Bailing Out Kelo

Of all the unintended
consequences of the housing bill that passed the House on Wednesday,
the most ironic and far-reaching may be this: whatever security
marginal homeowners have from foreclosures, their homes will be far
less safe from being taken by bureaucrats through eminent domain.

bill that emerged from the negotiations between House Financial
Services Committee Chairman Barney Frank and Treasury Secretary Hank
Paulson took the specific language protecting property rights from the
housing bill that most recently passed the Senate and rendered those
words almost meaningless.

Now, the billions of dollars 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.

5-4 decision in 2005 allowed states and localities to use eminent
domain for the benefit of private parties, so long as the land
confiscation served a "public purpose." The case generated mass
outrage, and rightly so.

As the Institute for Justice, which
represented the homeowners whose property was under threat in the case,
has argued, the result meant that no one’s home is safe. It would serve
a "public purpose" to destroy almost any residence and put a retail
store in its place to raise more tax revenue.

the decision, many states and towns have passed laws protecting
property owners by barring eminent domain solely for economic
development purposes. But many other municipalities have simply ignored
public opinion and used the ruling to condemn land with even more

As property rights expert Don Corace puts it in his new book Government Pirates,
"Despite the widespread fury from conservatives, libertarians and
liberals, hundreds of cities throughout the country cheered the ruling
and continued their assault."

And for the many areas that still
utilize 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.

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

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."

clause then adds that "public use shall not be construed to include
economic development that primarily benefits any private entity."

THIS LANGUAGE has vanished from the House bill that passed Wednesday,
replaced with phrasing that would give governments substantially 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

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, 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 change the "project" or purpose of land use
many times once it has been taken through eminent domain. In fact, this
was the case in Kelo.

Justice Sandra Day O’Connor noted
in her eloquent dissent describing the shifting justifications for the
land grab in New London, Connecticut: "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."

Senate language isn’t ironclad, but its broad ban on funds being used
"in conjunction with" eminent domain for economic development would at
least put some necessary burdens in using these new funds to help
confiscate land.

All in all, if this new language 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.

Frank may not be a friend of property rights, but then neither is
Treasury Secretary Paulson, who, according to press accounts, convinced
President Bush not to veto the bill. Just after Bush nominated Paulson
to head Treasury, Competitive Enterprise Institute adjunct scholar
Steve Milloy warned that Paulson "has demonstrated little respect for private property rights."

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 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 the Competitive Enterprise Institute.

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 U.S.
may repeat the tragedy of ’50s and ’60s "urban renewal," where the
"federal bulldozer" of government housing programs literally made people homeless.

If that happens, you ain’t seen a meltdown yet!

John Berlau is director of the Center for Entrepreneurship at the Competitive Enterprise Institute. He blogs at