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Testimony 

NTU Testifies on Eminent Domain Reform

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Statement of Paul J. Gessing, Director of Government Affairs
National Taxpayers Union
Before the Arkansas House and Senate Committees on State Agencies
and Governmental Affairs Regarding Eminent Domain Reform

Chairman Faris and distinguished Members of the Committee, thank you for holding these important hearings today. My name is Paul Gessing. I am Director of Government Affairs for the National Taxpayers Union (NTU), America's oldest and largest grassroots taxpayer organization with 350,000 members nationwide and more than 4,000 members in Arkansas.

NTU represents the interests of taxpayers before a variety of government bodies and actively lobbies Congress and State Legislatures on an array of taxpayer and free market issues. The general thrust of our work is to cut taxes and promote individual economic freedom. Toward those ends, it is our strong belief that private property rights constitute the foundation upon which all other human freedoms are based. Therefore, if a society does not protect the right of individuals to hold and maintain certain property, that society is destroying one of the most fundamental human rights. As I will explain later on in my testimony, taxpayers have a significant interest not only in maintaining individual property rights, but in protecting themselves against the often misguided and expensive plans of government officials and politically-connected developers.

I come here today to offer testimony on the subject of eminent domain in Arkansas. Specifically, I want to talk a little about the history of the issue and relate to you how the Kelo decision, which was recently handed down by the United States Supreme Court, will affect property owners in this state. I also hope to provide you with a survey of Arkansas law as it relates to eminent domain and outline a possible course of action for the Legislature, including a reasonable response that adequately protects private property from abusive eminent domain practices while allowing state and local governments to use this important tool as it was originally intended.

First, let me briefly describe the situation as it stands now. Despite the explicit prohibition against taking private property for public use without just compensation found in the Fifth Amendment to the United States Constitution, the Supreme Court's 5-4 decision in Kelo throws the door open for eminent domain as long as government officials have a "plan" and believe that there will be some economic benefit from the taking. Thus, in just over 200 years we have moved away from using eminent domain to facilitate the construction of roads and bridges (which clearly fulfill the "public use" requirement), to allowing eminent domain to pave the way for a Wal-Mart shopping center or new corporate offices. In the post-Kelo world, as long as government officials believe that tearing down a Motel 6 and giving the land to the Ritz Carlton will generate greater tax revenue, the use of eminent domain is perfectly acceptable (this example was used by Justice Sandra Day O'Connor to clarify the arguments being made by the City of New London lawyers during the Kelo hearing).

Now, before I go on about where Kelo has left us, it is important to understand exactly where we were prior to that decision. The fact is that in recent years the habit of using eminent domain to force private-to-private property transfers had become all too commonplace in many states. In New York alone between 1998 and 2002, there were 146 instances of eminent domain for private use. These takings were primarily based on precedents set by two court decisions. The first case was the U.S. Supreme Court's 1954 Berman v. Parker decision, which allowed governments to use eminent domain to seize private property in order to tear down so-called "blighted" areas.

The second decision – the one that really began the trend of eminent domain for private use – was made by the Michigan Supreme Court and is known as the Poletown decision. In this 1981 ruling, the Michigan Supreme Court allowed the city of Detroit to bulldoze an entire neighborhood, complete with more than 1,000 residences, 600 businesses, and numerous churches, in order to give the property to General Motors for an auto plant.That case set the precedent, both in Michigan and across the country, for widespread abuse of the power of eminent domain.It sent the signal that courts would not interfere, no matter how private the purpose of the taking.

Thus, according to the study "Public Power, Private Gain," which is published by the Institute for Justice, there were 10,000 properties either taken or threatened with eminent domain for private parties in the U.S. between 1998 and 2002. Prior to Kelo, State Supreme Courts from Nevada to Connecticut relied on the Poletown decision when upholding the condemnation of land for private use.

Thankfully, in Arkansas the practice of using eminent domain for private benefit has been far less common than in some of the worst offending states such as New York and Ohio. Arkansas has wisely limited its use of eminent domain to roads, private utilities, and other purposes for which it was intended. The fact that you are sitting here for this hearing in the depths of August when most Americans are lying on the beach or are otherwise indisposed on vacation, is a testament to your leadership's eagerness to tackle this important issue and to preserve individual property rights for residents of your state.

Although Arkansas homeowners and property owners should be pleased that your concern over this issue has spurred you to action, holding hearings alone is not enough to protect property owners from abusive local officials. That is because, in the Kelo decision, the Court essentially told any state or local government that they would no longer face the possibility of fighting angry property owners in state courts. Indeed, governments nationwide can now confiscate any private property they choose and give it to any other party for nearly any reason as long as a coherent argument can be made that the public will derive some minor benefit from the taking.

Unfortunately, from a taxpayer's perspective, the idea of government-directed development, especially development using the power of eminent domain, is notorious for being inefficient, politically motivated, and financially burdensome. In my paper Eminent Domain Abuse: If They Can't Tax It, They'll Just Take It, which I have distributed to you today and is also posted on my organization's website www.ntu.org, I illustrate just a few of the many cases in which redevelopment projects involving eminent domain that were originally sold by local government officials as economic boons turned into boondoggles. In the end, these projects wasted millions of taxpayer dollars in order to subsidize private businesses. In fact, by chasing away existing businesses and residents, these schemes have often left the local economies they were supposed to benefit worse off than they were before.

