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Description
This Article challenges a foundational assumption about eminent domain--namely, that owners are systematically undercompensated because they receive only fair market value for their property. In fact, scholars may have overstated the undercompensation problem because they have focused on the compensation required by the Constitution, rather than on the actual mechanics of the eminent domain process. The Article examines three ways that "Takers" (i.e., nonjudicial actors in the eminent domain process) minimize undercompensation. First, Takers may avoid taking high subjective value properties. (By way of illustration, Professor Garnett discusses evidence that Chicago's freeways were rerouted in the 1950s to avoid urban Catholic churches.) Second, in addition to paying compensation for the condemned property, Takers frequently must pay additional compensation to property owners in the form of "relocation assistance." Third, Takers and property owners may voluntarily settle on above-market compensation during precondemnation negotiations. (As an example, Professor Garnett includes an empirical case study of property acquired, under the threat of eminent domain, for a manufacturing facility in Indiana.) The Article concludes by reflecting upon current efforts to reform eminent domain legislatively. Prominent legal scholars recently have proposed compensation-based reforms as an alternative to constraints on the use of eminent domain. This Article rejects that suggestion, arguing that there are two problems, unique to takings raising "public use" questions, that more money cannot solve: first, high compensation levels may undermine political resistance to questionable projects; second, private takings may generate noninstrumental harms that will persist even as compensation increases.
TABLE OF CONTENTS INTRODUCTION I. UNJUST COMPENSATION? A. Economic Losses B. Subjective Losses C. Dignitary Harms II. AVOIDING SUBJECTIVE LOSSES: CHICAGO'S EXPRESSWAY CHURCHES A. Political Rallying Points B. The Few and the Many C. The Limits of Avoidance III. LEGAL ENTITLEMENTS TO ABOVE-MARKET COMPENSATION A. Federal Relocation Assistance B. State Relocation Assistance C. Relocation-Assistance Studies IV. BARGAINING IN THE SHADOW OF THE LAW A. Precondemnation Bargaining B. Building the H2 Plant: A Bargaining Case Study V. REFORMING EMINENT DOMAIN: IS MORE MONEY THE ANSWER? A. The Uncertain Relationship between Compensation and Deterrence 1. Higher Compensation as Deterrent 2. Higher Compensation May Impede Political Resistance B. Private Takings May Generate Unique Dignitary Harms 1. Why Private Takings Are Different 2. Beyond Information Costs CONCLUSION: THE POST-REFORM POLITICAL ECONOMY OF EMINENT DOMAIN
INTRODUCTION
At least thirty-five Catholic churches line Chicago's Dan Ryan, Kennedy, and Stevenson Expressways. (1) Driving through the city, it is easy to forget that these churches once served as the spiritual and social hearts of neighborhoods now buried under fourteen lanes of concrete. When the expressways were built in the mid-1950s, over two million Catholics lived in the Archdiocese of Chicago, more than half of them in densely populated urban neighborhoods like the ones dissected by these freeways. (2) Yet, while expressway construction displaced thousands of parishioners, only five Catholic churches were destroyed. Planners assiduously avoided the Archdiocese's four hundred other churches. And, when they did not, they were made to wish that they had: in several cases, the outcry over the news that parishes were threatened by highway construction led planners to reroute the expressways. (3)
The history of Chicago's expressway churches yields insights valuable to current debates over the use of eminent domain sparked by the recent Kelo v. City of New London opinion. (4) In Kelo, a divided United States Supreme Court ruled that the public use limitation of the Fifth Amendment's Takings Clause rarely prevents the government from taking property by eminent domain and transferring it to a private beneficiary. The holding in Kelo was not unexpected: in Berman v. Parker (5) and again in Hawaii Housing Authority v. Midkiff, (6) the Court had made clear that federal judicial review of eminent domain should be extremely deferential. Nonetheless, the opinion set off a firestorm of popular outrage, prompting federal and state efforts to impose legislatively the restrictions on eminent domain that the Supreme Court rejected in Kelo. (7)
