Power of Eminent Domain - When?

There’s a place for government action that sometimes impinges upon the rights of citizens, one such being the exercising of the “power of eminent domain,” the taking of property with appropriate remuneration to the owner for the purpose of establishing facilities for the common welfare thereon or therewith. Such facilities could include such things as roads, buildings, and parks. This action is perfectly legal, subject to an offended party’s access to the courts, and not infrequently exercised.

The “Kelo Case” in Connecticut last year brought the subject front and center, however, when a municipality exercised its eminent-domain power to take property not for public use, but for use by private concerns in the interest of profitability to the entrepreneurs and tax-enhancement for the government. The matter made its way to the Supreme Court, which amazingly ruled in favor of the city of New London, thus requiring the owner involved to give up the personal property. Without question, the interests of the businesspeople involved, as well as those of the government, will be more than well-served – they will be grandly enhanced; however, where does that leave the property owner? There are other such cases in the works now, one of them outlined in the Fox-News Hannity-Colmes program the other evening.

An unusually interesting eminent-domain case has been an on-and-off-and-on matter in Lexington, Ky., since 2003. Notwithstanding that probably 95% of all municipalities in the nation own (either built or bought) and operate their water companies, this city (280,000 population) did not build its own water-supply company years ago and has never owned it. It’s owned by the Kentucky-American Water Company, which was purchased a few years ago by RWE, a German outfit that operates water companies in many places.

Suddenly, there was panic in some quarters – especially among some of the city’s best-heeled citizens – engendered, at least allegedly, by the fact that a German company had immediately become enabled to somehow cut off the city’s water supply on a whim – or as an act of…whatever – and that something had to be done. These folks set up an organization for the purpose of seeing that the city become the owner of the water company – even through the power-of-eminent-domain route, if necessary. A handful of them even “loaned” something like $750,000 to the city to cover the costs of instigating action, and a property-appraisal firm was employed. The water company made it clear that its facility was not for sale and in subsequent negotiations even offered some prime land (a beautiful park leased by the city at a dollar a year) to the city.

The kicker in all this has to do with the electricity required to operate the water company. Its supplier, Kentucky Utilities, was sold a while back to Louisville Gas and Electric, the company furnishing power to Louisville, Ky., which in turn was sold to a company in Great Britain. In 2000, LG&E was acquired by Powergen plc of the U.K. Then in 2002, Powergen plc was acquired by E.ON, headquartered in Düsseldorf, Germany. So…not only the water supply in Lexington is controlled by a German company, but so is the power supply. Yet, the folks agitating for water-company ownership offer no exception at all to the German-ownership of the power supply, even though not a gallon could be pumped from the Kentucky River or purified without the use of electricity.

This brings back the question of ownership of the water company. In March 2003, a city consultant said Kentucky-American was worth between $157.7 million and $352.8 million. The council authorized the mayor to negotiate with the company. She learned again that the water company was not for sale. In July 2003, the City Council voted to move forward with condemnation proceedings against Kentucky-American, and the city filed a petition for condemnation in Fayette Circuit Court. In November 2004, four anti-condemnation candidates were elected to the council, swinging the majority against condemnation, and the Council nullified condemnation, after close to a million dollars had already been spent on the effort.

The agitators for local control conducted a successful petition drive to have the question placed on the ballot for a referendum by the voters. On June 17, 2005, Council sent the ordinance restarting condemnation to the Fayette County Clerk, who declared that a condemnation vote would be held Nov. 8, 2005. The water company, of course, filed suit, and on August 26, 2005, Fayette Circuit Judge Thomas Clark ruled that the citizen-initiated petition process was legal and set the election for November. The water company filed suit with the Court of Appeals to stop the election and was successful, but in May 2006 dropped the suit, allowing for the ballot to put the question in November. The consensus is that it takes about seven years and millions of dollars to complete the process upon which the voters will embark if they vote for condemnation. Of course, the water company may have decided that the ballot process is flawed and an adverse outcome can be held up in court for years.

There may still be questions, since Kentucky American Water provides water and related services to more than 310,000 people in 10 Central Kentucky counties. Do these people have a say in the process? If this becomes a question, it could go all the way to the Supreme Court, as did the Kelo case. The city has no system for operating water delivery to its citizens and those in the other counties, but in the event of a city takeover, how will those users in other counties be affected? Who or which institutions stand to profit? Under private ownership, the company is responsible to the Public Services Commission for the setting of rates, etc. Under municipal ownership, the city apparently will need to set up a water district, in which case what will be its parameters?

The most important question, however, is simply that of the “taking.” The water company is probably among the best in the state and is owned by investors. There is no complaint about its performance, and its rates are not out of line. Indeed, it must apply to the state’s Public Services Commission for a rate-change. The city is not equipped to run the company, has no legitimate reason for acquiring it…unless there’s a financial angle, the city becoming the private investor similar to the private entrepreneurs in the Kelo matter. Therein probably lies the rub, especially since the city, as in other areas, could well mismanage and cause deterioration to a system (and thus enhanced financial burden to the taxpayers) that is topnotch now. Used logically and in the public interest, exercising the power of eminent domain is necessary; however, if it is used to take that which belongs to one person or agency just to bring profits – either public or private – to another, a line would seem to have been crossed.