“In Kind” Just Compensation

According to the Hartford Courant, the last two of the Kelo plaintiffs recently reached agreements with the New London Development Corp. over the condemnation of their homes. According to the Courant, Susette Kelo, “agreed to have her pink cottage moved elsewhere in New London.” Pasquale Cristofaro, the other remaining holdout, “agreed to give up his home but is entitled to purchase a new one in the neighborhood at a fixed price if new homes are built.”

I think this final chapter of the Kelo case is very interesting, for a variety of reasons. First, I wonder whether much of this dispute could have been avoided had the city been willing to offer creative deals like this from the start. It’s not clear that such offers would have been fruitful without the looming threat of eminent domain, so perhaps this is just the best deal that Susette Kelo and her co-plaintiffs believed they could get under the circumstances. On the other hand, after the outpouring of public anger in reaction to the Kelo decision in the Supreme Court (fueled in no small part by a brilliant public relations campaign by Scott Bullock and the other folks at the Institute for Justice), there was fairly substantial political pressure on New London to avoid resorting to outright condemnation in this particular case. So the threat of condemnation may not have been all that salient in these negotiations. That makes me think that this may have been a deal that came fairly close to giving Kelo and the other plaintiffs much of what they were looking for from the beginning.

Which leads to my second observation. Why don’t cities use these sorts of creative, in-kind compensation schemes more often (instead of merely providing monetary compensation at market value, or even at some premium on market value)?

It seems to me that a good bit of the opposition to economic development eminent domain, particularly in its traditional, urban-renewal forms, is that it displaces entire communities and gives their residents such paltry compensation that they cannot even enjoy the benefits of whatever renewal (if any) it accomplished. (As far as I can tell, the only real novelty of the use of eminent domain in cases like Kelo v. New London is that for the first time neighborhoods occupied by white, middle class homeowners and renters are being “renewed” instead of neighborhoods occupied by poor, black homeowners and renters.)

The failure of “just compensation” to truly compensate homeowners has been the topic of a great deal of scholarly commentary. Some people, like Margaret Radin, have called for greater (property rule) protection of private homes from the power of eminent domain. Others have called for awarding above-market compensation to homeowners. Although, as Nicole Garnett notes in a recent article, homeowners appear in practice to do better under “just compensation” than scholars often assume on the basis of their reading of appellate decisions, there is still widespread sentiment that private homes are inadequately protected against government takings.

Providing residents of “renewed” communities with an option to purchase homes within the new developments for which their homes are being torn down, at a price they can afford, would seem to me to ameliorate some of these objections. In other words, instead of giving the residents monetary compensation (fair market value for their existing homes or, in the case of renters, the fair market value of their remaining lease term), why not offer them in-kind compensation in the form of new housing in the redeveloped community? Recreating homes (or communities) elsewhere, the way developers are sometimes asked to “relocate” wetlands, is another option that is rarely employed. The nonfungible nature of people’s attachments to their homes, communities, and small businesses would seem to justify thinking outside the box when it comes to devising schemes for just compensation in situations like the one in New London. I’m skeptical that courts could successfully mandate in-kind solutions like this as a matter of takings doctrine, but that doesn’t mean that local governments can’t come up with them on their own.

Perhaps these schemes are already more widely employed than I’m assuming — they obviously wouldn’t be likely to show up in reported decisions. But if I am correct in thinking that they are not used very frequently, is the reason the straightjacket of the current “just compensation” jurisprudence, with its focus on monetary compensation at fair market value? Or is it simply bureaucratic inflexibility? I doubt the just compensation standard is much of an obstacle. After all, governments could satsify that requirement by just offering residents a choice of fair market value, cash in hand, or these alterantive in-kind schemes. Because the just compensation standard is so easily satisfied, and because these in-kind schemes would likely be of greater monetary value than the cash value of the condemned properties, I’m inclined to think the real problem here, if there is one, is lack of creativity on the part of local governments. One of the real (and hopefully lasting) benefits of the public reaction to Kelo (a reaction that in some ways vindicates the reasoning of the majority in that case, with its faith in the political process to sort these questions out) was, I think, to focus public attention on the treatment of homeowners facing eminent domain and, hopefully, to encourage local officials to be more sensitive in their dealings with individuals confronted with the state’s daunting condemnation power. (Hat tip to PropertyProf)

You may also like...

8 Responses

  1. KipEsquire says:

    I think you’ve set a new record for “just not getting it.”