This Article takes up the recent suggestions by prominent scholars that more money is the "answer" to the public use problem. In an important amicus brief in the Kelo case, for example, Professor Thomas Merrill argued that "[a]djusting compensation awards to provide more complete indemnification would be a far more effective reform of the existing system of eminent domain than increasing federal judicial review of public use determinations." (8) This suggestion builds upon the Supreme Court's assertion that the Fifth Amendment's "just compensation" guarantee requires only that a property owner receive the fair market value of her property--i.e., "'what a willing buyer would pay in cash to a willing seller' at the time of the taking." (9) Several justices pressed the attorneys during oral argument in Kelo about whether fair market value adequately compensates owners. Justice Souter commented, for example, that "what bothered Justice Breyer I guess bothers a lot of us. And that is, is there a problem of making the homeowner or the property owner whole?" (10) The majority opinion, however, only mentioned the compensation issue in a footnote. (11)
The possibility that property owners may be undercompensated in the eminent domain process is frequently cited in the literature discussing the public use problem. (12) Some commentators--including myself--cite the potential for undercompensation as one reason that judicial policing of the boundary between "public" and "private" takings is needed. (13) Others--most recently Professors James Krier and Christopher Serkin--have explicitly suggested additional compensation as an alternative to judicial review of public use claims. (14) Most of the literature discussing the risk of undercompensation, however, ignores the important role that nonjudicial actors--"Takers," if you will--play in the eminent domain process. This Article begins to fill that gap. Understanding the role of Takers is important because judges play only a bit part in the eminent domain process. In the vast majority of cases, formal eminent domain proceedings are never commenced. (15) The universal disregard for how eminent domain works outside of the courtroom may have led previous commentators--again, including me--to overstate the undercompensation problem.
Takers operate under incentives that may minimize the risk of undercompensation: They need to avoid holdouts and the political fallout from negative publicity. They are legally obligated to bargain with property owners and are penalized financially if these negotiations fail. And they almost always are legally required to provide substantial relocation assistance to displaced owners. While the evidence presented here is incomplete, this Article represents an important first step toward understanding how Takers may affect the nature and extent of the undercompensation problem. (16)
This Article has both practical and theoretical components. Part I reviews why fair market value compensation may fail to indemnify owners fully for their losses. Parts II, III, and IV then discuss three ways in which Takers may act to minimize the risk of undercompensation. Part II discusses the possibility that Takers sometimes simply avoid taking property that has high subjective value. By way of illustration, this Part examines historical evidence that Chicago's expressway planners intentionally avoided demolishing urban Catholic churches. Part III discusses state and federal laws that require Takers to pay more than fair market value when property owners are displaced by eminent domain. The extent of these legislative guarantees has been overlooked in the legal literature, perhaps because commentators have failed to understand the extent to which "relocation assistance" requirements provide substantial compensation above the fair market value award. Part IV examines the precondemnation bargaining process. Not only are Takers legally obligated to attempt to negotiate a voluntary purchase before resorting to a formal eminent domain proceeding, but they operate under legal and financial incentives that strongly encourage them to succeed. As a result, they may offer property owners more than market value for their property in order to avoid costly eminent domain proceedings. Because the opaque and decentralized nature of the bargaining process makes data collection and analysis difficult, this Part studies one county's successful effort to purchase, without the threatened resort to eminent domain, fifty-two parcels of land for a large manufacturing facility near my home in South Bend, Indiana.
