SBE Council Small Business Fact of the Week

Small Business Still Faces Eminent Domain Abuse

(The following material was included in a presentation at the Property Rights Foundation of America's annual conference in Albany, NY, in October.)

The story of eminent domain abuse in the name of economic development and/or increasing tax revenues is, in part, about the politically connected using government power to harm small businesses.  Of course, this abuse was approved in the infamous 5-4 U.S. Supreme Court decision in June 2005 in the case of Kelo v. City of New London.

To recap quickly, the city of New London, Connecticut, decided to move ahead with an economic development plan, which included buying up some 90 acres of privately owned properties and then turning them over to other private entities. Government was taking property from some people, with compensation but against the will of various owners, and giving it to other people.  The hope was that somehow the local economy would improve.  There was no "public use" as demanded by the U.S. Constitution when government exercises its eminent domain powers.

Fortunately, public outrage and backlash has led to changes in laws in many states.  A June 2007 report from the Castle Coalition reported that "41 states have passed new laws aimed at curbing the abuse of eminent domain for private use."  Of course, it also is noted that some states have done nothing and many reforms are incomplete.  It is amazing that some kind of action has been taken in so many states.  But it must be remembered that the Court gave the green light for abuse, and that's exactly what has occurred and continues to occur in so many places, with small businesses often the target.

Consider the following few examples:

• I wrote about a building - known as the Swezey's building -- in Patchogue, NY, in a June 2006 Newsday column:

Mayor Paul Pontieri understandably isn't thrilled with the fact that the Swezey's building in the middle of town has been empty since 2000. He said that since taking office in March 2004, six or seven developers have considered the property. The village wants a hotel, with some residential and retail usage, on the site. Pontieri said he thought a deal was struck between the current property's owner, Joel Furman, and Hersha Hospitality. But, according to Pontieri, "Mr. Furman, for whatever reasons, has made some decisions that the deal wasn't what he wanted it to be."

Imagine a property owner making decisions about his own property. How annoying. What's a mayor to do? Take the property through condemnation, of course. Pontieri declared: "This eminent domain is about the possibility of acquiring that building with purposes of redeveloping it." Ah, Kelo casts its dark shadow.

Regarding Kelo, Pontieri said: "From where I sit, it affords us an opportunity. Do I believe you take property for the sake of somebody else making money? Absolutely not." But of course, officials in New London wouldn't say they were doing that either. It's always about what politicians call the greater good.

For example, Pontieri claimed: "It's about us saying, as a municipality, that we have a responsibility to move the village forward, and if we have something that's in the way of us doing that, then we'll take the step we have to take to do it." Hmmm, it sounds like individual property owners better not get in the way. In fact, Pontieri added: "The Village of Pathogue is much greater in what it is than that single piece of property. Those that sit around and believe that the rights of a single person, that single piece of property has such a deleterious effect to the greater Patchogue community, I believe that it's my responsibility to move forward."

That's rather scary in a Soviet Union-like way. The good of the village outweighs the rights of the individual. A property owner bullied or compelled to sell his property for not going along with the schemes of the government. Is this the United States of America?

The Constitution is supposed to protect individuals from such abuse. But what happens when the Supreme Court ignores the Constitution?

• Columbia University has a plan for a vast expansion in New York City's West Harlem, with the threat of eminent domain looming. Consider the following from an September 17, 2007, NY1 News report:

For 35 years, Anne Whitman's business has been her passion. "This is my whole life," said Whitman of Hudson Moving and Storage.

Whitman runs Hudson Moving and Storage, which caters to artists and designers. But there's a real chance she could lose it, starting with the building she owns on Broadway and 130th Street.

Columbia University wants to expand 17 acres in West Harlem, right through Whitman's business. If the $7-billion project is approved, all but three buildings would be razed.

Columbia has been buying up property for years and owns more than 80 percent of the land. Whitman is one of the holdouts. She says the Ivy League school is trying to intimidate her.

"Columbia University has been the most incredible bully that anyone can ever imagine," she said. "And if I didn't experience this myself first hand, I would actually have a hard time believing it."

She and several other small business owners and low-income tenants are fighting a David versus Goliath battle. They say Columbia is threatening their neighborhood, a mix of auto body shops, warehouses, and apartments. And they have their own proposal...

Right now, the plan is going through the city's public review process. If it wins all the necessary approvals, Anne Whitman may have to look for a new place to do business. The state can step in and permit eminent domain - forcing her out.

"I have no interest in Columbia's money," said Whitman. "I want my building. I want to be left alone. I want to run my company, and I want to provide jobs for my employees. I want my business to grow. Just as Columbia has plans, we have plans."

• The September 23 Fresno Bee in California reported the following:

The Baskin family has been fixing up car seats and selling parts in downtown Fresno for 90 years, and fourth-generation owner Bruce Baskin has no interest in moving the business.

