Ilya Somin: Governments seizing property must pay more than ‘fair market value’

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Editor’s note: This is one in a series examining the Constitution and Federalist Papers in today’s America. Click HERE to read the series.

Second of two parts

In last month’s column on eminent domain, I made the case for constraining eminent domain abuse by restoring constitutional limits on the range of purposes for which the government is allowed to take private property. Although the Fifth Amendment allows condemnations that are only for a “public use,” too often courts let government officials seize property for the benefit of powerful private interests.

But takings that violate public use constraints and victimize the poor and politically weak are far from the only problem with current eminent domain policy. Other abuses include the grossly inadequate compensation received by many owners who have their land seized and weak procedural constraints on eminent domain.

The Fifth Amendment specifically mandates that owners receive “just compensation,” which the Supreme Court has long interpreted as the “fair market value” of the property. In reality, however, studies show that most owners get less than that, especially less affluent owners. That is true of both takings by state and local governments and takings conducted by federal government, such as those for President Trump’s border wall. Under administrations of both parties, the Department of Homeland Security has a history of low-balling property owners.

Even full fair market value is often not enough to fully compensate owners for their losses. Many people value their property above what they could get for it on the market.  Consider, for example, homeowners and small businesses who have been in the same location for years, and have longstanding relationships with friends, neighbors and customers in the area. Nonprofit institutions such as churches and other houses of worship also often have great value that goes beyond the market price of the land they sit on. Such “subjective value” is often left uncompensated when property gets condemned, even if the owners get the full market value of the land. That’s true even in some cases in which the government takes only part of the owner’s property, as when it seizes land to build a road or a border barrier that cuts through the owner’s lot, thereby impairing his or her use of the rest of the property.

Some states have enacted increased compensation for victims of eminent domain, particularly in the aftermath of the Supreme Court’s 2005 decision in Kelo v. City of New London, which, as discussed in the previous column, stimulated extensive eminent domain reform. But it remains inadequate in most of the country.

Getting compensation right is extremely difficult. For obvious reasons, the authorities cannot simply ask owners what their “true” valuation of the property is. One possible strategy is to simply give all owners a set bonus, such as an extra 10 or 15% above fair market value. This has the advantage of taking account of the fact that most owners value their land at least somewhat above market value. On the other hand, it fails to make proper provision for properties with unusually high subjective value, such as some residences where the owners have lived for many years.

Alternatively, extra compensation can be provided for specific types of property with unusually high subjective value. For example, in the United Kingdom, expropriated owner-occupied homes automatically qualify for an extra 10% compensation above market value. Extra compensation also can be extended to other high-subjective-value properties, such as houses of worship.

It is also possible to provide compensation for expenses caused by condemnation, such as moving costs. In Virginia, a 2012 constitutional amendment requires condemning authorities to compensate owners for loss of profit and loss of access to other property they may continue to own in the area — often a significant issue for small businesses whose property is taken. Compensation for lost profits can be extended to include loss of “good will” – the relationships with customers that businesses may lose if forced to move to a new location.

While there is great value to increasing compensation for owners of condemned property, this strategy is far from a panacea for alleviating the harm caused by the use of eminent domain. No compensation formula can ever be more than a crude approximation for the true losses suffered by owners, since those will vary greatly from case to case. Two families who have lived in a house for the same period of time might have very different levels of subjective value attached to it. The same goes for two small business owners, and so on. 

Setting compensation levels too high creates dangers of its own. In  extreme cases, it might even give owners incentive to lobby the government to take their land, as the compensation could actually be above the value they attach to it. Furthermore, any added compensation necessarily creates additional burdens for taxpayers.

In many cases, the best solution for the difficulty of getting compensation right is to limit the range of situations in which the government is allowed to take property in the first place. Where eminent domain is unavoidable, the government should provide at least some extra compensation beyond fair market value, with additional premiums for some types of property that are likely to have unusually high subjective value. But we should be realistic about the fact that even the best compensation formula is likely to have serious flaws. At most, it will be just barely “good enough for government work.”

There is also a need for stronger procedural protections for property owners. Some state and local governments use “quick take” condemnations, under which they can seize property even before paying compensation and litigating legal challenges. The federal government resorts to similarly egregious procedures for many pipeline and border barrier takings. Legislative reforms should ensure that the government can take property only after courts have properly adjudicated any legal challenges and full compensation is paid. Government agencies should not be allowed to take first and ask questions about legality and compensation later.

Courts also should rigorously enforce the rule that eminent domain cannot be used unless specifically authorized by the legislature. This was a problem with some of President Trump’s recent border wall takings, and it occasionally crops up at the state level, as well.  If the government is going to condemn private property at all, it should at least be clearly authorized by law, not simply by the will of bureaucrats and other executive branch officials.

On all of these fronts – public use, compensation and procedural protections – there is plenty of room for cross-ideological cooperation. Conservatives have reason to decry the destruction of community ties and property rights caused by many takings, as well as the deviation from the original meaning of the Constitution. Libertarians have long been in the forefront of denouncing this menace to property rights. For their part, many progressives have emphasized the damage inflicted on minorities and the poor, often for the benefit of powerful business interests. All three groups should lament the severe economic damage. 

In recent years, the kinds of cross-ideological coalitions that emerged in response to Kelo  also have worked to constrain dubious pipeline takings. There is the potential for further progress along the same lines.

• Ilya Somin is a law professor at George Mason University and author of “The Grasping Hand: Kelo v. City of New London and the Limits of Eminent Domain,” on which this column draws, and “Free to Move: Foot Voting, Migration and Political Freedom.”

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