Finally, Part V uses an emerging understanding of Takers' role to ask whether--and how--eminent domain law should be changed. This question is critical because Kelo has prompted widespread legislative efforts to reform eminent domain practices. While most of the state and federal proposals under consideration would impose substantive limits on the eminent domain power, noted scholars--as discussed previously--have suggested that reforms should instead guarantee additional compensation. Learning how Takers may minimize the risk of undercompensation undercuts the theoretical foundation for both kinds of reforms. Both proponents of additional compensation and advocates for a stronger public use rule rely in part on the assumption that undercompensation is a significant problem. If, as this Article's preliminary analysis suggests, the risk of undercompensation has been overstated, perhaps the status quo is less problematic than commonly assumed. This final Part draws upon the two most notorious "economic development" takings in recent years--the destruction of Detroit's Poletown community and the redevelopment effort at issue in Kelo--to argue that a case for substantive limits can be made even if owners receive more than fair market value. Specifically, this Part explores two problems raised by takings posing public use questions that more money may not solve. First, although conventional economic analysis suggests that higher compensation levels will limit the exercise of eminent domain, the deterrence effect of higher compensation is unclear. As William Fischel has recently observed, providing above-market compensation might instead undermine effective political resistance to questionable projects. (17) Second, private takings may generate unique noninstrumental, or "dignitary," harms--resulting from the nature of the government's action rather than the value that an owner attaches to the property--that could cause the undercompensation risk to persist even as compensation levels increase.
I. UNJUST COMPENSATION?
A central difficulty with all compulsory takings, whatever their purpose, is that the constitutionally mandated measure of compensation awarded in an eminent domain action--that is, the condemned property's fair market value (18)--can fail to indemnify owners fully. As Lee Fennell has helpfully described, the losses suffered by an owner whose property is taken by eminent domain may have both a "compensated increment" (the fair market value award) and an "uncompensated increment" (the owner's losses exceeding that award). (19) The amount of--and reasons for--the "uncompensated increment" depend on each owner's unique circumstances, as outlined below.
A. Economic Losses
A fair market value award does not compensate an owner for relocation expenses, goodwill associated with a business's location, or the cost of replacing the condemned property. (20) These types of losses work to the particular detriment of small business owners: some find that they are unable to reopen after they are displaced by eminent domain, while others relocate but subsequently fail. (21) Fair market value compensation can also generate significant losses for residents, especially when they are unable to secure comparably affordable replacement housing. Residential tenants may find themselves in a particularly difficult situation because condemnation of a leasehold usually terminates a lease, rendering the remaining portion of the tenant's lease valueless. (22) During the urban renewal era, for example, Professor Frank Michelman spoke of the "violent unfairness" of tenants' forced displacements. (23) Black tenants--who were frequently targeted for displacement (24)--could find themselves in a particularly desperate situation. Continued migration from the rural South led to overcrowding in those black neighborhoods that were not demolished, and systematic housing discrimination kept white areas off-limits. (25) While most of those displaced eventually found replacement housing, many ended up paying more for living arrangements that were not appreciably better than those they had lost. (26)
Eminent domain also deprives owners of the gains from trade that a market transaction might generate. (27) Property rule protection provides complete protection against undercompensation in the normal market setting by enabling owners to hold out for their reservation price. (28) Thus, the inability to say "no" unquestionably leaves many owners worse off than if they would have been permitted to freely negotiate a purchase price. Indeed, the need to avoid holdouts strategically seeking unjust gains from trade is frequently cited as a significant justification for the use of eminent domain to assemble land for large projects, both public and private. (29)
B. Subjective Losses
Additionally, an owner may value her property more than the market price reflects. (30) Experimental economics suggests that possession alone increases an owner's valuation of her property. (31) This "endowment effect" has been demonstrated in experiments showing that individuals consistently demand more to part with an entitlement than they would be willing to pay for it in the first instance. (32) While this "offer-ask" disparity only trivially affects most markets, it is greatest for episodic events such as an eminent domain action. (33) This has led experimental economists to advocate above-market compensation whenever property is acquired through eminent domain. (34)
