Coyote Blog

Via Cato:

The private homes that New London, Conn., took away from Suzette Kelo and her neighbors have been torn down. Their former site is a wasteland of fields of weeds, a monument to the power of eminent domain.

But now Pfizer, the drug company whose neighboring research facility had been the original cause of the homes' seizure, has just announced that it is closing up shop in New London.

To lure those jobs to New London a decade ago, the local government promised to demolish the older residential neighborhood adjacent to the land Pfizer was buying for next-to-nothing. Suzette Kelo fought the taking to the Supreme Court, and lost. Five justices found this redevelopment met the constitutional hurdle of "public use."

More Kelo coverage here.

The AntiPlanner has an update on the New London, CT development that spawned the notorious Kelo case.  In short, they tore Ms. Kelo's house down against her will, and then the whole development deal fell through.  The city now has a nice vacant lot.

The homes of Susette Kelo and her neighbors have all been torn down or removed. But, except for the remodeling of one government building into another government building, virtually no new development had taken place in the Fort Trumbull district by May, 2008.

Having spent at least $78 million on the Fort Trumbull project, the city had awarded development rights to a company named Corcoran Jennison, which planned to build a hotel, an office complex, and more than 100 upscale housing units. The developer had until November, 2007, to obtain financing.

When that deadline lapsed, it received an extension to May 29, 2008. In desperation, the developer sought an FHA loan of $11.5 million. When that didn't work and May 29 came and went, New London revoked the agreement.

I have hashed through my pain over the Supreme Court Kelo decision any number of times, including my post before the decision, after the decsion, following up on more New London antics, and following up on abuses in other locations (and here).

One of the first things I did after the decision was to write the CEO of Pfizer a letter, complaining about their role in getting the New London government to take peoples homes so their managers could have nice views of the water.  I was surprised at the time that more people, particularly those on the left who don't usually need a good excuse to bash corporations, didn't put more blame on Pfizer rather than just New London.  However, up until now, Pfizer has claimed that the redevelopment plan in New London had nothing to do with them, and they just came in later as a tenant.

Based on investigation by The Day ($), the New London paper (hat tip: Volokh), it is becoming more apparent that the Kelo takings were in fact driven mainly by specific requirements set by Pfizer, and that Pfizer was hip-deep in the redevelopment planning:

Pfizer's Fingerprints On Fort Trumbull Plan

Documents show the pharmaceutical giant was involved in the Fort Trumbull
project form its inception, even before announcing its research center would
expand into the New London neighborhood

In mid-July, as commentators and politicians around the country decried this
city's attempt to seize private homes for economic development on the Fort
Trumbull peninsula, a press release appeared on the Web site of Pfizer Inc.

The pharmaceutical company, whose $300 million research complex sits adjacent
to what remains of the neighborhood, announced that it wanted to set the record
straight on its involvement in the Fort Trumbull development project.

The project, the statement said, wasn't Pfizer's idea.

"We at Pfizer have been dismayed to see false and misleading claims appear in
the media that suggest Pfizer is somehow involved in this matter," the statement
said. The writers said the company "has no requirements nor interest in the
development of the land that is the subject of the case."

But a recent, months-long review of state records and correspondence from
1997 and 1998 "” when officials from the administration of then-Gov. John G.
Rowland were helping convince the pharmaceutical giant to build in New London "”
shows that statement is misleading, at best.

In fact, the company has been intimately involved in the project since its
inception, consulting with state and city officials about the plans for the
peninsula and helping to shape the vision of how the faded neighborhood might
eventually be transformed into a complex of high-end housing and office space,
anchored by a luxury hotel.

The records "” obtained by The Day through the state Freedom of Information
Act "” show that, at least as early as the fall of 1997, Pfizer executives and
state economic development officials were discussing the company's plans, not
just for a new research facility but for the surrounding neighborhood as
well.

And, after several requests, the state Department of Economic and Community
Development produced a document that both the state and Pfizer had at first said
did not exist: A 1997 sketch, prepared by CUH2A, Pfizer's design firm for its
new facility. Labeled as a "vision statement," it suggested various ways the
existing neighborhood and nearby vacant Navy facility could be replaced with a
"high end residential district," offices and retail businesses, expanded parking
and a marina.

Those interactions took place months before Pfizer announced that it would
build in the city, on the site of the former New London Mills linoleum factory,
and months before the New London Development Corp. announced its redevelopment
plans for the neighborhood and the former Naval Undersea Warfare Center next
door.

