Can the state seize a private home simply because it wants to?
Sometime soon Judge Julio Mendez, of New Jersey's Superior Court, will decide whether a 67-year-old piano tuner named Charlie Birnbaum gets to keep his house.
New Jersey's mighty Casino Reinvestment Development Authority has invoked eminent domain to take the Birnbaum property. The modest Atlantic City "three-flat" is on Oriental Avenue, a name readers will know from the board game Monopoly. But the Birnbaum home sits in the shadow of a big new mega-casino far too recent to be represented on any board game: the Revel. CRDA has claimed the Birnbaum house not for any specific purpose but just so that its land will be available for any future plans that CRDA or its business partners, which include Revel and other casinos, might dream up.
Developers and public authorities claim a basis for this eminent-domain confiscation in the Fifth Amendment to the Constitution, which reads, "nor shall private property be taken for public use, without just compensation." Most Americans have a standard concept of what that means: citizens move out and the government builds something that the government owns and everyone uses, such as a road. Perhaps the government fixes up a very poor neighborhood so middle-class people can live there. But over the decades, the definition of "public use" has been stretched like a rubber band. What's scarcely ever reported is how infrequently development or urban improvement, the usual pretext for such confiscations, actually benefits the public. Few examples highlight the extent of the abuse better than this 35-by-80-foot property on Oriental Avenue.
This story begins with the Birnbaum family's perseverance. Charlie Birnbaum's parents, survivors of the Holocaust, bought the house as refuge and inspiration. It's hard to be sour when you can see the Atlantic's blue waves bobbing through your window.
Oriental Avenue is a modest address on the Monopoly board, and the Birnbaum house is correspondingly modest. But the property helped the Birnbaums move from working class to middle class: they risked the purchase of a multi-family home in the confidence that rent from two apartments would sustain them in the third. That wager paid off. Oriental Avenue is where Charlie Birnbaum proposed to his wife, and where his parents lived their last years. One tragedy took place here: A burglar broke in and killed Birnbaum's aged mother. Still, reviewing all his memories, good and bad, Birnbaum chooses to stay and keep the place up.
In the olden days, the wish to stay with one's property might have protected Birnbaum. But in 1954, in Berman v. Parker, the U.S. Supreme Court began broadening the concept of "public use." The court ruled that the District of Columbia could confiscate a going concern, a department store, just because it was located in a neighborhood deemed "blighted."
Since then, governments have routinely gone farther and farther in interpreting "public use." They have permitted new entities like CRDA to get in on the act. They have taken land not merely for the government but also for third-party developers. To many homeowners in these cases, the game of property felt rigged. They gave in – society gave in – for two reasons. One was that they had to. The other was that developers and the city promised that the redevelopment would deliver superior growth. Many Americans know of the "pink house" case, the house being that of New London, Conn., homeowner Susette Kelo. In 2005 the Supreme Court found 5–4 against Ms. Kelo, and for the authorities who were taking her house and property so that pharma giant Pfizer might build something better on it.
CRDA's brief in the Atlantic City case works hard to expand government authority yet again, claiming that confiscation can be valid for "a legion of valid public purposes." Stunningly, the lawyers for CRDA claim that Mr. Birnbaum's house must be taken not because it is blighted, or even because it is located in a blighted area. Rather, the brief explains, the confiscation will occur "to promote tourism in Atlantic City." Tourism has been a business for Atlantic City, so this claim suggests that CRDA can take whatever it likes throughout the city.
Such a land grab might have some logic if New Jersey's past efforts at tourism promotion had led to strong, stable growth for Atlantic City. But those efforts did the opposite. Back in the 1970s, out of desperation, the state of New Jersey threw away the pretense that Atlantic City was a family town and pinned its hopes on making the seashore town the "Las Vegas of the East." The state and CRDA spent hundreds of millions of dollars in spending and tax breaks to lure casinos. For a time, the investment appeared to pay off, and officials counted jobs by the thousand.
The gambling emphasis made the town deeply dependent on casinos, but what the planners failed to anticipate was that they would lose their monopoly. Other states legalized gambling, and soon Revel, Showboat, and Trump Plaza found themselves with competing facilities in Pennsylvania, Connecticut, and even Brooklyn, where Resorts World features 2,200 slot and table-game machines.
The worst investments fail first when recession comes. So it has been in Atlantic City. In the past six months, owners of four of Atlantic City's twelve casinos have shuttered their properties or announced they will close without fresh infusions of capital. The Revel itself shut down on September 2, and this was the second bankruptcy for the Revel, which is only a few years old. Mr. Birnbaum can see its deserted entryways from his street. It is not Mr. Birnbaum who is "blighting" the Revel, but the Revel that is "blighting" Mr. Birnbaum.
Since governments make for poor investors, Atlantic City is not the only town where "eminent domain for growth" failed to deliver. In Detroit, for example, homes were condemned to enable the construction of I-94, slicing through a neighborhood known as Poletown. In the early 1980s authorities in Michigan decided to raze Poletown – the Poletown clearcut was undertaken to allow General Motors to expand its manufacturing facility. What the planners didn't see in this instance was the increasing trouble in the auto industry. Car makers needed more than credits to thrive in the face of international competition. Motor City did not reindustrialize, and now urban planners are softening their approach: The recently announced Detroit Future City Plan avoids use of the term "eminent domain." The New London story concludes with travesty: After all the work and court victories, Pfizer did not stay in town. Kelo's house is gone, and the area around the pink-house plot now stands vacant.
Such incidences – call them property tragedies – can stir momentary outrage. After Kelo, more than 40 states passed some kind of legislation to curtail abuse of eminent domain. Protesters even tried to found a hotel called Lost Liberty in Weare, N.H., the hometown of Justice Stephen Breyer, one of the justices who voted for eminent domain in Kelo. Curtailing eminent-domain abuse further isn't hard: States and companies can agree to limit their work to condemnation for simple and official public projects, like highways, or dune areas that New Jersey has acquired to protect its shores from the next superstorm. Abolishing the great agencies like CRDA requires only one thing: a new law.
But lately a kind of national amnesia has set in. A series of eminent-domain development projects is springing up across the nation, reports Robert McNamara of the Institute for Justice, which represents Mr. Birnbaum now and represented Ms. Kelo back in the day. One reason for this is that developers' memory is short: Many developers were not even born when the bulldozers razed Poletown. And today's 22-year-olds, the young men planning to "get into real estate," were only 13 when Kelo was decided.
The greater problem is that many politicians see the world as lawyers do, in terms of popularity and deals. They understand that confiscation is not popular, well enough to eschew the old vocabulary for it: You don't hear much talk of "condemnation" or "urban renewal" today. But many politicians never grasped the point that government-generated economic activity is qualitatively different from and inferior to private activity. To this day, New Jersey governor Chris Christie seems unable to see how government overinvestment in gambling wrecked Atlantic City. Christie recently even allowed that he might not fight an expansion of gambling in other areas of the state. And, disconcertingly, Governor Christie last winter signed a law that apparently gave new eminent-domain powers to a school board without realizing it.
Homeowners have been much maligned lately, as the ultimate fools or victims in the mortgage mess. But those owners who know that quality growth starts with property rights offer strong wisdom. "In America, no one should lose their home for someone else's private use," Mr. Birnbaum says. Real estate is an old game, and outcomes are best when that game is played the old way.
Amity Shlaes chairs the board of the Calvin Coolidge Presidential Foundation and serves as presidential scholar at King's College.
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