An owner's sentimental attachment to her property may widen the disparity between subjective value and market value. This portion of the uncompensated increment is explored most completely in the work of Margaret Radin, who has argued that certain property becomes inextricably intertwined with an owner's personhood. (35) The offer-ask dichotomy provides a partial, but incomplete, explanation for this phenomenon. Owners may identify property with important family relationships; for example, "We raised our family here." Moreover, property usually situates an owner within a community. Displacement uproots the owner, forcing her to sever important social ties. Whatever the precise metaphysics of geography and community, the subjective losses associated with such displacements undoubtedly pull the heartstrings. Intuitively, there is something palpably different about the destruction of an entire community--the whole being greater than the sum of the parts. (36)
The subjective losses imposed by geographic separation from neighbors undoubtedly increase with the cohesiveness of the affected community and the scale of the displacement. For this reason, community losses may have been the greatest tragedy of the urban renewal/expressway era. Forced displacements destroyed many close-knit urban communities and "created nothing less than a life crisis" for residents. (37) As Bernard Frieden and Lynne Sagalyn have noted, "planners had a knack for picking low-income neighborhoods where residents had deep attachments to friends, relatives, neighbors, churches, schools, and local businesses." (38) Many of these neighborhoods were ethnic Catholic enclaves, like those divided by Chicago's freeways, where social and religious lives centered around geographically based parishes. As a result, residents were rooted in their neighborhood to an extent difficult for modern sensibilities to comprehend. It is hardly surprising, therefore, that long-term studies found that many residents displaced from such neighborhoods suffered severe psychological trauma. Herbert Gans's classic study of Boston's West End found that 46% of women and 38% of men suffered "fairly severe grief" after their community was destroyed. (39) Residents of the Southwest Washington, D.C., community destroyed for the urban renewal project at issue in Berman reported suffering a similar emotional toll. (40)
C. Dignitary Harms
"There is just something about land that makes you think that when you own it, it is really, really yours." (41) Perhaps for this reason, individuals whose property is taken by eminent domain may suffer what can be broadly categorized as noninstrumental "dignitary harms" resulting from the nature of the government's action, rather than from the owner's subjective attachment to her property. Owners may feel unsettled and vulnerable when they learn that the government plans to take their property. Eminent domain obviously eviscerates the physical autonomy guaranteed by the boundaries of private property. (42) A compulsory taking deprives an owner of her "most essential right" to exclude others--including, especially, the government--from her property. (43) Expanding the scope of the takings power may increase all property owners' feelings of vulnerability. As Justice O'Connor observed in Kelo, "The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory." (44)
To the extent that property owners also may attach independent, noninstrumental significance to the economic autonomy that property guarantees, its loss also increases the uncompensated increment. (45) As discussed more completely below, the loss of economic autonomy may be particularly upsetting in the economic development context, for two related reasons. First, owners may be offended by the government's implicit suggestion that the current use of their property is less than socially optimal and that some other private owner would put it to a "better" use. Moreover, the targets of eminent domain may not share in the generated benefits that are used to justify economic development projects. The original owner does not directly recoup any of these benefits because the fair market value is calculated before those benefits accrue. She may not indirectly benefit either if her relocation removes her from the affected community. (46)
Second, property owners also may feel that the government has treated them unfairly vis-a-vis others whose property was not taken. The regulatory takings literature suggests that the need for compensation is highest when "the government's aims could have been achieved in many ways but the means chosen placed losses on an individual...." (47) Yet, every exercise of eminent domain "singles out" individual property owners to bear the cost of broader societal goals. (48) The government usually chooses from a range of policy alternatives to advance its policy goals. Moreover, when the government decides to exercise the power of eminent domain, Takers usually have total discretion to select which properties to condemn and which to spare. The knowledge that the government could have advanced its plans by taking someone else's property may leave property owners asking, "Why me?" This reality is vividly illustrated by Chicago's expressways: when planners rerouted the freeway to avoid demolishing a church, they instead destroyed homes that would have been spared according to the original plans.
