‘Replacement costs’ likely go by wayside with eminent domain vote

A ballot initiative to curb eminent domain in Mississippi to protect private property from private enterprise carries a cost land owners may not have considered, says Randy Kelley, executive director of Three Rivers Planning and Development District.

New limits on the state’s eminent domain law through a constitutional change could end the paying of “replacement value” to landowners who sell their land for economic development projects, said Kelly, whose private non-profit agency served as the lead entity for acquiring the 2,000 acres on which Toyota is scheduled to open its 10th U.S. plant this fall.

Unless Mississippi courts bounce it from the ballot, voters will be asked Nov. 8 whether the state should be prohibited from taking private property on behalf of private enterprise.

From a dollars and cents standpoint, Kelly said, voters would be better off passing an amendment that guarantees replacement value compensation for any eminent domain taking. Current state policy forbids the paying of replacement value, Kelly said.

He noted the private nature of Three Rivers allowed it to compensate landowners at replacement value, not only for the land and building but for all improvements on the land such as barns and fencing.

In today’s real estate world, big dollar differences exist between “replacement value” and “market value.” Consider this, said Kelly: Replacing your house or farm would cost you a lot more today than you would get in today’s market.

“If your home appraises for $150,000 and it would cost you $250,000 to replace it, they are not giving replacement value,” Kelly said.

In acquiring land for the Toyota factory, “If you had a barbed wire fence, we gave you what it would cost to replace barbed wire.”

Replacement value compensation was “the reason we didn’t have to use eminent domain,” he added.

The two exceptions involved two aces, one a church that had been abandoned since 1927 and the other a parcel owned by a half dozen heirs who were split on whether to sell.

Sticker shock

As Kelly’s Pontotoc-based agency began assembling land for a mega site that would later be shopped for an auto plant, it became clear, he said, that out-of-state landowners wanted to game the system.

“The locals were wonderful. They knew we were giving replacement value and knew we needed the jobs in Mississippi. However, you always run into absent landowners from other states who wanted 10-plus times what other folks were willing to take for their property.”

Without eminent domain as an option, the state had zero leverage, he said. “The taxpayers would have had to give a lot more money to get the property.”

Recall that when BMW came to Spartanburg, the State of South Carolina paid $32,000 an acre for land on which the German automaker’s plant now sits, Kelly said. “We gave $6,800 an acre” for the Blue Spring land.

Problems from below

Leland Speed, interim director of the Mississippi Development Authority, noted in a recent interview on eminent domain issues “that people who haven’t had the experience of trying to clear titles on properties probably don’t appreciate how difficult it can be.”

Kelly said he fully appreciates how difficult it can be and noted that absent eminent domain, the issue of subterranean mineral rights could have made assembling the Toyota land impossible.

He said a gas or oil well hasn’t been dug in Union County, home of the plant, since the 1960s. But the parcels the Three Rivers agency had to acquire all had mineral rights attached to them, many of which were spread among heirs in all corners of the country. Unless those rights are waived, you can buy a piece of land and someday find someone digging a well on your property, Kelly said.

He put a value of about $15 an acre on the mineral rights. “Sometimes there would be 30 heirs to split that $15.”

Without eminent domain, each heir would have had to be tracked down and persuaded to sell the mineral rights. But with eminent domain, Three Rivers could advertise the transfer of the mineral rights and place the $15 an acre with the court. “Without eminent domain,” Kelly said, “you could never have gotten clear title.”

Where to now?

Created in 1971, the Three Rivers Planning and Development District got the job of acquiring the options for and purchasing of the 2,000 acres to create the Wellspring Project, a mega site the alliance marketed at auto trade shows around the country in search of a tenant. Three Rivers made the purchase on behalf of the counties of Pontotoc, Union, and Lee, which had come together to form the PUL Alliance to spur economic development in Northeast Mississippi.

By virtue of its private nature, it could pay replacement value to the slightly more than one dozen landowners involved, Kelly said.

At completion of the purchases, the PUL Alliance issued $25 million in general obligation bonds to repay the debt Three Rivers incurred in acquiring the land for Wellspring.

The alliance landed the big prize in February 2007, with Toyota’s announcement of a $1.3-billion plant in Blue Springs.

With voters Nov. 8 likely to kill the state’s ability to take private property for assembling future mega sites, Kelly is uncertain Mississippi will see more efforts like Wellspring.

The task could be far too daunting, he said, citing the difficulty of obtaining mineral rights and the possibility a single disbanded corporate landowner (such as the 1927 church in Union County) could make the land assemblage futile.

Future mega sites will have to be assembled from parcels owned by a single owner or a very small number of owners, Kelly said. He added the price could be prohibitively high, considering all the leverage would now rest with the owners of the large land holdings.

Backers of the amendment note that other Southeastern states that have auto plants such as Georgia and Alabama have enacted stringent provisions against the taking of private property for economic development projects.

Alabama — and perhaps Mississippi and Georgia — could soon find whether the loss of eminent domain is a deal killer in the auto plant recruiting game.

Autoblog reports Hyundai executives are considering construction of a second auto-making facility in the United States to keep up with rising demand, says Al.com, a news web site for the Birmingham News, Huntsville Times and Mobile Press-Register.

Hyundai’s Montgomery-area plant at Hope Hull, which began producing cars in 2005, employs more than 2,700 people and manufactures the company’s Sonata and Elantra models.

Al.com says Autoblog reported Hyundai executives will see if that increased demand continues through 2011 before making a decision.

Alabama beat Kentucky out for the plant partly through its ability to assemble land through eminent domain, SiteSelection.com reports.

“The Kentucky government has failed to condemn parts of the candidate site for the Hyundai plant, due to a pricing dispute with the land owners,” Hyundai CEO Kim Dong-jiin said in the SiteSelection.com report on Hope Hull’s selection.

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