The neglected political economy of eminent domain.

• Author: Garnett, Nicole Stelle

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...