The Center for Local Innovation
Eminent Domain

Recommendation

Private property should be taken only for a public use, as the term is traditionally understood, and when no reasonable alternatives exist. Compensation should be negotiated fairly with the intent to provide just compensation to property owners.

Background

Eminent domain refers to the government's power to seize private property without the owner's consent. The Fifth Amendment of the United States Constitution states "Nor shall private property be taken for public use, without just compensation."

The United States Supreme Court held in a case called Kelo v. City of New London that the government may take private property for economic development. In North Carolina, there is no express provision in the law that allows for "economic development takings," but there are state laws that can be used as an end run to achieve the same objective. In 2006, other states took significant action to protect against eminent domain abuse. In fact, seven states have already passed constitutional amendments to protect against eminent domain abuse.



Why eminent domain should rarely be used

Eminent domain is an awesome power. There really is only one way to understand the power of eminent domain and that is by putting yourself in the role of an eminent domain victim. If the government decided to take your house, how would you feel? If the government decided to seize your business, how would that impact your life?

Major impact on victims. When a house is seized, many eminent domain victims will not be able to afford to live in the same neighborhood or area. This may force them to move away from family and friends. There are intangible harms to losing a home that simply are unable to be quantified. A business that loses its property also loses business goodwill that it has earned in the community.

How eminent domain should be used

Make sure no alternatives exists. Before seizing private property, the government should attempt to identify alternative solutions. Eminent domain only should be used if no alternative solutions exist or if the costs of alternatives are unreasonable.

Negotiate in good faith. The reality is that many property owners will not have the knowledge or the resources to effectively negotiate a price for their property that is to be seized. The government also has all the leverage in any negotiation. All offers should provide just compensation from the very start of negotiations, and not be an attempt to take advantage of property owners. This good faith approach also should exist even if the threat of eminent domain is never mentioned.

Take property for a "public use" only. Private property should be taken only for what constitutes a proper public use. "Public use" has traditionally meant uses by the general public, the government, or a public utility or common carrier in serving its public function.

Do not take property directly or indirectly for economic development. There is a good reason why Americans have been outraged over the Kelo decision. It is chilling to think that a house can be seized because a private developer can make better economic use of the property. Even if property is taken in part for economic development, it is inappropriate.

Respect property rights. This, in many ways, is the bottom-line recommendation. Unfortunately, there has been a disrespect for property rights by many cities and counties. Past eminent domain abuse has been pervasive across the country, particularly when it comes to using "blight" laws to justify takings for economic development.

Avoid economic development takings because it will hurt economic development. If an investor knows that the government will seize private property in a certain area, then there is no reason for the investor to buy and to improve property in that area. As stated in a January 2007 article in "The Regional Economist" published by the Federal Reserve Bank of St. Louis: "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."

A model approach

Anaheim, California. In the 1980s, Anaheim used economic development takings as a means to rejuvenate its downtown. This effort was a failure. In 2002, Anaheim again wanted to promote the economy of its downtown and focused on an area called the "Platinum Triangle." The city leadership understood that there could be economic development without the need to sacrifice the property rights of its citizens. As a result, economic development takings were prohibited.

Anaheim simplified permitting and the environmental impact report process for developers. The city reduced regulations that hindered development. For example, Anaheim generally did not dictate how much development had to be commercial or residential.

The city's new free-market plan has been an incredible success. Ironically, the city has been so successful that critics now are concerned the Platinum Triangle's property values, which have skyrocketed, are too high for some people.

The California Chapter of the American Planning Association honored Anaheim with the Planning Implementation Award from for its land-use plan. Anaheim also has received national recognition for its efforts. Stephen Greenhut, a columnist for the Orange County Register wrote in The Wall Street Journal: "By decentralizing bureaucracies and loosening cosseted government regulation, [Anaheim] has confirmed the vitality and audacity of private enterprise. The city has made itself a laboratory for free-market thought."

Analyst: Daren Bakst, J.D., LL.M.
Legal and Regulatory Policy Analyst
919-828-3876 • [email protected]

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