II. AVOIDING SUBJECTIVE LOSSES: CHICAGO'S EXPRESSWAY CHURCHES
Academic discussions tend to assume that there are two ways to minimize the risk of undercompensation. The first solution is substantive limits on the use of eminent domain. Margaret Radin has argued, for example, that "personal"--as opposed to "fungible"--property should be entitled to special protection from condemnation. (49) And Thomas Merrill has argued that the courts should carefully scrutinize the decision to exercise the power of eminent domain when the risk of subjective loss is particularly high. (50) The second solution, which is discussed in more detail in Part III, is more money--that is, above-market compensation in appropriate circumstances. (51)
The academic commentary on eminent domain to date has completely overlooked a third possibility: Takers simply may avoid taking properties with high subjective value. They have important incentives to do so. Owners who are sentimentally attached to their properties may be more likely to resist Takers' voluntary overtures. Their strong attachment may also cause them to generate unwanted--and potentially effective--political opposition to the government's plans. The complete lack of attention to this dynamic is unsurprising, but unfortunate. It is unsurprising because the government usually owes a property owner nothing until it takes her property (52)--which is why most of the "takings" literature concentrates on discerning when a taking has occurred, rather than how much is owed once it has. (53) It is unfortunate because, as the "singling out" insight illustrates, the government's plans frequently are flexible. That is, it can pursue policy objectives by various means, and, in the eminent domain context, with different parcels of property. The following discussion uses a historical case study--the preservation of Chicago's expressway churches--to explore how Takers can exercise this flexibility to minimize subjective losses. While a complete understanding of precondemnation planning requires more comprehensive study, the story of Chicago's expressway churches provides an opportunity to reflect on how Takers' planning decisions affect the extent of the undercompensation problem.
A. Political Rallying Points
Chicago's expressways were constructed at a time when America's urban landscapes were being reshaped on a massive scale by unparalleled government intervention. City planners, municipal leaders, and federal officials alike hoped to rectify the problem of urban "blight" primarily through the wholesale destruction and reconstruction of existing neighborhoods. (54) Beginning in the 1940s, the federal urban renewal program underwrote the widespread exercise of eminent domain by local governments to condemn blighted areas and to sell the properties to private investors at bargain-basement prices. (55) Urban renewal efforts displaced hundreds of thousands of families and tens of thousands of businesses. Several hundred thousand more families were displaced during the same period to make way for the interstate highway system. (56)
Initially, Catholics--in Chicago and elsewhere--supported urban renewal, for both practical and ideological reasons. As Steven Avella has described, in Chicago the Great Depression and World War II were "glaciers freezing the urban landscape." (57) The resulting overcrowding made urban renewal projects particularly attractive to urban Catholics. (58) Not only was Catholic teaching generally sympathetic to economic intervention by the government, (59) but Church leaders predicted that renewal projects would first provide jobs, and later housing, for their flock. (60) The growing realization that urban renewal would demolish some Catholic neighborhoods and threaten others with unwanted integration, however, tempered this enthusiasm. (61) Chicago's Cardinal Stritch appointed a priest to monitor urban renewal activities and to serve as a liaison between the Church and government officials concerned with urban policy. (62)
The Catholic response to expressway construction in Chicago was more haphazard. Cardinal Stritch attempted to deal with the expressways as he had with urban renewal--by appointing Father James Doyle to oversee their construction. But Doyle was overextended, and individual parish priests and ethnic groups were left to negotiate with expressway planners to protect their parishes from the wrecking ball. (63) These negotiations were critically important to threatened religious congregations. For urban Catholics in the 1950s, parishes were more than church buildings--they were the geographic building blocks of community life. As historian John McGreevy has observed, "Catholics used the parish to map out--both physically and culturally--space within all of the northern cities." (64) Identity with the parish was so complete that when asked "Where are you from?" most Catholics would respond with their parish name rather than... |
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