“In Kind” Just Compensation
posted by Eduardo Penalver
According to the Hartford Courant, the last two of the Kelo plaintiffs recently reached agreements with the New London Development Corp. over the condemnation of their homes. According to the Courant, Susette Kelo, “agreed to have her pink cottage moved elsewhere in New London.” Pasquale Cristofaro, the other remaining holdout, “agreed to give up his home but is entitled to purchase a new one in the neighborhood at a fixed price if new homes are built.”
I think this final chapter of the Kelo case is very interesting, for a variety of reasons. First, I wonder whether much of this dispute could have been avoided had the city been willing to offer creative deals like this from the start. It’s not clear that such offers would have been fruitful without the looming threat of eminent domain, so perhaps this is just the best deal that Susette Kelo and her co-plaintiffs believed they could get under the circumstances. On the other hand, after the outpouring of public anger in reaction to the Kelo decision in the Supreme Court (fueled in no small part by a brilliant public relations campaign by Scott Bullock and the other folks at the Institute for Justice), there was fairly substantial political pressure on New London to avoid resorting to outright condemnation in this particular case. So the threat of condemnation may not have been all that salient in these negotiations. That makes me think that this may have been a deal that came fairly close to giving Kelo and the other plaintiffs much of what they were looking for from the beginning.
Which leads to my second observation. Why don’t cities use these sorts of creative, in-kind compensation schemes more often (instead of merely providing monetary compensation at market value, or even at some premium on market value)?
It seems to me that a good bit of the opposition to economic development eminent domain, particularly in its traditional, urban-renewal forms, is that it displaces entire communities and gives their residents such paltry compensation that they cannot even enjoy the benefits of whatever renewal (if any) it accomplished. (As far as I can tell, the only real novelty of the use of eminent domain in cases like Kelo v. New London is that for the first time neighborhoods occupied by white, middle class homeowners and renters are being “renewed” instead of neighborhoods occupied by poor, black homeowners and renters.)
The failure of “just compensation” to truly compensate homeowners has been the topic of a great deal of scholarly commentary. Some people, like Margaret Radin, have called for greater (property rule) protection of private homes from the power of eminent domain. Others have called for awarding above-market compensation to homeowners. Although, as Nicole Garnett notes in a recent article, homeowners appear in practice to do better under “just compensation” than scholars often assume on the basis of their reading of appellate decisions, there is still widespread sentiment that private homes are inadequately protected against government takings.
Providing residents of “renewed” communities with an option to purchase homes within the new developments for which their homes are being torn down, at a price they can afford, would seem to me to ameliorate some of these objections. In other words, instead of giving the residents monetary compensation (fair market value for their existing homes or, in the case of renters, the fair market value of their remaining lease term), why not offer them in-kind compensation in the form of new housing in the redeveloped community? Recreating homes (or communities) elsewhere, the way developers are sometimes asked to “relocate” wetlands, is another option that is rarely employed. The nonfungible nature of people’s attachments to their homes, communities, and small businesses would seem to justify thinking outside the box when it comes to devising schemes for just compensation in situations like the one in New London. I’m skeptical that courts could successfully mandate in-kind solutions like this as a matter of takings doctrine, but that doesn’t mean that local governments can’t come up with them on their own.
Perhaps these schemes are already more widely employed than I’m assuming — they obviously wouldn’t be likely to show up in reported decisions. But if I am correct in thinking that they are not used very frequently, is the reason the straightjacket of the current “just compensation” jurisprudence, with its focus on monetary compensation at fair market value? Or is it simply bureaucratic inflexibility? I doubt the just compensation standard is much of an obstacle. After all, governments could satsify that requirement by just offering residents a choice of fair market value, cash in hand, or these alterantive in-kind schemes. Because the just compensation standard is so easily satisfied, and because these in-kind schemes would likely be of greater monetary value than the cash value of the condemned properties, I’m inclined to think the real problem here, if there is one, is lack of creativity on the part of local governments. One of the real (and hopefully lasting) benefits of the public reaction to Kelo (a reaction that in some ways vindicates the reasoning of the majority in that case, with its faith in the political process to sort these questions out) was, I think, to focus public attention on the treatment of homeowners facing eminent domain and, hopefully, to encourage local officials to be more sensitive in their dealings with individuals confronted with the state’s daunting condemnation power. (Hat tip to PropertyProf)