"Kelo," SCOTUS and the Water Company


In its “Kelo Decision” of 2005 approving the right of a local government to condemn a private citizen’s property (power of eminent domain) in order to give it to a private group for purposes having nothing to do with a public enterprise, the Supreme Court (pre-Roberts and pre-Alito) opened a Pandora’s Box of problems accented most recently in Lexington, Ky., by a referendum vote overwhelmingly defeating a resolution occasioned by a petition drive to allow the local governing body to exercise eminent domain with regard to the company that provides the delivery of water to the city and surrounding counties. The citizens said a resounding “NO” to the proposition.

The system, owned by Kentucky-American Water Company and in place for 118 years, was sold in 2002 to RWE AG, a German industrial giant that bought the entire AWC system of more than 800 local systems in the United States and Canada. A group of distinguished, moneyed citizens, including a former governor, a former Lexington mayor, and prominent business folks, didn’t like that idea and formed an organization to either force a sale of the local company to the city or institute eminent domain, whichever became necessary. RWE made it plain that the system was not for sale.

That was also an election year and the successful mayor-candidate campaigned on the issue, favoring the “whichever became necessary.” The governing body went along with the idea, but there was no ready cash to instigate the proper proceedings. Enter the prominent citizens with a “loan” of $750,000 to start things, and the council, exercising terrible judgment, accepted it. The city lawyers went to work and about $1.3 million was used up in a hurry.

In the 2004 council-elections, things changed, the result being that the process was officially stopped by a majority against the “taking.” It needs to be mentioned that none of the water could be delivered without electricity, and that the company delivering electricity to the city was also foreign-owned then (by a British concern), and today is owned by or part of another German giant, E.ON, headquartered in Dusseldorf, Germany. It’s hard to imagine such an example of “getting the cart before the horse,” but that’s what happened.

The aforementioned prominent citizens and others exercised successfully their right to petition for a referendum on the matter, but it could not be on a ballot in 2005, since that wasn’t an election year. It was resoundingly defeated in the latest elections, even though RWE plans to sell the entire system next year, but not in a piece-meal manner. If and when the system is sold, the performance of the new owner can be evaluated. Under the present management, the system has been operated quite satisfactorily, so performance has never been an issue.

Nothing could be plainer than the Fifth Amendment: “…nor shall private property be taken for public use, without just compensation.” The keyword is PUBLIC! In the New London, Conn., 5/4-decision (Kelo), the SCOTUS opened the door for any covey of corrupt politicians or other officials to take private property in behalf of those private entrepreneurs who claim that the taking is in the best interests of the community, in this case (Kelo) allowing for construction that will eventuate in much higher property taxes – that being for the good of the “public.” A fifth-grader can see through this.

Notwithstanding its fallacy, the Lexington group did not even have the Kelo argument, since the water rates were/are not inordinate and, in any case, are statutorily governed by the Kentucky Public Service Commission. Taking the company would have induced the opposite effect, in any case, since properties, worth millions, would be deleted from the tax rolls, thus hugely affecting tax-receipts collected by the city. In the bargain, the city now faces the payoff of the $750,000, plus interest, no doubt, but it would have taken millions of dollars over at least seven years to effect condemnation and then fight the appeals.

If there had been a public need for the property at issue in Kelo, such as the building of a highway, there would have been Constitutional grounds for condemnation. The same is true of Lexington. Perhaps the main lesson to be learned in this matter is that the Supreme Court, while it is now more constructionist than before Roberts/Alito, should be composed of justices who understand property rights.