Chairman Bullington and distinguished Members of the Task Force, thank you for inviting me to address you on the issue of eminent domain in New Mexico and what, if anything should be done about it. My name is Paul Gessing. I am President of the Rio Grande Foundation. The Foundation is registered as a 501c3 in the state of New Mexico. Our mission is to promote the ideas of Liberty, Opportunity, and Prosperity here in the state. We do this by informing New Mexicans of the importance of individual freedom, limited government, and economic opportunity. We receive financial support from over 200 donors and foundations and the approximately 1,000 people who have signed up to receive our regular updates.

Although the Rio Grande Foundation is an independent organization dedicated to New Mexico, we are part of a nationwide network of like-minded policy organizations called the State Policy Network. A bulk of our work deals with economic policy, but we also support reforms that promote fair, competitive elections and greater participation in the political process on the part of the people of New Mexico.

While we had a number of concerns about the eminent domain bill that Governor Richardson vetoed earlier this year, we believe that its limited protections would have been better than nothing. However, if this task force’s recommendations assist Governor Richardson and the Legislature in creating stronger protections for property owners than last year’s bill would have achieved (with specific language along the lines of what Ms. Perkins described to you last week), then we will be extremely pleased.

Property Rights and the Harm of Eminent Domain Abuse

Although eminent domain was not at the top of many Americans’ agendas prior to the Supreme Court’s decision in Kelo, which was handed down in June of 2005, government’s use of the power has been controversial since the founding of the Republic. Back in 1795, in fact, the Supreme Court, ruling in the case of case of Vanhorn’s Lessee v. Dorrance, called eminent domain “The despotic power” and urged states not to exercise that power “except in urgent cases.” The justices went on to say that they could not imagine a situation “in which the necessity of a state can be of such a nature as to authorize or excuse the seizing of landed property belonging to one citizen, and giving it to another citizen.[1]”

We at the Rio Grande Foundation agree with the Court’s 1795 ruling. That is because it is our strong belief that private property rights constitute the foundation upon which all other human freedoms are based. Respect for private property is one of the major differences between America and less-free nations.

As I will explain later on in my testimony, those concerned with promoting long-term economic growth have a significant interest not only in maintaining individual property rights, but in protecting themselves against the often misguided and expensive plans of government officials and politically-connected developers.

First, let me briefly describe the situation as it stands now. Despite the explicit prohibition against taking private property for public use without just compensation found in the Fifth Amendment to the United States Constitution (and despite the precedence provided by the Court’s 1795 ruling), the Supreme Court’s 5-4 decision in Kelo throws the door open for eminent domain as long as government officials have a “plan” and believe that there will be some economic benefit from the taking. Thus, in just over 200 years we have moved away from using eminent domain to facilitate the construction of roads and bridges (which clearly fulfill the “public use” requirement), to allowing eminent domain to pave the way for a shopping center or new corporate offices. In the post-Kelo world, as long as government officials believe that tearing down a Motel 6 and giving the land to the Ritz Carlton will generate greater tax revenue, the use of eminent domain is perfectly acceptable (this example was used by Justice Sandra Day O’Connor to clarify the arguments being made by the City of New London lawyers during the Kelo hearing).

Although the Kelo decision put eminent domain front-and-center in American public opinion, the fact is that the habit of using eminent domain to force private-to-private property transfers had become all too commonplace in many states even prior to Kelo. In New York alone between 1998 and 2002, there were 146 instances of eminent domain for private use – and these are just those instances that the media publicly documented; we have no way of knowing how many so-called consensual or voluntary takings occurred where property owners were threatened with eminent domain. These takings were primarily based on precedents set by two court decisions. The first case was the U.S. Supreme Court’s 1954 Berman v. Parker decision, which allowed governments to use eminent domain to seize private property in order to tear down so-called “blighted” areas.

For those of you who are familiar with the neighborhoods of Washington, DC, it was Berman that is largely-responsible for the Southwest quadrant of the city. Unlike much of the city which has managed to retain its charming brick row-houses and is now in the midst of a tremendous revival, the Southwest quadrant – which was home to a predominantly black population – was bulldozed in the 1950s to make way for 1960s and 70s “redevelopment” using massive slabs of concrete that have proven inhospitable to the urban life so prevalent in the rest of the City.[2]

The second decision – the one that really began the trend of eminent domain for private use – was made by the Michigan Supreme Court and is known as the Poletown decision. In this 1981 ruling, the Michigan Supreme Court allowed the city of Detroit to bulldoze an entire neighborhood, complete with more than 1,000 residences, 600 businesses, and numerous churches, in order to give the property to General Motors for an auto plant. That case set the precedent, both in Michigan and across the country, for widespread abuse of the power of eminent domain. It sent the signal that courts would not interfere, no matter how private the purpose of the taking.

New Mexico and Eminent Domain

Thankfully, despite the broad power given to it by the federal government and a State Constitution that offers relatively few protections for New Mexicans, governments in this state have not engaged in the kind of massive abuses of eminent domain found in other states. But, that is not to say that as more people move to New Mexico and as the state continues attracting more businesses and heavy industry – with requisite calls for “economic redevelopment” – that eminent domain abuse will not become a greater problem.

