5/30/2006

Maryland loves eminent domain: The Examiner (San Francisco CA), 5/8/06

Opinion

By Steve Walters and Jude Blanchette

Last September, Robert Sapero and Vic Cheswick thought they had a deal. Cheswick agreed to pay Sapero $2 million for the long-vacant Chesapeake Restaurant in the 1700 block of North Charles Street [of Baltimore MD], and wrote a $50,000 check as a down payment.

Then the plot thickened. A month later, the city’s Board of Estimates voted to condemn the landmark eatery and two adjoining properties, pay Sapero the parcel’s “appraised value” of $770,000, and ultimately transfer it to people it liked better: Alan and Michael Shecter of Tower Hill Development, whose $47.5 million plan for the site, dubbed Chesapeake Square, had earlier won the favor of the Baltimore Development Corporation, a quasi-governmental urban renewal agency.

Predictably, litigation ensued, and while the city has upped its “appraisal” somewhat, there’s little doubt who’ll win. Thanks to Maryland’s eminent domain law, whatever BDC wants, BDC gets — generally at a price it sets rather than negotiates. And thanks to the U.S. Supreme Court’s recent Kelo v. City of New London decision, local governments are free to take property from Peter and give it to Paul in the name of economic development. All BDC has to say is “trust us — this will improve the neighborhood,” and the Kelo test is passed.

This strikes many as an unconscionable violation of private property rights. Post-Kelo indignation has led a dozen states to pass laws circumscribing the use of eminent domain for the purpose of economic development. Maryland, however, is not one of them. Though several bills limiting local governments’ powers under eminent domain were drafted this past legislative session, none came close to passage. Evidently, most of our elected representatives simply love eminent domain.

Abuse of power
We tend to shrug at the frequent abuse of this power because we’ve bought the argument that installing crucial public assets (e.g., schools, roads) mustn’t be “held up” by some grumpy old coot who refuses to sell his shack — or vacant restaurant. From there, it’s a small step to defining as a public asset a “13-story tower … that will have a strong arts and entertainment component,” which is what Tower Hill Development promises for the 1700 block of North Charles Street.

In truth, the hold-up problem commonly used to justify eminent domain seizures is more smokescreen than reality. Private developers often assemble large tracts voluntarily through secret negotiations, dummy purchasers, or option contracts that help obtain pre-commitments from all necessary sellers. The government’s coercive power, however, can deliver tracts well below retail and enhance a favored developer’s bottom line-at the expense of an unhappy “seller.”

Even if we’re willing to ignore the dubious ethics of this sort of transfer, it’s worth noting two practical problems arising from an expansive use of eminent domain. One is the heightened risk of corruption when government decides who wins and who loses in the high-stakes development game.

More worrisome is the fact that politicians and bureaucrats are painfully inept at playing this game. Whenever we see entertaining news footage of an imploded public housing project or drive past another freeway ramp to nowhere, we’re reminded how often one administration’s gilt-edged investment turns into another’s white elephant. Spending other people’s money, while fun, makes even high-minded folks a tad careless. There’s no guarantee, of course, that a person willing to pay the most and risk his own wealth will put a property to its best use — but that’s generally the way to bet.

Does eminent domain work?
The upshot is that, quite often, eminent domain isn’t a path to civic improvement, but a dead end. By taking development decisions away from owners and willing buyers and vesting them with bureaucrats, we alter incentives in unwholesome ways and lose a source of innovative energy that’s crucial to urban vitality.

That’s not to say that Chesapeake Square won’t improve the neighborhood. It might turn out great. The question is whether Vic Cheswick’s plan, which he evidently believed made the parcel almost three times more valuable than the BDC assumed, might have been even better. Unfortunately, we’ll never know.


The Examiner: http://www.examiner.com

Steve Walters is professor of economics at Loyola College in Maryland. Jude Blanchette works for a public policy institute in Washington, D.C.