Corporate welfare, corruption and the ‘blight' of the poor

The case for reform of Nevada's redevelopment laws

By Geoffrey Lawrence
  • Thursday, October 30, 2008

The need for reform of property rights in Nevada is clear.  Property rights that are defensible under the rule of law are the very foundation of a market economy.  However, property rights in Nevada have eroded due to a set of community redevelopment laws that confer dangerous amounts of power upon local politicians.

In 2005, the U.S. Supreme Court issued a controversial decision that greatly expanded the power of local governments to seize property through eminent domain.  The Court, in the case of Kelo vs. City of New London, interpreted the Fifth Amendment to the U.S. Constitution to mean that economic development is a suitable reason for government to use eminent domain power.  This decision allows local governments to seize property from homeowners and transfer it to private developers if politicians believe that the land could generate more tax revenue as the site for a casino or a shopping mall.

Abuse of eminent domain power for economic development purposes has been more egregious in Nevada than it has in other states.  While Nevada's current community redevelopment laws are tailored to facilitate Kelo-type takings, they go even a step further.  Those laws explicitly authorize redevelopment agencies to use taxpayer money to pay for privately owned development on seized lands.  This means that local politicians have the power to arbitrarily seize land from homeowners, use taxpayer dollars to build something on that land, and then give the land and the new structure to any of their politically favored allies in the private sector.  Nevada's laws even allow the redevelopment agency to do this with properties that lie outside of the redevelopment zone.

In a state even recently plagued by corruption, Nevada's community redevelopment laws give local politicians and rent-seekers every incentive to sabotage the property rights of homeowners.  These laws offer them a financial reward for doing so by enabling them to exploit the taxpayer booty. 

Often, those who suffer at the hands of a redevelopment agency are those least able to afford it.  In an effort to rid the city of "blight," land owned by low-income families is confiscated and transferred to large corporations – often at discount prices.  Low-income families typically do not have the resources with which to fight an eminent domain taking and are forced to abandon their property at whatever price the redevelopment agency offers.

Even then, the large corporation to whom the property is intended to be transferred is not committed to purchase the property at the price paid by the redevelopment agency.  Instead, they have an incentive to low-ball the agency even to the point of acquiring the land for free.  In this respect, large corporations have learned that redevelopment agencies can be a tool for seizing the wealth of the lowest-income families.

In Nevada, the power that is given to redevelopment agencies far exceeds the power that should be given any governing body.  According to the Clark County Redevelopment Agency, "Redevelopment Agencies possess unique tools which are legally unavailable to county government.  They are also especially important because often the private sector is unwilling to accept the added risk of investing in a redevelopment area without the cooperation and assistance of the public sector."  Redevelopment agencies are able to forcibly acquire private land and then force taxpayers to subsidize the "added risk" that private investors would not accept.

Citizens in many states have responded to the Kelo decision by pushing for state constitutional amendments that would safeguard property rights.  In 2006, 63.11 percent of Nevadans voted to approve the Nevada Property Owners' Bill of Rights, but the constitutional amendment will not become state law unless voters approve it a second time, this November. 

Yet this simple strengthening of property rights may not go far enough to limit the broad powers granted to redevelopment agencies.  The Nevada Legislature should reexamine the state's community redevelopment laws directly and impose much greater limits on the power of these agencies.

Geoffrey Lawrence is fiscal policy analyst at the Nevada Policy Research Institute. This article originally appeared in the Nevada Business Journal.

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