This month it’s been 20 years since the US Supreme Court ruled in Kero v. City of New London. The 5-4 ruling upheld the court’s rating standards respect for Congress when determining whether economic development (e.g. employment, tax revenue) would meet “public use,” even when the government was communicating seized property to other private parties.
Kero was quite controversial at the time, but interest in it has faded naturally over the years. Under this declining spotlight, the government has become more creative than ever in ways that exercise prominent territory.
In Richmond, California, for example, the city tried to seize an upside-down mortgage to protect its residents from foreclosure. Atlantic City uses prominent domains without a specific plan for how seized characteristics are used. In Minnesota, when older women fell behind property taxes, the county seized condos, sold them, settled tax bills and maintained revenue. And in my hometown of North Carolina, dozens of homes and local churches were seized, giving way for a new electric vehicle assembly plant.
These types of cases are counted as abuses of power in prominent domains. These “grabing hands” not only destroy taxpayer dollars and valuable resources, but also unnecessarily violates them fundamentally and unnecessarily abuses constitutionally protected rights.
However, economists have shown that prominent domains have legitimate uses. That is, the acquisition of economic development can promote public interest (economic efficiency) when used in the presence of cosmic strategic holdouts in the way of development.
Here is the classic question that Kero raises. How can you regulate abuse to avoid abuse while preserving legitimate USS in prominent domains? It’s not the answer to leave things clearly to the legislative majority – that’s the reason for abuse in the first place. Instard, better regulations from government regulators will help.
In a new paper coming soon in a Law & Economics review, co-authors Justin Pace and Jon Murphy and I will unearth the long-term dynamics of how to regulate prominent domain authorities. The first thing is that government officials devise ways of restricting existing, well-known domains, even those who are trying best. Following the literature on financial regulation and campaign finance, we call this loophole mining. As the general spotlight of abuse fades, it becomes especially powerful over time. Second, loophole mining requires continuous adjustments to the limits of prominent domains. Therefore, looking at the long-term dynamics of the issue, the effectiveness of the limitations depends not only on their initial design, but also on ongoing vigilance of regulators becoming overly creative in meeting rational-based tests.
This creates a complex, dynamic policy dilemma. Tighter limits may be responsible for mining loopholes in more creative shapes, simpler and may require Argulay more efficiently. The court is to abandon its rating standards and close the door to acquisition for economic development.
Close the amout of Kero’s loophole and say yes to keep the problem. Of course, central planners and development authorities wore double down with Howl, who claims that prominent domains are important to economic development. However, in reality, many literary bodies have shown that developers are extremely effective at dealing with holdouts without resorting to prominent domains.
It would be better for laws to allow entrepreneurs to deal with holdouts than keeping them spotting governments that hone their loophole mining skills. It will be past time when Kero will be revived 20 years from now.
*The long-term impact of Kero V. City of New London: Compare state legislation and judicial responses and the PDF download is available here.
Edward J. Lopez is a professor of economics at Western Carolina University, executive director of the Public Choice Society, and author of a number of articles and books, including madmen, intellectuals and academic livelers.