The paper concludes:

But in a series of recent interviews, several former high-ranking state
officials confirmed what opponents of the project have long insisted and what
the company continues to deny: The state's agreement to replace the existing
neighborhood was a condition of Pfizer's move here.

Current and former Pfizer executives, meanwhile, concede that the company
expected a major redevelopment of the area to occur and offered guidance, but
they strongly deny that they insisted on specific changes.

The town of New London, CT, is assessing nearly 5 years back rent on Susette Kelo and other property holders whose land the Supreme Court recently allowed the city to confiscate.  As it stands, if New London has its way, Kelo will not only lose her house, she will also be wiped out financially, all for the crime of owning the land where New London wanted condos and hotels.

The U.S. Supreme Court recently found that the city's original seizure of
private property was constitutional under the principal of eminent domain, and
now New London is claiming that the affected homeowners were living on city land
for the duration of the lawsuit and owe back rent. It's a new definition of
chutzpah: Confiscate land and charge back rent for the years the owners fought
confiscation.

In some cases, their debt could amount to hundreds of thousands of dollars.
Moreover, the homeowners are being offered buyouts based on the market rate as
it was in 2000...

The New London Development Corp., the semi-public organization hired by the
city to facilitate the deal, is offering residents the market rate as it was in
2000, as state law requires. That rate pales in comparison to what the units are
now worth, owing largely to the relentless housing bubble that has yet to burst.

"I can't replace what I have in this market for three times [the 2000
assessment]," says Dery, 48, who works as a home delivery sales manager for the New London Day . He soothes himself with humor:
"It's a lot like what I like to do in the stock market: buy high and sell low."

And there are more storms on the horizon. In June 2004, NLDC sent the seven
affected residents a letter indicating that after the completion of the case,
the city would expect to receive retroactive "use and occupancy" payments (also
known as "rent") from the residents.

In the letter, lawyers argued that because the takeover took place in 2000,
the residents had been living on city property for nearly five years, and would
therefore owe rent for the duration of their stay at the close of the trial. Any
money made from tenants, some residents' only form of income, would also have to be
paid to the city....

An NLDC estimate assessed Dery for $6,100 per month since the takeover, a
debt of more than $300K. One of his neighbors, case namesake Susette Kelo, who
owns a single-family house with her husband, learned she would owe in the
ballpark of 57 grand. "I'd leave here broke," says Kelo. "I wouldn't have a home
or any money to get one. I could probably get a large-size refrigerator box and
live under the bridge."

I want to barf.  Hat tip to Reason's Hit and Run.

I am weeks late finding this article, but Todd Zywicki at Volokh posts what may be the definitive economic analysis of Kelo.  He talks about not only the issue of subjective value that leaves homeowners undercompensated for the taking, but about the deceitful game local governments are playing:

Second, focusing on the holdout problem in the Kelo context is to focus on
the wrong issue. The scenario here is different from when a government wants to
build a school or post office, traditional public use purposes. Schools and post
offices have to go in a particular geographic area (that's why they are being
built), and thus strategic bargaining may be plausible because it is similar to
a bilateral monopoly situation. The small group of landowners in the relevant
area can act strategically and try to extract a high price for its sale.

In Kelo, however, there is no obvious holdout power because Pfizer could put
its building in any city in America. So its not like a neighborhood school,
road, or post office. In Kelo, the holdout power is created artificially
by the city's desire to give Pfizer a sweetheart deal to bring it to town.

So ex ante, there is no viable holdout power in this situation because
there are an infinite number of close substitute sites for the building. The
building is going to be built somewhere, the only question is what city--New
London, Hartford, Bridgeport, Boston, New York, Chicago, etc. The artificial
scarcity that says the building has to be built in New London was created by the
city's other subsidies to attract Pfizer to town (the obscenely low rent,
etc.).

So if one is truly concerned about the holdout power problem, then the
correct solution is to require the city to eliminate the artificial scarcity
that "requires" the building to be built in New London rather than some other
city, the same way that a new school would have to be built in New London. If we
allow both the subsidies and the Taking for the benefit of the private party, we
are allowing the distribution tail of what city the Pfizer headquarters will be
built to wag the efficiency dog of whether the homeowner is holding out versus
having subjective value. Instead, we want to have the parties bargain ex ante
before they finally select the city--i.e., choose the city and the plot of
land at the same time--not bargain ex post after the city is selected.
Forcing an ex ante bargain when there are still many substitutes for the
proposed site would eliminate the holdout problem and allow us to determine the
extent of parties' subjective value, because the negotiations would be conducted
against the backdrop of a competitive market, rather than a bilateral monopoly.
The bilateral monopoly is thrust upon the city in the road or post office
scenario; it is freely-chosen in the Kelo situation.

