Manufacturers: Watch Out for Eminent Domain
Eminent domain – is the power of the state to appropriate private property for its own use without the owner’s consent, according to the Wikipedia Encyclopedia. A recent Supreme Court case made the papers for a day or two but the issue seems to have quietly died away. But has it really?
The Supreme Court, in a 5-4 decision ruled that local governments may seize people’s homes and businesses against their will for private economic development. The ramifications of this decision are enormous. This decision will have a profound impact on small and mid sized manufacturers. Though the case at hand dealt with residential property―in particular many residences were slated to be demolished to make way for an office complex―the Supreme Court in effect, started down the slippery slope.
Let’s walk through a set of real-life examples. Let’s say you are a manufacturer located on the north side of the City of Chicago. All around you, residential property values have skyrocketed because developers have bought, developed and sold higher end single family homes. Even your own property values have increased. But, local residents are clamoring for Big Box retailers and/or higher end retail stores to be suitably located near their homes. Can the Big Box retailer(s), after trying but unsuccessfully enticing, you to re-locate your business then petition City Council to use their right of Eminent Domain to force you to leave?
It seems to us that a slew of new discrimination cases would arise from this decision. What makes one type of business have greater rights than another type of business? Yet this is precisely the situation that some manufacturers may find themselves.
Now let’s take a different example. Your company’s manufacturing process is not exactly “green and clean” or “sustainable”. Yet you do adhere to all of the EPA emission, OSHA and other governmental agency regulations. You are located in an economically disadvantaged area and a commercial real estate developer who specializes in building office complexes has the support of your local city council and economic development office to “develop” the area with the promise of more “white collar jobs”. You have refused to sell out and the developer decides to use Eminent Domain along with a pro-environmental public relations campaign to have you re-located. The point is―where can the line be drawn?
Eminent Domain supporters cite the fact that residents displaced in the name of economic development are provided market values for their homes. But for businesses, market value for real estate is surely not enough. After all, the company is running an operation. A day of lost sales can never be replaced. Moreover, many small businesses don’t have the people or the time to develop alternative business strategies such an action would force them to take.
One market approach that also takes into account the positions of all relevant constituents would involve some sort of market multiplier on property values. In other words, if a local government and commercial interest have identified your real estate as being required for economic development, that commercial entity must pay you not only market value for your real estate, but a 2-3x premium. This would create a self-policing policy that makes eminent domain a last resort for buyers and more palatable to property owners with limited interest in parting with their holdings.