Costco, the big warehouse chain, took a minor p.r. hit last year when the city council of Cypress, California, tried to kick a church off its land in order to give it to the company. But this case does not appear to be an isolated incident. The libertarian legal activists at the Institute for Justice say that Costco is a major beneficiary of local governments’ abuse of their power to seize private property. They want to put an end to that abuse.
The institute does not deny that governments have the power to seize private property “for public use,” so long as they provide “just compensation” (the wording of the Fifth Amendment to the Constitution). But it insists that such seizures should be limited to actual public uses. Taking someone’s property to sell it to a company doesn’t count.
There’s no central database of beneficiaries of eminent-domain abuse. But Dana Berliner, a lawyer at the institute, has been collecting news reports and case filings about these transfers of property since the beginning of 1998. “Of the big-box retailers, Costco shows up the most,” she says. In late 2001, a Costco shareholder, Susan Watson wrote to the company’s headquarters expressing her concern at the company’s tactics. Its chief legal officer wrote a response that conceded that “there are probably dozens” of Costco projects “where eminent domain or the threat of it has been involved in acquiring land for redevelopment.” (Costco representatives did not return my phone calls for this article.)
One of these projects was in Lancaster, California. Costco wanted to expand its store by knocking down a 99 Cents Store. Costco threatened to leave the city if it didn’t get what it wanted. In 2000, federal judge Steven Wilson found that Lancaster had improperly condemned the store: “In this case, the evidence is clear beyond dispute that Lancaster’s condemnation efforts rest on nothing more than the desire to achieve the naked transfer of property from one private party to another. Indeed, Lancaster itself admits that the only reason it enacted the [condemnation] was to satisfy the private expansion demands of Costco. It is equally undisputed that Costco could have easily expanded. . . onto adjacent property without displacing 99 Cents at all but refused to do so. Finally, by Lancaster’s own admissions, it was willing to go to any lengths — even so far as condemning commercially viable, unblighted real property — simply to keep Costco within the city’s boundaries. In short, the very reason that Lancaster decided to condemn 99 Cents’ leasehold interest was to appease Costco. Such conduct amounts to an unconstitutional taking for purely private purposes.”
Cities engaging in such property seizures typically claim that they are necessary to promote economic development. Members of the city council in Cypress, and the council’s defenders, noted that Costco would generate more tax revenue for the city than a church would (not surprising, considering that churches are tax-exempt). But as Berliner notes, that’s a dangerously far-reaching justification. “Most people’s homes would in fact produce more real-estate taxes if they were Costco,” she says. “If all it takes to condemn someone’s property is to say your house, if it were a Costco, would generate more taxes, then we’re all in trouble.”
The economic-development justification for property seizure is a license for abuse. It will always be possible to dress up the appeasement of powerful financial interests in an area in this fashion. The best economic-development strategy for cities, in any case, is not to attack property rights but to maintain their roads, apprehend and punish criminals, keep taxes low, and fix the schools.
I’m less enamored of litigation than the Institute for Justice. I also think that local governments that abuse their eminent-domain powers-and the state governments that allow this conduct-are more to blame than companies that take advantage of this regime. But I’ll give the last word to Berliner: “Big box stores always try to justify their involvement in eminent domain by saying oh, it’s not up to us, it’s up to the city. But transactions happen when there’s supply and demand, and if private businesses weren’t happy to take advantage of other people’s property — acquired by force and at a discount — then cities wouldn’t do it. So I don’t believe they can claim they have no responsibility.”