Instead, the ruling in Kelo enables the worst possible economic
outcome--it permits cities to create artificial scarcity just to get a larger
piece of a stable-sized pie (getting Pfizer to New London rather than Hartford),
while then permitting cities on the back end to take land from private
landowners who may or may not be losing subjective value and being
undercompensated in the process.

And the incentive effect of Kelo is obvious--it now enables corporations to
extract both subsidies and takings as the price for locating in city A rather
than city B.

I have written about my frustrations with local governments subsidizing business relocations here and here.

Today, on the final day of their 2006 term, the Supreme Court ruled in the Olek vs. New London case:

Washington --  The Supreme Court on Thursday ruled that
local governments may seize people's advertising space -- even
against their will -- for alternate advertisers who promote economic development or higher taxes

It
was a decision fraught with huge implications for a country with many
areas, particularly the rapidly growing urban and suburban areas,
facing countervailing pressures of government budget deficits and free speech
rights.

The 5-4 ruling represented a defeat for some Connecticut
residents whose advertisements in the local paper against recent property tax hikes were rejected by the city council in favor of ads for several pro-taxation groups.

As a result, cities have wide power to replace advertising that might favor lower taxes or oppose certain community projects with messages more in the public interest.

Local officials, not federal judges, know best in
deciding whether speech will benefit the community,
justices said.

"The city has carefully formulated an economic
development that it believes will provide appreciable benefits to the
community, including -- but by no means limited to -- new jobs and
increased tax revenue," Justice John Paul Stevens wrote for the
majority.  "We established in Kelo that local governments have broad power to seize property when that seizure serves to maximize taxation, and certainly this applies equally well to unwanted advertising that might work against maximizing tax revenues."

He was joined by Justice Anthony Kennedy, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.

At
issue was the scope of the Fifth Amendment, which allows governments to
take private property through eminent domain if the property is for "public
use."  The majority observed that using advertising space in favor, rather than against, public policy certainly qualified as "public use".

Fred Olek and several other homeowners in a
working-class neighborhood in New London, Connecticut, filed suit after
city officials announced plans to remove their newspaper advertisements opposing the upcoming ballot initiative to raise property taxes.

New London officials countered
that the tax initiative served a public purpose of boosting
economic growth that outweighed the homeowners' speech rights, even
if the area wasn't located in North Korea or Cuba.

Justice Sandra Day O'Connor, who has
been a key swing vote on many cases before the court, issued a stinging
dissent. She argued that "This makes me so mad, I could, I could... aw, forget it.  I'm retiring this year to a Pacific island anyway, so y'all are free to screw up this country as much as you want".

Justice Scalia wrote a separate dissent, making the argument that "I have no problem with government limitations on speech per se, but given the fact that 3 readers of this paper lived out of state, such powers per Raich reside with Federal and not local authorities"

Local authorities were careful to point out that Olek was fully compensated at market rates for the removed advertising.  Olek shot back that he was in no way compensated for his loss of free speech rights or participation in the democratic process.  Justices in the majority were unpersuaded by Olek's argument, however, pointing out that in Kelo, the homeowners were in no way compensated for their emotional attachment to their homes nor for their loss of the right to dispose of their property as they wished, "so there".

Update 6/23: Property rights lost 5-4.  More on Kelo decision here and here.  The arguments below are still valid, even if the SCOTUS did not agree.

As I have written before, there is a disgusting and increasingly popular trend among city governments to seize private property from one owner and give it to a developer who will build something that will generate more property taxes (e.g. seize house to build a new Home Depot).  This theory of eminent domain is being tested in arguments in front of the Supreme Court around actions of New London, CT to seize private houses and handing them over to a developer so he can build a private marina.  New London argues that it is economically depressed, and it needs to substitute some higher tax paying businesses for lower tax paying homeowners.  Dahlia Lithwick in Slate brings us this telling exchange yesterday between the Court and New London attorney Horton:

Justice Antonin Scalia asks what difference it makes that New London is depressed. What if a city acknowledged that it wasn't doing badly, but just wanted to condemn land to attract new industry? He describes Horton's position as: "You can always take from A and give to B, so long as B is richer." And O'Connor offers this concrete example: What if there's a Motel 6 but the city thinks a Ritz-Carlton will generate more taxes? Is that OK?

