Reconsidering Kelo: the Takings Clause

The United States Supreme Court has agreed to take at least one case that addresses the Takings Clause of the Fifth Amendment. There is a potential another could reach the Court as there is a pending petition before the Court. One of the most important rights we enjoy is the right to own private property. This right has been held central in our history and, indeed, in its English roots. That right is codified in the Fifth Amendment’s Taking Clause that states the government cannot take private property without just compensation. Physical taking of property is fairly straight forward. However, most of the recent Supreme Court activity in this area involves regulatory taking. The biggest exception would be the ill-begotten Kelo decision.

The case actually taken is Arkansas Fish & Wildlife Service vs. United States and involves a “physical taking.” Located in the northeastern corner of the state of Arkansas, the state maintained a wildlife area for hunters, fishermen, and occasional timber harvesting of hardwood forests. Located along the Black River, the Army Corps of Engineers operates a dam upstream and in response to farmers there, they amended their water control plan. This resulted in the flooding of the wildlife area in Arkansas downstream over several consecutive years. The result was that the flooding essentially destroyed the hardwood forest and made it all but impossible for the forest to regenerate. The state sued and won a $5.7 million judgment which was overturned by the Appeals Court which ruled that intermittent, non-permanent flooding could not rise to the level of a “taking” under the Fifth Amendment. The trial judge stated the government should have known the amended water control plan would have caused the flooding in this area and the Corps later admitted such. In fact, Arkansas objected early on fearing what came to fruition. Arkansas today claims that the Takings Clause does not exempt any kind of government action inflicting permanent injury simply because it is not permanent. Conversely, the government contends that the flooding is a tort and not a taking. To be a “taking,” there must be a permanent flooding of the land and they have precedent on their side. On the other hand, a tort involves injury to the land as is what happened here. However, the acceptance of the flooding as a tort is disingenuous since the Corps is immune from tort liability for federal flood control projects under a 1928 law. Hence, the state has no redress for the loss of timber and use of the wildlife area other than the Takings Clause. In effect, a gray area exists that the Court will hopefully resolve.

At the worst, this seems to represent a temporary “taking” and several cases from the World War II Court indicate that even in the case of temporary takings, compensation should be awarded. Secondly, this case represents the same kind of legal merry-go-round and Catch 22 the Sackett’s found themselves in with their property in Idaho when confronted with an EPA compliance order. There, they were blocked from the courts but that was rectified by the Supreme Court in a 9-0 decision. Here, the state is barred from suing the Corps by law, yet they lost a natural resource along with use of the wildlife area for differing times which does not, the government contends, rising to the level of a “taking.” The end result is that the state is out the timber due to an action of the federal government.

The second case that may be taken is Harmon v. Kimmel arising out of the Second Circuit. It addresses New York’s Rent Stabilization Program. The Harmons own a brownstone apartment building in New York City where three of the five units (they occupy one of the five) are rent controlled. The rent charged is 59% below the market rate for similar apartments. Basically, New York’s RSP takes leaseholds from landlords and gives tenants permanent possession and lifetime tenure with succession rights. Even if sold, the regulated units cannot be removed from the rental market. The Harmons contend that this decreases the value of the property.

The last time the Supreme Court examined rent control, it was the 1920s. Then, the Court ruled on the legality of the program because it was an “emergency” situation due to lack of housing in the area after World War I. Since then, courts have basically allowed rent control regimens in response to recognized “emergencies. However, emergencies are generally of a short duration, not lasting 63 years. The state contends that these programs are within the state general policing powers in housing and in regulating the tenant-landlord relationship. That is, governmental regulation of that relationship can never be considered a “taking.”

The Second Circuit essentially dismissed all of the Harmon’s case based on this philosophy. They also contend that they are not denied procedural and substantive due process under the 14th Amendment, nor is the state placing a burden on a contractual relationship in violation of the Contract Clause. Their reasoning for that is the fact that the Harmons inherited the property knowing full well it was a rent regulated entity. They further, in a stunning display of chutzpah, stated that the Harmons could either sell the building or even have it destroyed and the property sold. They left out the fact that the when the Harmon inherited the property from his father, he continued to rent because he was compelled to by law.

Making the case even more interesting is the fact that the intended recipients of the good meaning intent of rent control regimens receive no benefit at all. They cite the fact that a former Governor, a House Ways and Means Committee chairman and a mayor have all benefitted from being lucky enough to have a rent controlled apartment. Furthermore, one of their own tenants pay a city-mandated $959 per month to the Harmons, but also rent an apartment on Long Island for $1,500 a month. Also, it needs to be noted that New York City has about 2 million rental units and half of them (1 million) are rent-controlled.

This would be a classic case of a regulatory taking. The landlords are prohibited from converting the property into a non-rental structure. Here, the government, through regulation, is making a property owner a slave to the state or city with respect to the rightful use of their own property in the absence of an “emergency.” The property in question has been owned by a Harmon since 1949. The alleged housing emergency here has lasted over 30 years. Because the state or city could not solve the alleged housing “crisis,” they have transferred that burden to private property owners.

One of the worst decisions, as concerns private property rights, was the Kelo decision. Since then, several states and municipalities have enacted laws disallowing the use of eminent domain in cases like that which existed in Kelo. But unfortunately, governments have found other ways around it, mainly through regulations, or through regulatory Catch-22’s. It is a good move that entities like the State of Arkansas, the Harmons and the Sacketts are fighting this tendency. These are truly Davids taking on the Goliath of an over-bearing government. Whether it is the flooding of land for the common good or rent control for the common good or onerous EPA guidelines for the common good, more people are fighting back for the even greater common good. Private property rights have, over the years, been infringed upon by the government. Slowly eroding these rights is a first step towards totalitarianism where property rights are subjected to the will of the government for the alleged “common good.” As economists from Milton Friedman to Paul Krugman have noted, rent control guidelines do not achieve that common good. It should also be noted that farmers in Missouri benefitted to the detriment of the citizens of Arkansas.