Applying the Takings Clause of the U.S. Constitution
The Fifth Amendment of the U.S. Constitution states: “No person shall be deprived…of property without due process of law.” The Amendment includes a provision known as the “Takings Clause,” which states that private property [shall not] be taken for public use, without “just compensation." The Takings Clause protects citizens from unreasonable government seizure of private property.
The government often cites the Takings Clause as giving it the right to take private property without the landowner’s consent through eminent domain proceedings. A U.S. Supreme Court decision in 2005 in Kelo v. City of New London severally undermines the protections afforded to citizens by the Takings Clause and generally expands the government’s power to seize property including for economic development.
In Kelo, the city of New London, Connecticut approved a development plan that was “projected to create in excess of 1,000 jobs, to increase tax and other revenues, and revitalize an economically distressed city, including its downtown and waterfront areas.” To effectuate the plan, the city purchased property from willing sellers. It also proposed to use the power eminent domain to acquire the remainder of the property from unwilling owners in exchange for just compensation.
The U.S. Supreme Court has generally approved the widespread use of the power of eminent domain by federal and state governments in conjunction with private companies to facilitate urban renewal, destruction of slums, erection of low-cost housing in place of deteriorated housing, and the promotion of aesthetic values as well as economic ones. In other words, the redevelopment of a blighted area qualifies, at least according to the Supreme Court, as a valid use of eminent domain. Still, the facts of each case depend on state laws since that is the first course of action for landowners who seek to fight a government’s eminent domain action.
Earlier this year, Google announced it has plans to create a huge tech campus, covering more than 6 million square feet on about 245 acres near Diridon Station and the SAP entertainment Center in San Jose, California. Google and Trammell Crow, a developer and Google buying-property surrogate, are buying buildings and vacant parcels near Diridon Station and the SAP Center. They have already bought 20 parcels in the Diridon Station area, paying $146 million. Construction won’t start until 2025. The campus could accommodate up to 20,000 employees and transform the downtown San Jose area. While most of the land is government-owned including 16-properties at the heart of the proposed campus, some small businesses are affected.
Small businesses do not relish the idea of being forced to move and start all over again in another community, especially since rents and property land values in the San Jose area are likely to skyrocket. Some have already brokered a deal with Trammel Crow, a developer and Google buying-property surrogate, to sell their land. Call it a pre-emptive deal to sell because if they did not, the city might take the property through eminent domain. However, other merchants who rent their buildings might be forced to relocate or close if Trammel Crow buys their properties.
What does the city of San Jose see as its ethical obligations in the Google case? So far, the city has said it only has an obligation to provide relocation assistance when a tenant is on public land, not private property. This is likely to become a legal matter down the road. There are ample cases where private landowners have been compensated in eminent domain deals.
Is the use of eminent domain an ethical practice? That’s a tough one to answer. However, we can start the analysis by applying traditional moral reasoning.
The concept of justice applied to the case of eminent domain is based on compensatory justice. Compensatory justice refers to the extent to which people are fairly compensated for their injuries by those who have injured them; just compensation is proportional to the loss inflicted on a person.
What is ‘just compensation’? A major cost of the eminent domain process is the relocation expenses for property owners including payments to the owner for appraisal of the property, moving and related expenses, cost differentials, and, if applicable, the loss of business goodwill.
From an ethical perspective, a few problems exist with respect to just compensation. First and foremost is whether the appraisal accurately reflects “fair market value.” Just compensation includes fair market value of the property as of the valuation date. Fair market value is the highest price for the property that a willing buyer would have paid in cash to a willing seller, assuming that: (1) there is no pressure on either one to buy or sell; and (2) the buyer and seller know all the uses and purposes for which the property is reasonably capable of being used. Conceptions of what is just oftentimes are in the eyes of the beholder.
Another ethical reasoning method is Utilitarianism, sometimes known as Consequentialism. Consequentialism is a moral philosophy that holds the morally right course of action in any situation is the one that produces the greatest balance of benefits over harms for everyone affected. Consequentialism is used to assess the moral rightness of alternative courses of action by determining all the foreseeable benefits and harms that would result from each course of action and then choose the course of action that provides the greatest net benefits.
In eminent domain cases, it might be argued from a consequentialist perspective that the end result of taking private land is always justified so long as it produces greater benefits for the community. The reasoning would be that regardless of how the property is acquired, so long as it brings greater benefits to the community than it costs, it’s acceptable to buy out the landowners.
The problem with this reasoning is it relies on an ‘ends justifies the means’ approach. The question is: Does the projected increase in jobs, economic wealth, tax revenue and so on in the Google case outweigh the costs to the community? How can we account for a diminished quality of life? You see the problem with such a method of reasoning?
The application of Act Utilitarianism, as above, misses the ethical point that certain rules (Rule Utilitarianism) should never be violated including those in the Constitution. This gets us back to the sticky point of just compensation and, perhaps more important, just acquisition of private property for public purpose.
The Bottom Line
The ethical dilemma is we’re not talking about buying land to build roads, schools, hospitals and other clearly public-beneficial projects. In these cases, most would agree the use of eminent domain is valid. We’re talking about a private company – Google – being able to afford itself of eminent domain laws to build its mega-campus. Should a government use public funds to buy property from unwilling sellers to benefit a private company with $90 billion in revenues?
Blog posted by Steven Mintz, aka Ethics Sage, on December 13, 2017. Dr. Mintz is a Professor Emeritus from Cal Poly San Luis Obispo. Visit Steve’s website to find out more about his services and sign up for his newsletter.