Eminent domain revisited

The Fifth Amendment to the Constitution reads, in full:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. [Emphasis added]

The assertion of the government’s right to take private property in these circumstances is known as “eminent domain.”

Minnesota, like most states, has similar language in its state constitution:

Private property shall not be taken, destroyed or damaged for public use without just compensation therefor, first paid or secured.

The Institute for Justice (IJ) notes that:

For most of the 19^th and early 20^th centuries, governments permitted eminent domain to be used only for true public uses, such as roads, bridges, parks, and public buildings and facilities.  The courts began authorizing a slight expansion of the power when they allowed private companies like railroads and public utilities to take property for the laying of railroad tracks and transmission lines—but these companies were tightly regulated and had to provide the public equal access to the rail lines or utilities.

However, as the Federal Reserve Bank of Minneapolis noted in 2006:

Over the past two decades, local governments in Minnesota have pushed the constitutional boundaries of eminent domain, aided by courts that interpreted public use broadly to apply to redevelopment of private land. Perhaps the most notorious example of condemnation for private development in the state is the Walser-Best Buy case in the Minneapolis suburb of Richfield. In 2000, the city’s Housing and Redevelopment Authority condemned three automobile dealerships so that electronics retailer Best Buy could build a $118 million corporate campus. Walser Auto Sales, owner of two of the dealerships, challenged the condemnation in a lawsuit. Ultimately, the state Supreme Court affirmed a district court ruling that taking the dealerships was “necessary and convenient in furtherance of a redevelopment project.”

The argument was that government taking private property could be justified under “public use” clauses not just to build military installations or flood defenses, for example, but also to take it from owners who generated less tax revenue for the government and give it to those who promised to generate more.

In 2005, the New York Times reported:

The 1.6-million-square-foot campus, made up of four buildings shaped like ships, was completed in 2003 and currently houses 4,500 employees. City officials say it has given a big boost to an aging community that had been steadily losing population since the 1970’s.

…

Real estate brokers and residents say having a Fortune 100 company has been a boon to Richfield. Prices of single-family homes have risen 8 percent in the last year, with the median now at $224,000, according to George Bodnia, a residential broker for Century 21 Luger Realty. Best Buy has been “substantial for the community,” he said.

But critics like Mr. McGrath [executive director of IJ’s Minneapolis office] point out that it will be a long time before Richfield benefits from the higher property tax revenue generated by the complex. Annual revenues have risen to $3.2 million, from $700,000, but under the TIF agreement, Best Buy gets to keep the difference for 25 years.

Mr. Palmborg [the city’s community development director] acknowledged that it was hard to put a dollar figure on what Best Buy has meant to Richfield. The company has instituted mentoring and other programs and it also helped pay for a badly needed bridge spanning I-494. At the same time, its employees have been encouraged to spend money within their self-contained campus, which has its own large health club, pharmacy, bank branch, billiard tables, dry cleaner, day care center and restaurant-like cafeteria.

But he said the headquarters had proved its worth by permanently changing the town’s image and prompting residents to invest in their homes. “Best Buy is not going to be in a town that’s perceived as a loser,” he said.

The Supreme Court’s decision in the Kelo vs New London case – which “ruled that the city of New London, Connecticut, could condemn fifteen residential properties in order to transfer them to a new private owner for purposes of promoting ‘economic development,’” as Ilya Somin noted for the Cato Institute – generated a backlash across the country and in 2006, cities power to invoke eminent domain in Minnesota was curbed by a change in state law. 

Yesterday, KSTP reported:

The City of Richfield is warning that a sharp drop in the Best Buy Headquarters assessed value could shift more of the city’s tax burden onto other property owners.

As Richfield plans its 2027 budget, the city said Hennepin County’s new assessed value for the Best Buy corporate campus fell from roughly $63 million to $32 million in one year. The city said that means a 5% drop in its commercial tax base for taxes due next year.

“We’ve been here, it’ll be 17 years,” said homeowner Jeremy Larson, adding that he hasn’t seen relief or stagnation on his property tax bill throughout those years.

“Never, never. Nope, it only goes up, and they keep on assessing our house for more, and taxes go up more,” said Larson.

On its website on Monday, the city said, “For Richfield, this reduction will result in a 5 percent drop in the commercial tax base of the city.” It also said, “As a result, other property types will increase to make up the difference.”

Richfield’s goose has stopped laying golden eggs.