Due to the 2005 U.S. Supreme Court Kelo decision that reaffirmed government’s power to take private property from owners and reassign it to another private party for the alleged purpose of economic development, Michigan voters approved Proposal 4 amending the state constitution in 2006. The law provides additional protections to private property owners from government takings. Some economic development officials and others issued dire predictions that enacting such additional statutory and constitutional protections making it more difficult for government to take private property for economic purposes would wreak havoc with local economic development projects and damage the economy in general. However, according to a recently released study by the Institute for Justice, these predictions have turned out to be false.
The report: "Doomsday? No Way: Economic Trends & Post-Kelo Eminent Domain Reform," authored by Dick M. Carpenter II, Ph.D. & John K. Ross, provides a detailed analysis of economic indicators before and after eminent domain reforms across the country. The authors divided states into three categories: states with no reform; states with nominal or moderate reform; and states with substantive reform. The authors found that states in all three categories showed no significant changes in trends in construction jobs, building permits and property tax revenues as a result of eminent domain reform.
These findings are not surprising, as economic development incentives seldom achieve the results promised by state and local government officials. Government’s threat of blight designations and eminent domain takings may well thwart economic development by creating uncertainty that could cause potential investors to postpone investment decisions. The report cites two examples of this:
Lakewood, Ohio, and Scottsdale, Ariz., were embroiled in eminent domain disputes involving the condemnation of private property for private economic development. But when Lakewood, in 2003, rescinded a blight designation on a large neighborhood, more than $224 million in economic development projects and improvements resulted. Likewise, after Scottsdale lifted its second redevelopment designation, the city reported $2 billion in private investment in short order.
As important as secure private property rights are for protection from physical takings, so are protections from regulatory takings of private property by Michigan’s state and local governments. Individual property owners should not bear the cost of providing a public benefit in the form of restrictions placed by government on the use of their property. For example, state and local government officials respectively employ wetland laws and land use restrictions to place limits on the use of private property, either significantly reducing the value of the property or rendering it useless altogether — oftentimes with no compensation to the landowner. Although these restrictions may be politically popular, they are a serious impediment to economic development in the state. If a landowner cannot obtain a permit to develop his or her property, the economic benefits of the anticipated development are forfeited.
It is ironic that Gov. Jennifer Granholm — who has declared that she "will go anywhere to bring jobs to the state"— seems so reluctant to implement much needed reforms inside Michigan government agencies such as the Michigan Department of Environmental Quality, where over-zealous enforcement of wetland permitting requirements are costing the state hundreds of jobs.
The first place to start in turning around the ailing economy in Michigan is to provide secure legal protection from the taking of private property through regulatory actions of state and local government officials. Michigan would do well to emulate a law passed by voters in Oregon. The Oregon law is elegant in its simplicity: When government officials place restrictions on the use of private property subsequent to the owner acquiring the property, they are required to compensate the landowner for the loss of the use of his or her property. If government officials choose not to or cannot afford to compensate the landowner for the lost value of the property, the proposed restriction does not take effect.
A similar law enacted in Michigan would provide assurance to investors that their property rights are secure, which is critically important to future investment in the state. There will be those who claim we cannot afford to make these changes. The truth is we cannot afford not to.
Russ Harding, a former director of the DEQ, is director of the Property Rights Network at the Mackinac Center for Public Policy, a research and education institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.