The Entrepreneurial View #488                                                               

Small Businesses Left Out in California Eminent Domain Remedy

by Raymond J. Keating

The California ballot battle over eminent domain was decided on June 3. It was good news for some homeowners, but not for small business owners.

Propositions 98 and 99 were placed on the California ballot in response to the U.S. Supreme Court's 2005 Kelo decision. By a 5-to-4 margin, the Court approved eminent domain abuse by government. Specifically, five justices simply chose to ignore the Fifth Amendment's limit placed on government's eminent domain powers, specifically, "nor shall private property be taken for public use without just compensation."

The "public use" mandate was tossed out by the Court, thereby giving a green light to governments looking to take property from one private owner in order to hand it over to another private entity essentially for any reason politicians like. The usual claim is that this form of theft will somehow boost economic development and tax revenues.

Proposition 98 was correct in its intentions. It would have protected homeowners, business owners and farmers from government violating their property rights through eminent domain abuse.

It also would have stopped government from dictating the price at which property owners must sell or lease their property. Rent control would have been phased out as renters vacated properties.

The rent control issue, however, got Prop 98 in trouble. Rent control clearly is an unwarranted and ultimately destructive intrusion by government into the free market, and it most certainly violates the property rights of owners.  It should be abolished. But was this the right vehicle for doing so?  The rent control issue wound up deflecting attention from stopping eminent domain abuses, and support was lost as a result. So, Prop 98 went down to a crushing defeat on June 3.

Meanwhile, voters overwhelmingly approved Prop 99. That was placed on the ballot by groups representing cities, counties and renters largely in response to Prop 98. Too many politicians, of course, want to maintain as expansive eminent domain powers as possible. Therefore, Prop 99 only prevents eminent domain abuses against owner-occupied residences.

With Prop 98 losing and Prop 99 winning, all others - including small business owners, farmers, and owners of rental properties - are out luck. Their property rights are still vulnerable to being unjustly taken by politicians and their appointees.

California needs to deal with one issue at a time. Leave the fight against rent control battle for later, and get protections against eminent domain abuse extended to all forms of private property. As has been the case in other states passing such measures, a large majority of Californians will see the obvious wisdom and justice in stopping all forms of eminent domain abuse. At this point, small business owners are simply a political whim away from losing their property and their livelihoods.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.