.

 

The government cannot go taking land whenever it wants, partly because there is a risk that the private property owner will be undercompensated.  So you can’t just take whatever you want, but rather it must be taken for a public use.  This may be an anti-democratic view, but we provide protections to the minority.

 

Why would an economist say that the government should pay just compensation?  Think about it in terms of the government.  What if the government didn’t have to pay compensation?  What would they do?  Wouldn’t it be in their interest to take all the land?

 

If you require the government to pay fair market value for the land, the government must make a determination that whatever the public purpose they’re seeking is worth more than the private value of the land.  For example, is building an interstate highway worth more than the cost of buying up each parcel of land in private hands?  Does the land have more value in the government’s hands than in private individuals’ hands?

 

From a social perspective, our goal is to maximize the wealth of society as a whole.  If the government is taking land and using it for less productive purposes, we have decreased the wealth of society rather than increased it.

 

Two kinds of takings

 

In Poletown, the government simply comes in and takes the property and acquires title to it.  There is no question that a “taking” has occurred and that compensation is due.

 

The other kind of taking is when the government doesn’t actually acquire title to property, but regulates the property in such a way that it has less value or no value to the owner.  Say the government came in and said “it’s unlawful to build any structure on this property”.  Thus, the land would have to be vacant, though it would still be held by a private individual.  The government can regulate property to such an extent that it’s worthless to the private owner.  This is sometimes called “inverse condemnation” or a “regulatory take”.  This is the more vexing kind of taking we’ll look at.

 

When the government starts taking title to land, the government files a lawsuit against the owner.  The reason the regulatory takes are called “inverse condemnation” is because the landowner must commence the lawsuit to argue that the government has, in effect, taken away the landowner’s property.

 

Hawaii Housing Authority et al. v. Midkiff et al.

 

Can the state of Hawaii take away land from the big landowners and sell it to their lessees?  Midkiff objects!

 

What’s the public purpose here?  It used to be that the chief owned all the land and doled it out as he saw fit.  This led to a system where very few people own a lot of land.  The government isn’t trying to redistribute wealth, but rather they’re trying to break up the land oligarchy.

 

The Court looks at the precedent of Berman.  The Court says that when the Constitution says “public use”, it doesn’t really mean public use.  If it meant “public use”, the government’s power of eminent domain would be rather severely limited.  You could build parks and highways and stuff that are open to the public.

 

But the Court says that’s not what it means.  It’s enough that the takings further a public purpose even if the land will not be made open to the public.

 

The Court says that its power of review over the lawfulness of takings is very limited.  They’re not going to step in unless the use is clearly without reasonable foundation.

 

Braunstein will argue that this is not a substantive protection, but rather a procedural protection.  The government just seems to have to come up with a reason for the taking.  If there is any plausible connection, that’s good enough.  If you’re clever, there’s “always a connection between everything”.  Braunstein thinks it’s almost entirely a procedural requirement.  The legislature must come up with a rationale, and courts won’t look behind it.  They’ll say it’s good enough.  The Court basically says that this is a legislative function rather than a judicial function.

 

It seems there’s not much left of the public use requirement: (1) it is taken to mean public purpose rather than merely public use, and (2) if the legislature just states that they’re taking property for the public safety and welfare and gives a reason, that’s enough.

 

Keep in mind that the legislature is elected.  If they act in ways that aggravate too many people, they might get bounced from office.

 

What about a situation where the purpose is to gentrify a neighborhood, in other words make a poor neighborhood into a rich neighborhood?  Take Campus Partners for example.  They took a lot of people’s property and assembled it into a large bloc so they could build a new, upscale neighborhood.  Is that a public purpose?

 

Braunstein thinks the way this started was when a student was raped and killed.  People got up in arms and they wanted to make a safer neighborhood.  Campus Partners was formed to create a new, safer developments for students and visitors.  Clearly, that’s a public purpose.  Were there easier and cheaper ways to achieve the same goal?  Obviously yes.  Does that mean that because they selected eminent domain over cheaper alternatives that there isn’t a public purpose?  No.  If the goal (here, public safety) is a legitimate one, then that’s enough.

 

Public use means public purpose and public purpose means any plausible connection to a legitimate goal of public health and welfare that the government seeks to achieve.

 

Poletown Neighborhood Council v. City of Detroit

 

How is this different from Midkiff?

 

Poletown was an ethnic neighborhood where lots of Polish immigrants lived.  It looks like a nice, middle-class neighborhood.  Now there’s a Cadillac plant there.

 

What’s the public purpose in taking Poletown to build this plant?  How is the public purpose here different than in Midkiff?  Is this a harder or an easier case, and why?  In this case, we’re transferring property from a large group of people to a single individual.  This case generated a tremendous amount of controversy at the time it was going on both among legal commentators and people in the community.

 

The Supreme Court of Michigan says we don’t need a public use, but rather just a public purpose.  What’s the public purpose?  If GM moves away, they’ll lose jobs and taxes in the city of Detroit.  Unemployment is bad and is associated with crime and so on.  Was this a wise thing to do to acquire this property for $200 million and sell it to GM for $8 million?  We don’t care.  We only care if this was rationally related to some public purpose.  Clearly we have that here.  The court is not going to look much behind at the wisdom of the rationale.

 

Don’t forget this is a Michigan court interpreting the Michigan Constitution.  Is the standard the same under the Michigan Constitution as it is under the United States Constitution in regard to the court’s role, or is there a little more teeth to the “public purpose” doctrine under the state constitution?  Braunstein says there’s a little more here, but not much.

 

The court says that there is increased scrutiny when there’s a taking that results in a transfer from one private individual to another.  There may be some slight increased protection in Michigan that would not be available if we were deciding this case under the United States Constitution.  There is greater deference to Congress than to a state legislature.

 

The question for next time is this: has the Ohio Supreme Court gone off on a tangent?  Is the Preschool decision consistent with the United States Constitution?  Braunstein thinks the cases are inconsistent and that the Ohio decision is wrong, violating the Fifth Amendment.

 

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