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October 06, 2005

Kelo and Political Corruption

Kevin Drum, seconded by Todd Zywicki at Volohk think this story outlines exactly the kind of corruption that the eminent domain endorsed by Kelo allows. Read the story and come back, but here's the core of the story.

* Carol Segal, a local retired electrical engineer, buys up a bunch of abandoned industrial property in Union Township for $1.5 million. He lobbies the local government to rezone the land for residential development, which will instantly make him rich, since what was low-value land becomes instantly more valuable with the zoning change.

* The city demands that as a condition of making Segal rich that he agree to various conditions, including working with developers picked by the Township, possibly for public interested reasons, more probably to share the economic booty from the zoning change with their political supporters.

* Segal refuses and the Township takes the land by eminent domain, meaning Segal will get paid back the value of the land without the zoning change, but he won't get rich as he hoped. Instead, some other political operator in the town will probably get the booty from the zoning change.

Now, Kevin or Todd thinks I should be outraged that the original political operator didn't get the unearned windfall from the zoning change. The real question is why any private landowner should get the windfall.

In the ideal, Union Township buys the land from Segal at the pre-zoning change market price, the town makes the zoning change, and the land is resold at its now much higher price. The city taxpayers reap the increased value from the zoning change and the development moves forward.

Pay attention to that jump in value due to the zoning change. That's really what all these debates are about. Who deserves to get that windfall?

Let's be clear-- giving it to the original owner is not rewarding anything but dumb luck or shrewd political manipulation and lobbying prowess. And if we are rewarding the latter, then why complain if someone else with better political manipulation powers grabs the land?

Of course-- and this is the key point -- we should want no one gaining financially from manipulation of the political process. Which is why people need to FOCUS on the economic payoff from zoning changes and the public should demand that WHOEVER develops land after a zoning change has to pay the public for the windfall from the zoning change.

If new developers are brought in through eminent domain because an old owner refuses to share that zoning change windfall with the public, then the real question to ask is whether the new developers are sharing the windfall with the public. That's the test of whether buying the land is for the benefit of the publc, or a sleazy corrupt deal.

That's the key issue. Not eminent domain.

Posted by Nathan at October 6, 2005 11:07 AM