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Anti-Kelo Reform in California and "Proposition 13 Takings":

Tim Sandefur has a report on California's efforts on the efforts to respond to Kelo in California, which he says addresses many of the weaknesses in the reform efforts in other states:

There are now at least two eminent domain ballot propositions that have been filed with the Secretary of State's office for placement on the November, 2006 ballot. There may be a third, I haven't heard yet. The text of one of these, written by State Senator Tom McClintock, I reproduce below. When I have the others, I'll post those, too.

As you can see, the McClintock proposal avoids the pitfalls I've pointed out in my article about the backlash so far. It does not contain exceptions that allow for redevelopment, in the way that Texas and Alabama's laws do. And it does not limit itself to a meaningless report like Ohio's. The important language is: "Private property shall not be taken or damaged without the consent of the owner for purposes of economic development, increasing tax revenue, or for any other private use, nor for maintaining the present use by a different owner." The bold language is especially important, because Kelo presents a special problem for Californians due to Proposition 13.

After Kelo, there is no reason the state cannot condemn homes and resell them to the owners or other users solely to increase the property tax assessment on the transfer of title as allowed under Prop. 13.

I personally hope that Tim is right that California will act with stronger reforms than elsewhere. One advantage in California is that the reforms will be proposed as ballot propositions, rather than being generated by the state legislatures. This thus avoids the agenda-setting and related public choice problems otherwise associated with enacting reforms designed to tie the government's hands when it comes to taking property.

Nonetheless, the public choice problems remain daunting, but perhaps not overwhelming. As Tim writes, "Now that this proposition has been submitted to the Secretary of State, it must get enough signatures to qualify for the ballot. That costs money, and that's one of the big problems this initiative faces. If it gets on the ballot, polls suggest it would pass overwhelmingly. But getting it on the ballot requires money, and who's going to pay it? There's little money to be gained in eminent domain reform…."

Tim also raises a question that others have asked me--Could the state condemn homes and resell them solely to increase the property tax assessment under Prop. 13? My reading of Kelo is that Sandefur's concern appears to be largely justified (although not inevitably so). (I am not aware of precedents other than Kelo that might govern this question). Parts of the Kelo opinion suggest that the Court seems to indicate that the possibility of an increase in tax revenues can qualify as an adequate public use, and so the state could simply take a home and sell it to someone else, thereby getting a property tax boost.

On the other hand, there is some language in the opinion that refers to the Taking as being part of an integrated developmental plan, so it is not clear whether a taking of particular homes simply to increase the tax revenues would qualify. Reading the opinion, however, it does not seem to require an integrated development plan for a Kelo-style taking, or whether that is a factor to be considered. Rather, it simply suggests that the fact that there was an integrated development plan in the case makes the Taking less questionable than would be the taking of a discrete parcel of property. Certainly Justice O'Connor's Dissent assumes that such a plan is not required but that individual parcels could be taken, as her famous Motel 6 example makes clear. Stevens does not appear to offer any response to O'Connor's expression of concern. Moreover, whereas there was merely the prospect of increased tax revenues in Kelo, in a "Prop. 13 taking" the government would be guaranteed an increase in property tax revenues.

As to this point, Justice Stevens writes in Kelo (some citations omitted):

It is further argued that without a bright-line rule nothing would stop a city from transferring citizen A's property to citizen B for the sole reason that citizen B will put the property to a more productive use and thus pay more taxes. Such a one-to-one transfer of property, executed outside the confines of an integrated development plan, is not presented in this case. While such an unusual exercise of government power would certainly raise a suspicion that a private purpose was afoot, the hypothetical cases posited by petitioners can be confronted if and when they arise. They do not warrant the crafting of an artificial restriction on the concept of public use [fn].

He adds in a footnote [fn]:

A parade of horribles is especially unpersuasive in this context, since the Takings Clause largely "operates as a conditional limitation, permitting the government to do what it wants so long as it pays the charge." Eastern Enterprises v. Apfel, 524 U.S. 498, 545, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998) (KENNEDY, J., concurring in judgment and dissenting in part). Speaking of the takings power, Justice Iredell observed that "[i]t is not sufficient to urge, that the power may be abused, for, such is the nature of all power--such is the tendency of every human institution: and, it might as fairly be said, that the power of taxation, which is only circumscribed by the discretion of the Body, in which it is vested, ought not to be granted, because the Legislature, disregarding its true objects, might, for visionary and useless projects, impose a tax to the amount of nineteen shillings in the pound. We must be content to limit power where we can, and where we cannot, consistently with its use, we must be content to repose a salutory confidence." Calder, 3 Dall., at 400, 1 L.Ed. 648 (opinion concurring in result).

This does not appear to rule out the possibility of a Prop. 13 Taking to me. Nor does his response to the "parade of horribles" stand up to scrutiny here, because the government can simply resell the property, so it is a financial wash on that front. But it can then capture an increased tax revenue if it chose to do so. Finally, as the form of the transfer would be a taking from A to give to B, assuming the property were resold the primary beneficiary of the transfer would be the government, this does not seem to be a purely private taking (at least as Stevens sees it). Thus, as I read the case, Sandefur's concern and the California law that is being proposed in response, seems appropriate.

