Government and Transportation, Distribution & Logistics

EYE ON THE PIE: Court decision opens barrel of worms

July 4, 2005

The U.S. Supreme Court has now ruled again that the public good supersedes conventional private property rights. Some critics have argued that this is something new. It is not, but this decision is a major extension of existing government powers.

The case in question, if you missed it, involves seven homeowners in New London, Conn., who refused to move so their land can be part of an urban redevelopment effort. The city wants to transfer the properties to private firms that would build new shopping, offices and residential structures.

The older structures are not blighted. It is simply a matter of the city trying to rejuvenate an area and those houses stand in the way. The new project, which covers an area much greater than just these seven being contested, would add considerably to the city's tax revenue.

Newspaper and TV coverage of this story has focused on the beleaguered "little guy" beset by greedy, overbearing government. One can always find stories about the "little old man" or the "poor old lady" displaced by property improvement. Sentimentality is a favorite approach for fuzzy reporting. "The best interests of the citizenry" is a concept too abstract for TV anchors and many print reporters.

Eminent domain, the power of government to buy private property that will be used for the public good, has always been a contentious issue. It has been used to build railroad, highway, pipeline and utility rights-of-way. It is often opposed by those who are displaced or inconvenienced.

In Indiana, some of the opposition to Interstate 69 is of this sort. Some landowners do not want their property bought by the state because it would cut their property in two. Others, with their homes or businesses lying along the route, will be displaced.

These are real sacrifices, not to be ignored or diminished. Yet they must be weighed against the public interest in improved safe and efficient transportation. How does one evaluate the benefits for one group against the costs to another?

This is the dilemma of public policy. In any community, state or nation, there is a diversity of ambition, of aspiration, of preferences. To balance these positions, we have chosen to entrust decision-making powers in democratically elected governments operating under the rule of law.

Private property is a privilege conferred by the government. The use of private property is not unrestricted. When democratically elected governments determine that there are other uses of certain properties, they have the right to buy those properties and use them for the public good. But what constraints should be applied to governments?

The opposition in the New London case was based on the idea that the land was to be transferred from one group of private owners to other private owners. Hence, the land was not being taken for "public" use. The Supreme Court decided that "public" use involved a broad-rather than a narrow-definition. Here, being able to derive greater taxes from the particular properties was deemed "in the public interest."

This is a ground-breaking decision with potentially dangerous implications. It establishes an economic principle for the use of land. When private landowners are not employing their resources to best advantage, as measured by the taxes the land will generate, the government may divert the land to others who will increase that value.

Thus, in the extreme case, if you or I were to allow our property to deteriorate, it could be transferred to someone who would maintain it in better condition. This policy, if followed, could favor the rich over the poor, the young over the elderly, the skilled over the unskilled.

The burden of the court's decision is now on local governments to use their expanded powers wisely and with compassion. Future legal decisions will be needed to set more rigorous guidelines for the use of such considerable, expanded powers.



Marcus taught economics more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.
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