His voice and temper rise when he talks about eminent domain and the city's plans to replace Baskin's Auto Supply and other businesses just south of Chukchansi Park with town homes and apartments.  "We don't want to go anywhere," says Baskin, 48.

Baskin's is in the middle of a six-block area that the Fresno Redevelopment Agency has targeted for homes, stores and fountains promised by Cleveland-based developer Forest City Enterprises.

The redevelopment agency -- which plans to buy the land and lease it to Forest City -- has the power of eminent domain and can acquire the property from landowners whether they want to sell or not.

Many buildings in the six blocks are vacant, boarded up and fenced off. The area has been labeled blighted by the agency.  But some businesses thrive, including Baskin's -- where Bruce and his father Richard Baskin often are busy installing new upholstery in classic cars...

Forest City had been in talks with the city several years ago about a different version of the project. Plans later were changed to emphasize residential over retail and company officials said the project was put on hold while they waited for the outcome of Proposition 90, a state ballot measure that would have severely limited the use of eminent domain.  The proposition failed to win voter approval last year, and Forest City was back in City Hall last month presenting plans that won praise from the council...

The article also noted a bit later:

Rick and Nanette Stockle own Mecca Billiards and have sold pool tables from their Fulton Street building for 21 years. Mecca has become well known, in part, for the colorful paint job on the Stockles' building. It's pool-table green and decorated with giant billiard balls and a pool cue.

Nanette Stockle does not want to start over in another location.  "We've prospered down here, but it took us a while to get established," she says.

The Mecca building is 7,500 square feet and has a parking lot of an equal size. Stockle doubts she can afford a similar-sized setup anywhere else.  "Where are we going to go?" she asks.

Larry Kragh doubts he can move his Arrow Electric Motor Service from its Broadway Street locale just south of the stadium.

Kragh's 55-year-old company started by his father repairs air conditioners and turbines that farmers use to move water to their crops. He says most of his machines are old and wouldn't survive a move. And some of his equipment can't be used legally at another location. The city would be required to move it, but not to offer further aid.

Kragh uses two ovens to burn off insulation so old turbines can be repaired. One is 33 years old; the other 22 years old. He has permits to use them in his 22,500-square-foot building. But Kragh says new air pollution control regulations would prohibit him from getting permits for the ovens at another location.

Kragh also fears he would lose customers if he moved.  "I have a business that's been here since 1952. I grew up with my Dad in this business and I've worked all my life here," Kragh says.  "Everyone knows where I'm at. Why would I want to move?"

• Finally, a columnist from the September 19, 2007, Courier Post in New Jersey, reported the following:

What is sad and worrisome is this proposed redevelopment project caused the displacement of 100 small-business owners who operated at the Pennsauken Mart.  After researching the story of the Pennsauken Mart, one can determine not only the extent of the abuse committed by the financially and politically powerful in Camden County, but also their true purpose and complete disregard for those who are most vulnerable.

The Pennsauken Mart had been around for half a century as one of the most popular business centers in South Jersey. In early 2000, a sudden smear campaign against the Pennsauken Mart was launched -- by whom was not clear.

Shortly after, the building's occupants received news that a redevelopment project had been approved for the site, ensuring they would be evicted.

Business owners began a long, legal battle and mounted protests, which intensified but, ultimately, brought no positive results. They were in despair and confused, finding all roads were closed to them.

Once again, the politicians who, during their election campaigns, promised to defend their constituents, abandoned them to side with the powerful business and public officials in the county.  By the end of 2005, all business owners, many of whom had shops in the Pennsauken Mart for 30 years to 50 years, had to leave.

These victims of an eminent domain ruling have been destroyed on behalf of a redevelopment plan, which for all purposes does not exist. All the urgency to evict these business owners from the site has so far resulted in a vacant plot of land.

The columnist also reported: "A recent article by the Spanish news agency EFE found that 15 months after the Kelo decision, more than 6,000 small properties have been subject to eminent domain for private development programs."

So, the abuse continues.  More action is needed in the states, as well as at the federal level.

In November 2005, the U.S. House of Representatives passed the "Private Property Rights Protection Act of 2005" by an overwhelming, bipartisan margin. But the U.S. Senate failed to act.

On July 12 of this year, U.S. Reps. Maxine Waters (D-CA) and James Sensenbrenner (R-WI) introduced the "Private Property Rights Protection Act of 2007." As noted in a previous SBE Council Fact of the Week, a press release from Congressman Sensenbrenner's office stated: "The Private Property Rights Protection Act of 2007 would prevent the federal government from using economic development as a justification for exercising its power of eminent domain. This legislation would also seek to discourage states and localities from abusing their eminent domain powers by denying them federal development funds for a period of two years. Today's bill is similar to H.R. 4128, which overwhelmingly passed the House in 2005, by a vote of 376-38."

Why hasn't Congress acted to stop this grave abuse of governmental power?

Raymond J. Keating, Chief Economist

This article may be reprinted with appropriate citation and credit.