So, what can be done? When compared with many other states, Arkansas law is relatively protective of individual property rights. In fact, Article 2, Section 22 of the State Constitution decrees "The right of property is before and higher than any constitutional sanction; and private property shall not be taken, appropriated or damaged for public use, without just compensation therefor." This language is even clearer than the United States Constitution in protecting property from unnecessary uses of eminent domain, but there is significant room for improvement.

First, I'd recommend the General Assembly adopt strong legislation that would further explain the specific conditions under which eminent domain can and cannot be used. For this, I would direct you to the written testimony of Steven Anderson, Coordinator of the Castle Coalition, which defines the exact nature of "public uses" under eminent domain law, explicitly prohibits the use of eminent domain for the benefit of private businesses, and forbids eminent domain for the purpose of economic development.

It is also important for Arkansas Legislators to address and clarify Title 14, Subchapter 3, which deals with "blight." Although there may be some justification for governments exerting some control over areas that are genuinely blighted, I must point out that it is very difficult to define blight in a way that sufficiently deters abuse. Arkansas defines blight in Section 3, Part (A), as "an area in which the structures, buildings, or improvements, by reason of dilapidation, deterioration, age or obsolescence, inadequate provision for access, ventilation, light, air, sanitation, or open spaces, high density of population and overcrowding or the existence of conditions which endanger life or property, are detrimental to the public health, safety, morals, or welfare." This is generally straightforward, but who can objectively determine whether a particular piece of property is "overcrowded, detrimental to the public health, morals, or welfare"? There is no doubt that opinions on such matters vary from person to person and over time. I'm sure that the modern individual's opinion of ventilation, light, air, and sanitation differs significantly from that of the average person 50 or 100 years ago. I'd also challenge you as Legislators to agree what conditions define blight.

In Part (B) of the same subchapter of Arkansas law, the term "blighted area" is equally problematic. Among other provisions that are open to debate, it includes any area which, "by reason of the presence of a substantial number of substandard, slum, deteriorated or deteriorating structures, predominance of defective or inadequate street layout, faulty lot layout in relation to size, adequacy, accessibility, or usefulness, deterioration of site or other improvements, diversity of ownership, tax on special assessment delinquency exceeding the fair value of the land, defective or unusual conditions of title, or any combination of such factors, substantially impairs or arrests the sound growth of a city ... or community."

I'm sure we all have our own opinions on what each of these provisions might entail, but again the potential for far-reaching interpretation is apparent. What exactly is a "deteriorating" structure? Are not all houses in some way or another deteriorating beginning on the day they're completed? What is a "defective or inadequate street layout" and whose fault is that in the first place? Lastly, how does the diversity of ownership or lack thereof in a community impact whether a neighborhood should be considered "blighted" or not?

If you think you have a firm grip on what blight is I would urge you to study the situation that took place in Lakewood, Ohio a short time ago. Although "blight" is defined in much the same way in Ohio as it is in Arkansas, Lakewood's city leaders, who were eager to expand the tax base by replacing several older homes with ritzy condominiums, claimed that "blight" was simply "a statutory term used to describe an area and that the question is whether or not that area can be used for a higher and better use, not whether the conditions of 'blight' are really present." The mayor of the town who was also the primary supporter of the project even stated that "The term 'blight' is simply used to describe whether or not the structures generally in an area meet today's standards."

Since the city was able to set the specific standards for blight, Lakewood officials set a standard that included most of the homes in the neighborhood that they needed to bulldoze to make way for the condominium project. Thus, homes were considered blighted if they lacked at least three bedrooms, two baths, an attached two-car garage, and central air. Although most rational people would not label a house with less than three bedrooms, a two-car garage, and central air "blighted," surely you can see that in the absence of strict blight definitions some public officials might attempt to bend the law to their own will.

From the perspective of taxpayers, and having personally bought and sold property in Washington, DC, I can tell you that in my experience the primary cause of blight is not related to any of the factors outlined in this statute, rather it is the result of poor government policymaking, particularly as it relates to the location, construction, and environment in and around public housing projects. If nothing else, such difficulties at least lead one to suspect that government officials may not be as adept at defining and addressing the problems of blight as they might believe.

From a policymaking perspective, I would hope the Legislature might at least consider whether it is really capable of defining and resolving "blight" at all. If, upon further review, you decide to continue allowing the use of eminent domain for reasons of blight, it is very important that specific and measurable conditions be put in place to the greatest extent possible.

In closing, I would urge you to act quickly to address this issue. Americans across party lines are united in their opposition to the sort of takings the Supreme Court endorsed in Kelo, but in the course of a busy legislative calendar it is easy for issues not directly related to the budget process or education to be left unaddressed. Worse, although significant majorities of Legislators may be united in their desire to "do something" to address their constituents' concerns about private-to-private takings, there can be no doubt that well-heeled, politically-connected developers will be working behind the scenes to weaken and even thwart genuine reform of eminent domain laws.

I can assure you the National Taxpayers Union and our friends at the Institute for Justice look forward to working with you on this important issue.

Thank you for the opportunity to testify. At this time I would be happy to answer any questions.