Yes, says Horton.

"So you can always take from A and give to B if B pays more taxes?" asks Scalia.

"If they are significantly more taxes," says Horton

"But that will always happen. Unless it's a firehouse or a school," protests Kennedy.

The Court even gave New London's attorney a bit of a lesson on how free exchange of goods requires consent of both parties:

"We're paying for it!" Horton exclaims, noting that no one is taking anything from these minorities.

"But you're taking it from someone who doesn't want to sell. She doesn't want your money," retorts Scalia.

Professor Bainbridge points out why Mr. Horton's payment will also be inadequate:

First, it fails to take into account the subjective valuations placed on the property by people whose families have lived on the land, in at least one case, for a 100 years. In other words, if the Supreme Court rules for the city, the government will be able to seize land at a price considerably below the reservation price of the owners. Second, unlike the prototypical eminent domain case, in which the land is seized to build, say, a school or road, in this case the city is using eminent domain to seize property that will then be turned over to a private developer. If this new development increases the value of the property, all of that value will be captured by the new owner, rather than the forced sellers. As a result, the city will have made itself richer (through higher taxes), and the developer richer, while leaving the forced sellers poorer in both subjective and objective senses

Read the whole thing, its depressing, all the more so since commentators seem to feel that New London will prevail.  To my eye, Mr Horton and New London look no different than Stalin-era Soviet planners.  The Economist (sub. req'd)agrees:

Put simply, cities cannot take someone's house just because they think they can make better use of it. Otherwise, argues Scott Bullock, Mrs Kelo's lawyer, you end up destroying private property rights altogether. For if the sole yardstick is economic benefit, any house can be replaced at any time by a business or shop (because they usually produce more tax revenues). Moreover, if city governments can seize private property by claiming a public benefit which they themselves determine, where do they stop? If they decide it is in the public interest to encourage locally-owned shops, what would prevent them compulsorily closing megastores, or vice versa? This is central planning.

Plenty more commentary at Professor Bainbridge (here and here), Volokh (here and here), Cafe Hayek,  and the Knowlege Problem.  The Institute for Justice is defending the property owners and is at the forefront of this fight - win or lose, they deserve props for their efforts.

Postscript:  I generally don't like the arguments I see in some blogs that go like "why aren't the ___________ [fill in  with liberal or conservative] blogs addressing such-and-such issue?"  Blogs are intensely personal, and since most of us write them as a hobby, there are always going to be issues that just don't really get us fired up.  For example, though many libertarian bloggers expend numerous electrons on gun rights, the topic is generally a yawner for me so I seldom go there.

With that said, it is interesting to speculate where the "progressives" are on this case.  When you see a story of a city making a virtue of taking from poorer people to give to rich developers, one would expect the left to go nuts.  As reason describes it (here and here and here):

... a growing number of governments are using eminent domain to circumvent the conventional real estate market. Eminent domain forces property owners to sell their property to the city while the city then turns around and sells the property to developers. Private developers can reap significant financial gains through this process. Reason finds these decisions are increasingly driven by local politics, not respect for property rights, and give well-connected property developers significant advantages over homeowners and small businesses.

Little guy vs. big guy -- where is the Left?  Well, the problem is that progressives generally support the erosion of private property rights.  They like cases that reinforce the ability of government and politicians to take, redirect, or otherwise control private property for their own goals.  In this case, I presume that they are willing to sacrifice a few little guys in Connecticut for the larger goal of increasing statism.

UPDATE:  Apparently the New London attorney ended on a note of mystery, according to SCOTUSBlog:

The moment of the day came in Kelo when the city's counsel attempted to close by saying, "I want to leave you with just four words," then his time expired. (Although he did say -- using more words, "I see my time has expired so I won't be able to tell you them.") Justice Kennedy then asked the plaintiff's lawyer on rebuttal, "You don't happen to know what the four words were?" Regrettably, he didn't.

Here is my guess for New London's last four words: "Everything belongs to us".  Of course "All your base are belong to us" would have been better, but that is seven words.

I criticized the use of eminent domain to advance private commercial interests here.  The Commons Blog has more:

On February 22, the Supreme Court will hear oral arguments in the case of Kelo v. New London, a case challenging the use of eminent domain for economic development. Those interested in Kelo may also be interested in today's conference on "Eminent Domain, Urban Renewal & The Constitution." The conference considers both the constitutional and policy aspects of eminent domain, particularly the use of eminent domain for economic development.