‘Kelo’ Property Rights Protections gutted from housing bill (revised and corrected)

Of all the unintended consequences of the housing bill that passed the House yesterday — of which there will likely be many — one of the most ironic and far-reaching may be this: that whatever security marginal homewoners have from foreclosures, their homes will be far less safe from being taken by a bureaucrat through eminent domain.

That’s because the bill unveiled this week — as the result of negotiations between House Financial Services Committee Chairman Barney Frank and Treasury Secretary Hank Paulson — takes specific language protecting property rights from the housing bill that most recently passed the Senate and renders it almost meaningless. As a result, the billions of dollar in new grants the bill provides for “the production, preservation and rehabilitation” of housing units, could stimulate a bonanza of state and local property confiscation of the type green-lighted in the Supreme Court’s 5-4 decision Kelo v. New London.

That 5-4 decision in 2005 allowed states and localities to use eminent domain for the benefit of private parties, so long the land confication served a “public purpose.” The case generated outrage. As the Institute for Justice, who represented the homeowners whose property was under threat in the case, has argued, the results of the case mean that no one’s home is safe, because it would serve a “public purpose” to destroy the residence and put a retail store in its place to raise more tax revenue.

In the wake of the case, some states have passed laws protecting property owners by barring eminent domain solely for economic development purposes. But for the many states that still allow this practice, the federal government is often the source of funds for the projects that result in the use of eminent domain. Efforts to bar federal funds to be used on projects that make use of this type of eminent domain have stalled in this and the last Congress.

To their credit, the drafters of the Housing and Economic Recovery Act of 2008, which passed the Senate on July 11, at least recognized this danger of throwing billions in construction grants to state and local goverments. So they put in a clause stating, “No funds under this title may be used in conjunction with property taken by eminent domain, unless eminent domain is employed for a public use.” The clause then adds that “public use shall not be construed to include economic development that primarlily benefits any private entity.”

But this language has vanished from the House bill that passed yesterday, replaced with phrasing that at first glance may seem simlar but would give governments subtantially more leeway to take land. The nearly 700-page bill craftily replaces the Senate’s prohibition on funds “used in conjunction with property taken by eminent domain” with a looser ban on using the funds for a “project that seeks to use the power of eminent domain.”

This new language in the House bill would give property-grabbing bureaucrats an easy way around the supposed prohibition on using eminent domain. All they would have to do is take property for any reason that Kelo allows, and then come up with another project for the specific use of that property. If land were grabbed for general economic development, as Kelo permits, and then a new project were created for a city to sell this land to developers, this would likely not be a violation of the House bill. After all, the new project isn’t “seeking” to use eminent domain, it is merely using land that had already been confiscated.

It is typical for governments to many times change the “project” or purpose of land use once it has been taken through eminent domain. This was the case in Kelo. As Justice O’Connor noted in her eloquent dissent describing the shifting justifcations for the land grab in New London, Conn: “Parcel 4A is slated, mysteriously, for ‘park support.’ At oral argument, counsel for respondents conceded the vagueness of this proposed use and offered that the parcel might eventually be used for parking.”

The Senate language, by contrast, isn’t ironclad but a broad ban on funds being used “in counjunction with” eminent domain for economic deveopment would at least put some necessary burdens in using these new funds to help confiscate land. All in all, this new language means that if the new bill is what ultimately passes, there will be virtually nothing stopping states and localities from using the federal housing grants to help themselves to confiscate housing.

How did these property rights protections get removed? That’s somewhat of a mystery. Barney Frank may not be a friend of property rights, but then neither is Treasury Secretary Paulson, who, according to press accounts, convinced President Bush to decide not to veto the bill. Just after Bush nominated Paulson to head Treasury, CEI adjunct scholar Steve Milloy warned that Paulson “has demonstrated little respect for private property rights.” Milloy noted that as head of Goldman Sachs, Paulson spent shareholders’ money to support environmental groups’ efforts to stop forestry on a piece of land in in Tierra Del Fuego, Chile. After this pressure, the Chilean landowner was forced to sell the land to — who else — Goldman Sachs. For this reason and others, Milloy urged the Senate to reject Paulson’s nomination, as did CEI.

Because of the House changes, the Senate has to pass the bill one more time before it goes to the President. This slighting of property rights from the earlier Senate bill cannot be ignored. Otherwise, the US may repeat the tragedy of ’50s and ’60s “urban renewal,” where the “federal bulldozer” of government housing programs literally made people homeless.