Sunday, February 04, 2007

"Just about the only people supporting eminent domain for private development are those who benefit from it: politicians, developers and planners."

Eminent domain is 'zero-sum gain'


Portsmouth NH Herald News
Copyright 2007

When the government uses eminent domain to take private property for private development projects, it "usually results in zero-sum gain and may actually hinder the area's development." That is the finding of an important new report released this month by the Federal Reserve Bank of St. Louis.

In "The Taking of Prosperity," authors Thomas Garrett and Paul Rothstein write, "(The) taking of private property from one person and giving it to another for economic development ... is unlikely to create a net benefit to society. It is more likely to create economic inefficiencies and to reduce economic growth."

Demonstrating an understanding of markets that seems well beyond that of local government officials who abuse eminent domain for private gain, the report states, "When governments interfere in the private market, whether it be a market for apples, cars or property, the likely result is greater economic inefficiency and less economic growth. The reason is that even the most well-intentioned policymaker cannot comprehend or replicate the complex interactions of buyers and sellers that occur in free markets."

"In poll after poll conducted nationwide, as well as in testimony offered in state and federal legislatures, nearly all Americans are against eminent domain for private gain," said Steven Anderson, director of the Castle Coalition, a grassroots organization that brings together property owners and activists from across the nation to fight eminent domain abuse. "Just about the only people supporting eminent domain for private development are those who benefit from it: politicians, developers and planners."

Echoing that fact, Garrett and Rothstein state in their report, "Of course, there will be certain groups that do benefit from the taking of private property, such as developers, property managers and local politicians. Developers and property managers will gain income from developing the property. Many local politicians favor targeted economic development because of what they see as the immediate benefits from development, such as increased employment and tax revenue.

"These economic benefits also translate into political benefits for those politicians who pledge to improve local economic development," Garrett and Rothstein indicated. "Not realized, however, is that the supposed immediate and tangible benefits from taking private property for economic development are outweighed by the greater economic costs of government intervention in private markets."

The rich and politically powerful overwhelmingly profit from those benefits. As Justice Sandra Day O'Connor warned in her dissent in the Kelo eminent domain case: "The beneficiaries (of eminent domain) are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms."

"What can governments do to promote economic development that yields positive economic growth?" the authors ask.

Garrett and Rothstein answer with a series of commonsense and proven public policy suggestions: "Rather than use eminent domain or other tools to target individual economic development projects, local governments should ask the fundamental question as to why the desired level of economic growth is not occurring in the local area without significant economic development incentives. For example, are taxes too high, thus creating a disincentive for business to locate to the local area? Do current regulations stifle business creation and expansion?

"All of the targeted economic development in the world will not compensate for a poor business environment," the authors write. "From a regional perspective, local governments should focus on creating a business environment conducive to risk-taking, entry and expansion rather than attempting targeted economic development through eminent domain or other means."

The authors warn, "Research has shown that without property rights, individuals will no longer face the incentive to make the best economic use of their property, be it a business or home, and economic growth will be limited. Potential residents and businesses may avoid communities that have a record of taking private property for economic development because of a greater uncertainty about losing their property to eminent domain."

The authors conclude, "Supporters of Kelo argue that using eminent domain for private development will spur economic growth. ... Economic theory certainly suggests that eminent domain used for private economic development will likely result in a zero-sum gain and may actually hinder economic development in the local areas, as well as the region, rather than help."

"Perhaps it is time for government officials to take an oath like doctors and promise to 'first, do no harm,'" said Chip Mellor, president of the Institute for Justice, which argued the Kelo eminent domain case before the U.S. Supreme Court and has been leading the way for eminent domain reform nationwide. "The Federal Reserve's report is groundbreaking. At best, the government is robbing Peter to pay Paul when it uses eminent domain for private development. At worst, this practice is actually stifling real private development - the very thing the government claims it seeks to create. This finding makes absolute sense and should be a warning sign to tax-hungry governments nationwide that consider abusing this power on behalf of land-hungry developers."

A recent example of a zero-sum taking of property from one owner only to hand it over to another (more influential) private party for his private gain occurred in Port Chester, N.Y., where that village took land owned by Bart Didden and gave it to a politically favored developer. Didden planned to construct a CVS pharmacy on the lot; the developer plans to put up a Walgreens pharmacy resulting in no new taxes for the city and only a private financial gain for the developer. Just recently, the U.S. Supreme Court refused to take up Didden's case.

So far, 34 states have adopted eminent domain reform in the wake of the Kelo decision. The U.S. Congress failed to pass federal legislation last year, but is expected to again consider the issue this session, as will other states that have not yet amended their laws.

To read the Federal Reserve Bank of St. Louis report, visit:

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