The Court's repeated reliance on Ruckelshaus v. Monsanto in the Kelo decision also suggests that the existence of an integrated development plan is not a necessary condition for a Kelo-style taking (although the Court suggests that it may be a sufficient condition), but that it is sufficient to take the property of discrete property-owners if the government believes that some abstract public benefit might result. In characterizing that case, the Court wrote in Kelo:

In Ruckelshaus v. Monsanto, Co., 467 U.S. 986, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984), the Court dealt with provisions of the Federal Insecticide, Fungicide, and Rodenticide Act under which the Environmental Protection Agency could consider the data (including trade secrets) submitted by a prior pesticide applicant in evaluating a subsequent application, so long as the second applicant paid just compensation for the data. We acknowledged that the "most direct beneficiaries" of these provisions were the subsequent applicants, id., at 1014, 104 S.Ct. 2862, but we nevertheless upheld the statute under Berman and Midkiff. We found sufficient Congress' belief that sparing applicants the cost of time-consuming research eliminated a significant barrier to entry in the pesticide market and thereby enhanced competition.

As I read Kelo then, with respect to a "Prop. 13 Taking," the Court seems to leave this in the hands of the political process with no constitutional protection. I don't see constitutional restrictions in Kelo that would prohibit this sort of taking, especially with the unquestioned increase in tax revenues that would result.

Update:

My initial post inadvertently omitted an important "not" before "overwhelming." I have corrected the typo.

Steve:
You're right that the Court failed to rule out a hypothetical that wasn't presented in the case before it. You're wrong to say that the hypothetical is thereby left in the hands of the political process with no constitutional protection. The case of a municipality taking property for no other reason than to increase tax revenue (which, I'm sure, will happen any day now if your claim that Kelo allows it is correct) simply hasn't been decided yet. The fact that the Court didn't set an outer boundary doesn't mean there will never be one.
12.8.2005 2:48pm
Dilan Esper (mail) (www):
I HATE Kelo. Despite the fact that my politics are quite liberal, I found myself agreeing with just about everything Justice Clarence Thomas said in his dissent in the case.

Nonetheless, as a lifelong California resident, I have to say, PLEASE don't encourage more ballot initiatives! These things are AWFUL! They encourage legislators to do nothing and let the voters do the heavy lifting. They are filled with free-lunch economics, simultaneously jacking up spending and prohibiting tax increases. They are sold to the public with simplistic slogans that are designed to conceal the complexities of the provisions and especially policy effects that the public would not support if they understood them. And they occasion obnoxious multi-million dollar advertising campaigns every election cycle.

I'd love to see the California Legislature tackle the Kelo problem, though they never will I am afraid. But please, no more ballot propositions! That is the road to this state's ruin!
12.8.2005 2:50pm
Alan (mail):
It is entirely possible that a "Prop 13 Taking" is a permissible exercise of the power of eminent domain. But I'm not sure that you really need Kelo to make that claim.

You indicated that you weren't aware of other precedents that might govern the claim, but I think that you're probably in the heart of the Midkiff decision noted by the Kelo majority. Hawaii Housing Authority v. Midkiff involved a legislative regime that transferred the ownership of property from one private party to another not for the purpose of economic development, but because having the property in the hands of a different owner would remedy a public problem: concentration of ownership.

That might be more appropriate precedent for analyzing a Prop 13 Taking than Kelo. As with Midkiff, the legislature is not concerned with the ultimate use of the land, but merely its ownership. The concern stems from the length of time of ownership, rather than concentration of ownership. However, an artful legislature can cast public findings that long-term ownership stifles a healthy property market just as much as concentrated ownership.

Since Midkiff was unanimous (and penned by O'Connor to boot), I'd certainly want to travel under it if I were trying to defend a Prop 13 taking.

Alan
12.8.2005 3:45pm
Gordon (mail):
Maybe the solution for California is to change Proposition 13, so that local governments wouldn't be tempted to take advantage of the ridiculous inequities it has created in the realm of property taxation.

Just a thought ...:)
12.8.2005 4:48pm
Shelby (mail):
For those not in the know, Prop. 13 puts a 2% cap on annual property-tax increases in California regardless of rising property values, but does allow a step-up in tax basis when the property changes hands (except in-family transfers). I don't know whether this affects nonresidential property, and there may be other exceptions.
12.8.2005 4:50pm
Gordon (mail):
As of 1993, when I left California, non-residential property enjoyed the same 2% tax cap, removed upon resale.

With the wildly escalating property values in California, the resulting inequities are absurd.
12.8.2005 8:06pm
NickM (mail) (www):
To take advantage of the escalation in property value, you actually have to sell the property. [Borrowing against it still has to be repaid, and doesn't present a general economic advantage.] Then you lose your Prop 13 protections.

A Prop 13 repeal would either force large numbers of homeowners, especially seniors living on fixed incomes, to sell their homes or would be riddled with exceptions for selected (and usually politically important) groups.

Nick
12.9.2005 3:57pm