David Nicklaus: Tim, thanks for joining us on Business Beat. Your eminent-domain study is filled with compelling examples, like the O'Fallon (Mo.) banquet center that couldn't book events for 5 months because a proposed development left its future in doubt, and the sad fate of Hadley Township, where speculation about development plans led to the decline of a once-stable neighborhood. But when I talk to real-estate folks, they say we wouldn't have many of this community's valuable assets, from the Galleria to the (now-demolished) Busch Stadium II, without eminent domain as a development tool. How do you answer that argument?

By the way, for readers who haven't seen Tim's study, it's at
http://www.showmeinstitute.org/publication/id.88/pub_detail.asp

Tim Lee: David, thanks for inviting me to participate in today's discussion. That's an excellent question, and it's probably the most common objection you hear to prohibiting eminent domain for private profit. It's certainly true that eminent domain makes it easier to develop things like sports stadiums and shopping malls. However, I think there are a couple of reasons to think that the convenience of private developers shouldn't be our top priority.

In the first place, I think private developers often over-state the difficulty of working around property owners who don't want to relocate. There's no reason a shopping center has to be any particular shape or in any particular location. There are plenty of examples of developers undertaking large redevelopment projects without resorting to eminent domain. For example, one of the studies I cite in my paper talks about Seattle's successful downtown revitalization, which was accomplished without using the eminent domain power.

There are examples here in Missouri, too. My favorite is the Maplewood Wal-Mart project. One of the buildings in the footprint of the proposed Wal-Mart was the law firm of King Krehbiel, Hellmich, and Borbonus. They didn't want to move, and unlike most eminent domain targets, they actually had the legal firepower to make the developer's life miserable. So the developer re-configured the project to make room for KKHB in the middle of Wal-Mart's parking lot. The law firm is still standing there today, and it doesn't appear to be causing any serious problems for Wal-Mart's business.

Obviously, having to re-configure development plans to accommodate property owners who don't want to move is more work than just being able to bulldoze anyone who gets in your way. But I don't see why the convenience of wealthy developers should trump the property rights of ordinary Missourians.

The other point I make in my paper is that it's not obvious we need more big retail developments. A lot of the new retail development we're seeing today is just cannibalizing previous retail developments elsewhere in the city. Cities aren't opening all these shopping malls because there's a shortage of retail options. They're opening them because it's an easy way to poach sales tax revenue from neighboring jurisdictions. Ending the private use of eminent domain would certainly be hard on large developers and big-box retail stores, who would have less ability to play one city off another for ever-larger tax subsidies. But I'm not sure it would be bad for anybody else.

Rob Hanson: Our 103-year old beautifully restored Victorian home was taken from us and demolished by the City of Rock Hill and Novus Development last year. We were presented with appraisals paid for by the developer that were hundreds of thousands of dollars below our appraisals. We were subjected to low-ball offers, bullying, and two unannounced visits from Novus president Jonathan Browne who insulted my wife and our home within earshot of our children.

We fought through condemnation and appealed the commissioner's award, but eventually had to settle on the advice of our attorneys. Jury trial was going to cost $30,000, and there was the possibility of losing money if the jury split the difference between appraisals.

My question is this: what is it going to take to protect homeowners from this ongoing abuse? We had the ability to stand up and fight, at least for a while. A lot of my neighbors were single, widowed, retired, or just plain poor and didn't have the wherewithal or the financial means to put up any kind of fight. They, even more than my family, were really run over.

Will Calzone's initiative be the best solution. Is there any chance the legislature will more appropriately intervene?

Thanks.

Tim Lee: Rob, thanks for your question. I actually mentioned your case on page 13 of my report. I'm very sorry that you were so badly treated by the city. Your story is unfortunately far too common.

I believe that the best solution is a constitutional ban on the taking of private property for private development. I think the last 50 years have demonstrated that other proposed solutions, such as tightening the definition of "blight," still leaves too many peoples' homes and businesses vulnerable. The main problem is the Missouri constitution's Article VI, Section 21, which was enacted in 1945 and gives chartered cities broad authority to seize "blighted, substandard, and insanitary areas." Peoples' property rights won't be protected in Missouri until this provision of the constitution is changed.

Ron Calzone is the head of a group called Missourians for Property Rights, which is circulating a pair of constitutional amendments for the 2008 ballot. One strengthens the property rights language in Aritlce I, Sections 26 and 28. The other replaces Article VI, Section 21 with language providing cities with tools to deal with blight that don't involve the use of eminent domain. I was one of the people Ron consulted during the drafting of these amendments, and recently Ron has recruited me to be a member of MO-CPR's board, so as you can imagine I'm very supportive of his effort. I think it's our best chance of providing Missouri property owners with the strong legal protections they deserve.

Tim Lee: One other point in response to Rob's question: I don't expect the legislature to enact meaningful reform in the next session. The legislation they passed in 2006 made some very modest improvements to eminent domain law, but as I think my report demonstrates, it didn't come anywhere close to stopping the abuse. Stronger reforms are needed, and the legislature hasn't given any sign they intend to revisit the issue.

Trevor Acorn: The announcement and construction of a new development project, whether a new road, streetcar, subdivision, commercial building, or other permanent good, tends to increase the market value of land in the area. Many property owners know this and seek out windfall profits by holding on to their land and refusing to sell until they are bought out at the new market price post announcement/construction. The resulting higher acquisition costs mean fewer infill developments, more urban sprawl, and higher end unit costs to the consumer. Eminent Domain is an important tool available to cities to help mitigate this problem. Without Eminent Domain, how would you propose to solve the problem of land acquisition and windfall profits to property owners?

Tim Lee: Trevor, if we're talking about acquiring the land necessary for actually building a road or other piece of public infrastructure, I certainly support the use of eminent domain for that purpose. But if we're talking about private developments adjacent a new property, I don't think that's an appropriate use of eminent domain.

To put the scenario you describe in less pejorative terms: is it a problem when an ordinary property owner sees his or her property value go up as a result of nearby development? I don't see why it would be. Rising home values is one of the benefits of being a homeowner. *Someone* is going to get a "windfall profit" in that scenario. I don't see any reason why a large developer should get those profits instead.

In my experience, the far more common problem is property owners like Rob who have been forced to accept lowball offers for their homes. And if you want to talk about "windfall profits," let's talk about the tens of millions of dollars in taxpayer subsidies that flow to large developers and big-box retail stores in theses development projects.

Slugger: Have you heard of eminent domain abuses in Missouri like the case in the metro east where they manipulated tax assessments to change the outcome of an earlier failed eminent domain attempt?

Tim Lee: Slugger, thanks for your question. My study focused on Missouri eminent domain controversies, so I didn't look at Metro East in any detail. The Institute for Justice gave Illinois an even lower grade for its eminent domain rules than Missouri, so I'm sure there are plenty of problems there as well.

I'm not sure I understand your specific question. Could you elaborate on which case you're talking about? Thanks!