Now, as Rio Rancho Mayor Kevin Jackson discussed last week, there are some specific problems relating to the platting of land in New Mexico and our state’s history that have created added pressure for eminent domain in certain areas. Given a situation in which so many land owners in the areas affected by poor platting have not developed their land and that so many of these parcels of land are owned by individuals residing elsewhere, I can understand why city officials were willing to delegate their eminent domain power to a developer. After all, they had been presented with a seemingly reasonable and generous offer and since “obsolete platting” technically creates conditions of “blight” as defined in New Mexico law, this may have seemed like the simplest option.

Obviously, we’re not dealing with a situation as we saw in Connecticut where Susette Kelo and many of her neighbors had been living in their houses for upwards of 50 years. While Rio Rancho’s use of eminent domain to resolve its platting problem is unlikely to stir up that kind of backlash from the American people or even a majority of New Mexicans, it is not necessarily the best policy either. More importantly, it is vital that opponents of eminent domain reform not use what amounts to a historical anomaly to derail strong eminent domain protections for all New Mexicans.

The Problem of Platting and Blight

I want to stress to this panel that the Rio Grande Foundation is concerned about the likelihood for abuse contained in any “blight” exemption that might be contained in any new eminent domain restrictions. Prior to the Kelo decision, blight was used and abused regularly by state governments in their uses of eminent domain. In fact, in Lakewood, Ohio, the City attempted to condemn homes using eminent domain by calling the area blighted. Why was this community considered blighted? Well, some homes didn’t have an attached two-car garage or they had less than two full bathrooms. Other than that, the homes were well taken care of.[3] My point is that even the most innocent and well-intended blight definition will inevitably be twisted, expanded, and even redefined by special interests over time, so I urge you to keep that in mind when making your recommendations.

I’d like to discuss the specifics associated with the platting issue that was discussed last week and offer some ideas for ways in which legitimate economic development in a poorly-platted area like Rio Rancho might occur without resorting to abusing eminent domain. First and foremost, as was touched on yet not elaborated upon last week, if any property poses a specific physical danger to any nearby other property, there are existing police powers that can be used to address the problem. The fact is that whether the situation is a crack house down the street or the potential for massive flooding, governments can and do have the power to act to protect citizens.

Now, as I understand it from last week’s discussion, Rio Rancho has in the past struck deals with Pulte homes to allow Pulte to essentially “borrow” the city’s eminent domain power in order to develop specific parcels of land that were poorly platted. At the same time, Pulte has provided significant infrastructure to the city and to residents of the new development. This may sound like a win-win deal, but what about those people who wanted to build their retirement homes on that land? Also, did those property owners really get fair market value for their land or was Pulte able to use the eminent domain club to get the land at a reduced cost with enough left over to provide the added infrastructure and still make a tidy profit? I don’t have all of the answers to these questions, but I can tell you that allowing private entities to use government power – even if it appears to be for the good of the community – is likely to be abused.

It is the Foundation’s belief that ultimately a free or at least less coercive environment could have led to a similarly beneficial result. Here I will outline some ideas on how things might have been handled differently and how they might be handled in other similar situations in the future.

  • A private developer ie. Pulte works with individual landowners to assemble parcels of land large enough for development. This is the most logical and simplest of all choices. Why hadn’t it been done before? Possibly, Pulte and other developers, cognizant of the eminent domain threat at their disposal decided against the more difficult and possibly more costly method of assembling parcels of land and decided against this method because they felt they could get the land cheaper with the City’s help.
  • The City could contact landowners throughout the parcel of land and explain to them that if they agree to sell their land which, in its current ownership structure is worth far less than its real market value if assembled, they can cash in on the opportunity to sell for a decent price. As the city assembles those voluntarily willing to part with their parcels of land for a fair price, developers could then bid on the right to develop that particular area.
  • Additionally, Rio Rancho could look to the example the city of Anaheim, California provides, where the Mayor has chosen to solve platting problems as well as stagnant development without resort to eminent domain. In Anaheim, the city used a strategy of overlay zoning and also announced a sort of first-come first-served policy on applications for residential permits.  So, developers who sought approval for 200 condo units would get it, up to whatever the city determined was the maximum. Rio Rancho could do something like that, perhaps with utilities or other permits. That encourages developers to buy and people to sell while it’s still saleable.
  • Lastly, and only in areas that are considered threats to other areas, the city could indeed use its powers of condemnation in order to construct flood control ponds and other tools to ensure the livability of already-developed areas. It is unclear to me exactly how developing particular parcels of land protects adjacent land, but in the likelihood that this is the case, the legitimate use of eminent domain for flood protection is indeed a public use and would be legal under even the most restrictive eminent domain abuse protection legislation. If the City felt it necessary to recoup the costs of these outlays, it could easily do so by taxing existing and future residents to pay for these flood control services.

