[Nicole Garnett (guest-blogging), February 14, 2007 at 3:24pm] Trackbacks
Replacement, not Market, Value

First, a comment on Ilya’s thoughtful response to my post yesterday. Ilya argues that my story about Catholic churches along Chicago’s expressways is more about political power than subjective value. I don’t deny this. Catholics had clout in 1950s Chicago. But, I also stand by my argument that high-subjective value may intensify political opposition to takings (and therefore, increase the likelihood such efforts will succeed). Ilya is also right to point out that many thousands of private homes, with high subjective values, have been taken over the years. As I argue in my paper, subjective value alone may not be enough; homes may not provide the natural rallying points for collective action that the parish churches did.

I agree completely that that the avoidance phenomenon I discussed yesterday will not zero-out owners’ subjective losses. More money (and perhaps public use review) also is needed to protect owners. It is curious, however, that the eminent domain literature focuses almost exclusively on the compensation mandated by the Constitution, rather than the amount of compensation that the Takers actually pay property owners. This literature overlooks the extent to which owners frequently are legally entitled to substantially more than the fair market value of their property. This oversight might be the result of confusion over terminology – the compensation is frequently labeled “relocation assistance”; it also might result from law professors’ constitutional-law-centric orientation. But to even begin a discussion of the compensation question, it is necessary to understand what federal and state laws actually require governments to pay dislocated owners. This post provides a brief outline of these legal entitlements.

Federal Relocation Assistance

Uniform Relocation Assistance and Real Properties Acquisition Act of 1971 (enacted in response to the concern that the individuals displaced by highway and urban renewal projects suffered substantial financial hardship) requires federal agencies, as well as state and local agencies receiving federal funds, to provide relocation assistance whenever they displace property owners. The Uniform Act essentially guarantees that owners receive their property’s replacement value, not its market value, by requiring Takers to ensure that displacees can secure comparable replacement housing,. Takers must take whatever steps are necessary, including, as a last resort, the purchase or construction of a new home “in order to re-house displaces and permit a project to continue in a timely fashion.” Takers must also compensate displaced owners for moving expenses, as well as mortgage, and closing costs; businesses are entitled to receive up to $10,000 for “reestablishment” expenses.

The replacement-dwelling guarantee can substantially improve the housing situation of displaced occupants. Because the replacement dwelling must be “decent, safe, and sanitary,” “adequate in size to accommodate the occupants,” “within the financial means of the displaced person,” and “in a location generally not less desirable than the location of the displaced person’s dwelling” Takers sometimes must secure a larger, more expensive home for a resident—for example, because a family’s current dwelling lacks the appropriate number of bedrooms for their children under local housing codes. Technically, the displacing agency is directed to pay up to $22,500 to enable a homeowner to purchase an appropriate residence. (Tenants are entitled to up to $5,200.) It is fairly clear, however, that that these limits are routinely exceeded.

State Relocation Assistance

Since federal funds help finance many highway and redevelopment projects, the extent of the Uniform Act’s guarantee is quite broad. Moreover, most states extend it to all projects receiving state funds, and a few require it for condemnations by any public entity. In addition, there is a trend toward providing additional compensation for dislocated businesses. For example, direct recovery of business losses, such as a loss of good will, is allowed in a handful of states.

Relocation Assistance In Practice

A handful of empirical studies provide a snapshot of how relocation-assistance programs work in practice. Two themes emerge from these studies: First, the dollar amount of relocation-assistance received by residents displaced by eminent domain usually is quite generous. Second, relocation assistance frequently falls short of fully compensating businesses for their losses. U.S. Department of Transportation’s Relocation Retrospective Study, conducted in 1995, provides the most complete recent picture of residential relocation assistance. This study found that residential property owners were pleased overall with the relocation assistance that they received. In fact, nearly ninety percent of the homeowners (and all but one tenant) surveyed indicated that they were “able to significantly upgrade” their housing.

In contrast, business relocation assistance is almost universally condemned as insufficient. One survey of 224 businesses found that the maxium business-reestablishment payment ($10000) was “almost universally considered inadequate.” Interestingly, business owners’ most significant complaint is that the maximum reestablishment payment falls far short of the costs needed to make modifications required by various regulatory codes, especially the Americans with Disabilities Act. Even in states which have elected to use state funds to exceed the $10,000 maximum, business owners complain that their code-compliance costs are not covered.

Undercompensation Revisted?

Relocation assistance generally provides owners with above-market compensation, but it does not guarantee that they are fully compensated for their losses. To fully understand the nature and extent (if any) of the undercompensation problem, we need to know more about how eminent domain works in practice. We need to understand what happens during pre-condemnation negotiations—the subject of my post tomorrow. We also need to know whether Takers tend to target certain disadvantaged owners (the poor, minorities, the politically powerless), and, if so, whether these owners are also systematically disadvantaged with respect to compensation as well. These empirical questions cry out for more research.