    Kelo was in no way whatsoever a just compensation case. It was, wholly and exclusively, a public use case.

    Some people, like the law itself, distinguish between market value and sentimental value. Not everyone “has his price,” especially for their homes.

    And besides, suppose NLDC had been willing to pay stratospheric sums for the homes, and suppose (against all likelihood) that each and every family said yes. So now we’re talking about extracting, not property, but taxes from others to give to the Suzette Kelo’s of the world, not to mention the Pfizers. Great condemnation, if you can get it…

    Here’s a radical idea: If the property was worth so much in the first place, then how about Pfizer paying it, through private negotiation, rather than the taxpayers of New London?

    And how about the government going back to doing what it’s supposed to do: protecting property rights and abiding by the plain text of the Fifth Amendment?

  2. Eduardo Penalver says:

    Kip– You say: “Kelo was in no way whatsoever a just compensation case. It was, wholly and exclusively, a public use case.”

    No shit. Take a deep breath, and read the post again. I’m not talking about Kelo (except in the most tangential sort of way) or public use. I’m just asking why states don’t offer this sort of compensation more routinely. Sheesh.

  3. KipEsquire’s vituperation aside, Eduardo, I agree with you that many of the fairness issues that are important can be abated with creative compensation techniques. One salient fact that those condemning eminent domain for economic development seem to ignore is that the vast majority of home-owners in Kelo agreed to the buy-outs and did not join the litigation. I recently read the amicus briefs submitted in Kelo in support of Kelo’s position. It was fascinating to see how often the same heart-wrenching anecdocates were repeated. If those most opposed to the use of eminent domain for economic development purposes can only come up with a few examples of people aggrieved — is the problem as fundamental as is suggested?

  4. Eduardo Penalver says:

    Rachel — One interesting thing about those sad stories is that they often seem to have little to do with the use to which the property is put but instead with the losses imposed on property owners (i.e., just compensation). I have no doubt that tragic stories are not uncommon in large-scale condemnations, whatever the use.

    Now, to be clear, I don’t think that these tragic stories are wholly unrelated to public use questions either — I’m sure it’s even more offensive to have suffer the loss or your property (and community) when you can’t understand the public interest at issue. And limiting the power of eminent domain through a robust public use doctrine would probably just reduce the sheer numbers of involuntary displacements. But, as the residents of East Tremont can I’m sure attest, knowing that your community has been displaced for a classic public use (in their case, the Cross Bronx Expressway) instead of economic developent doesn’t make things hunky dory. I think some of these in-kind compensation schemes might help, however public use is defined.

  5. Ben Barros says:

    Lack of government flexibility and creativity may also contribute to the Measure 37 backlash (or lack thereof) we were discussing a while back. But I’d think lack of flexibility might be an even bigger problem in the case of eminent domain, where the government has great legal and procedural power to impose its will on the property owners.

  6. But, as the residents of East Tremont can I’m sure attest, knowing that your community has been displaced for a classic public use (in their case, the Cross Bronx Expressway) instead of economic developent doesn’t make things hunky dory.

    No, it doesn’t. But there’s a different reaction to the former, because one can think, “Well, they do need to build a road somewhere, and I just got unlucky.” Whereas in the New London situation, it’s just, “This private developer wants my property and is better connected politically than I am, so he gets the government to strongarm it from me.”

    The idea that a private corporation can take your home from you even if you won’t agree to sell it is a lot more upsetting to people than the government taking your land for a public use.

  7. Eduardo Penalver says:

    David, this post is not about public use (see above). It’s about just compensation. I did not say that the two issues are the same, just that inadequate compensation explains some of the offense people take at the state’s exercise of eminent domain, whatever the use to which the property is put. (How about this as a translation? Whatever you think of public use, inadequate compensation makes eminent domain even worse.) This is a pro-property rights position, so I’m not sure why you conservatives are so eager to find something to disagree with in this post.

  8. Eduardo,

    It is curious how hostile some readers have been to your discussion of how better to compensate owners in the eminent domain context. Perhaps some are antagonistic because upping the compensation renders the complaints seemingly less justified. Nicole Garnett’s recent article on SSRN includes the related argument that increased compensation decreases the incentive for politically challenging the use of eminent domain for economic development costs and therefore undercuts the likelihood of successful opposition. It seems that hard-core property rights folks are interested only in “ending it” rather than “mending it” — to borrow a phrase from another context.