While it is possible that the City could indeed leverage the resources of private developers in order to improve flood protections and protect homeowners in existing developments (with or without abusing eminent domain), it is hard to see why existing homeowners should have the right to force development of a particular parcel of land in order to protect their homes. These people clearly purchased their houses without the adjacent land being developed. If their properties need additional protections from the ravages of Mother Nature, it is ultimately their responsibility to pay for it.

More “Typical” Eminent Domain Abuse

While it is worthwhile to spend a significant portion of my time discussing the platting issue which is admittedly somewhat tricky, I believe that the more “traditional” forms of eminent domain abuse will become increasingly common in New Mexico. In fact, current efforts to create a “city center” in Ranchos de Albuquerque may fall into this category. Although the village has, to my knowledge, not yet used eminent domain to condemn any property owned by existing landowners, the threat of eminent domain has been made in the pages of the Albuquerque Journal.

Should the village ultimately resort to using eminent domain to take land from one group of private property owners for the benefit of other private individuals or entities and, at least theoretically, the people of Ranchos de Albuquerque, this would qualify as eminent domain abuse. This is exactly the type of development that we believe must be prohibited under New Mexico law.

While Jennifer Perkins covered many of the policy prescriptions and legal changes that New Mexico can implement in order to prevent this type of abuse from occurring, I’d like to point out exactly why governments should refrain from becoming intimately involved in economic development issues in general and why eminent domain is especially ripe for abuse. These are not simply moral arguments; rather they are economic and moral. Time and again, the economic evidence has shown that the economies of nations, states, and cities are improved when governments protect property rights and create an even playing field without picking favorites.

I have already mentioned Michigan’s Poletown decision. In 1981, the Michigan Supreme Court allowed the City of Detroit to seize and bulldoze an entire neighborhood so that General Motors could build an auto plant. More than 4,200 people were displaced from their homes, 140 businesses were lost, as were 6 churches and a hospital. GM paid Detroit $8 million for the property, while the City paid more than $200 million to acquire and prepare the land.[4]

Although Detroit Mayor Coleman Young and GM had promised the project would create 6,000 jobs, when all was said and done, the plant employed only 2,500 people. It is estimated that the Poletown taking resulted in a net loss of jobs and it is clear to me that along with the substantial loss of property tax revenue, the city was ultimately worse off from a revenue standpoint than it was before.

There are dozens of similar examples all across the country.[5]

Conclusion

Simply put, eminent domain for the supposed benefit of economic development is the most significant rationale for abusive use of eminent domain and, if Governor Richardson and the Legislature fail to act, it will become a problem here. To that end, I urge you to use the model legislation and language provided by Ms. Perkins in your recommendations and to keep in mind that when we as a nation have been at our best it has been due to our respect for the rights of the individual. The times at which we have been at our worst have unfortunately been the times when we have forgotten the inalienable rights the Founders set forth in the Constitution in favor of some collectivist agenda.

There is no doubt that eminent domain has a role to play in our political and economic system. Without it, the Interstate Highways would never have been built and countless utility and other projects that are used by all of us on a daily basis would never have been created. Yet, I hope I have clearly illustrated the very real problems that arise when governments at any level abuse or even delegate their powers to private entities.

As Justice O’Connor noted at the end of her dissent in Kelo:

Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random.  The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process including large corporations and development firms.  As for the victims, the government now has license to transfer property from those with fewer resources to those with more.  The Founders cannot have intended this perverse result.  “[T]hat alone is just government,” wrote James Madison, “which impartially secures to every man, whatever is his own.”

In closing, I would like to remind you that the purpose of this task force is to consider, not whether eminent domain for private benefit can be useful, but whether or not eminent domain is a necessary tool for state and local economic development. While there are situations in which it might be simpler to use government power to quite literally steamroll the opposition, we must create a legal framework deferential to individual property rights, lest those rights be abused.

Thank you for your time and attention this afternoon. I look forward to answering your questions.

[1] Jeff Jacoby, “Abusing Eminent Domain,” The Boston Globe, September 30, 2004,http://www.boston.com/news/globe/editorial_opinion/oped/articles/2004/09/30/abusing_eminent_domain/.

[2] Charlotte Allen, “A Wreck of a Plan: Look at How Renewal Ruined Southwest,” The Washington Post, July 17, 2005,http://www.washingtonpost.com/wp-dyn/content/article/2005/07/15/AR2005071502199.html.

[3] 60 Minutes, “Eminent Domain Being Abused?” July 4, 2004, http://www.cbsnews.com/stories/2003/09/26/60minutes/main575343.shtml.

[4] Castle Coalition, “Redevelopment Wrecks,” June 2006, http://www.castlecoalition.org/publications/redevelopment-wrecks/index.html.

[5] Paul J. Gessing, “Eminent Domain Abuse: If they Can’t Tax It, They’ll Just Take It,” National Taxpayers Union, August 24, 2004,http://www.ntu.org/pdf/ib_ntu_148.pdf.