Limiting Eminent Domain Authority for the States

In June 2005, the Supreme Court’s decision in Kelo vs. City of New London extended the power of eminent domain by allowing governments to condemn private property and transfer it to others for private economic development. This decision sparked a great deal of controversy and its repercussions and implications have been widely studied (see for example, the work by Ed Lopez and Bruce Benson).

Last week, the House Judiciary Committee approved a measure that would limit government’s use of eminent domain. Specifically, the Private Property Rights Protection Act Act (H.R. 1433) would prohibit:

States and localities that receive Federal economic development funds from using eminent domain to take private property for economic development purposes. States and localities that use eminent domain for private economic development are ineligible under the bill to receive Federal economic development funds for 2 fiscal years.

When the bill was first introduced in 2011, the Honorable Trent Franks outlined its importance with the following statement:

We must restore the property rights protections that were erased from the Constitution by the Kelo decision. Fortunately, they are not permanently erased. Let us hope. John Adams wrote over 200 years ago that, ‘‘Property must be secured or liberty cannot exist.’’ As long as the specter of condemnation hangs over all property, arbitrary condemnation hanging over all property, our liberty is threatened.

There were many testimonies given throughout the hearing that pointed to the strengths and the weaknesses of H.R. 1433. Much of the economic literature suggests, however, that in general placing strong limits on eminent domain authority has substantial benefits for economic growth development, and prosperity. I think Ed Lopez, Carrie Kerekes and George Johnson (2007) sum up the importance of limiting this authority particularly well, as they write:

High taxes, excessive regulation, and loosely limited eminent domain powers are all tools of central planning and government control of the economy. Under these policies property rights are insecure, which distorts incentives for making good resource use decisions, discourages using assets as collateral for beneficial investments, and forfeits the dynamic benefits that emerge out of capitalism…Taxes, regulation, and takings through eminent domain decrease the security of property rights; therefore, these government infringements should be limited.