Crying Kelo

In a harbinger of future land-use battles in California, Yolo County’s attempt to use eminent domain to preserve the rural nature of the Conaway Ranch, a 17,000-acre swath of farmland, flood plain and wilderness area situated between Woodland, West Sacramento and Davis, has property-rights activists and a group of Sacramento developers crying Kelo.

“Kelo” refers to last summer’s landmark U.S. Supreme Court case in which the court upheld the right of New London, Conn., to use eminent domain to create a redevelopment project in its economically strapped downtown business district. Eminent domain permits local governments to seize ownership of private property in order to create projects that are deemed to be in the public’s interest. In accord with the Fifth Amendment, property owners are entitled to just compensation in such seizures.

In New London’s case, the proposed project, to be built by private developers, would create new jobs and increase tax revenues. The problem was that Susette Kelo and eight other residents owned homes within the planned redevelopment area and were unwilling to sell. Even though the homes of Kelo and her cohorts were not in disrepair, the city condemned the properties using eminent domain and offered the homeowners just compensation for their loss. The homeowners filed suit, claiming that the city did not have the power to transfer property from one private party, the homeowners, to another, the proposed project’s developer, even if the project was in the public interest.

The Supreme Court’s dismissal of the suit ignited a firestorm of criticism from property-rights activists across the country. Libertarian organizations such as the Castle Coalition and the Institute for Justice perceive Kelo as an ominous expansion of government’s eminent-domain powers. California state Senator Tom McClintock, a staunch property-rights defender, lashed out in a column written shortly after the decision was rendered.

“Under the Kelo v. City of New London, Connecticut decision of the U.S. Supreme Court, government has become a thug,” McClintock wrote. “It is now entirely permissible for government to seize the home of one person for pennies on the dollar to give it to another—not for some over-arching public necessity, but simply because the new owner can pay more taxes than the old.”

For property-rights proponents, Kelo is a prime example of what they term eminent-domain abuse: Look out! Here comes big government to steal your home! The California Legislature has responded with a flurry of bills, including one co-authored by McClintock, designed to limit local eminent-domain powers. Currently, no fewer than three eminent-domain initiatives are in the signature-gathering process, vying for placement on the November ballot. And everywhere an eminent-domain procedure is in process, whether the case warrants it or not, property-rights activists are crying Kelo.

Yolo County’s attempt to gain control of Conaway Ranch is perhaps the most prominent case in point. It’s the first example of “eminent domain abuse” cited in McClintock’s aforementioned column. The California Alliance to Protect Private Property Rights, a statewide organization based in Yolo County that’s “dedicated to exposing the abuses of eminent domain,” continually cites Kelo in its literature and owes its existence to the controversy engulfing Conaway Ranch. Likewise, the Protect Our Homes Coalition, sponsor of one of the eminent-domain initiatives, conflates Kelo and Conaway.

“We’ve become the poster child for the Kelo case,” laments Yolo County Supervisor Mike McGowan, who adds that he sees no similarities between the two cases. “It’s just apples and oranges.”

The circumstances concerning Conaway appear to bear out McGowan’s assessment. The present-day controversy began in May 2004 when National Energy and Gas Transmission (NEGT), a holding company that assumed ownership of the ranch after previous owner PG&E’s bankruptcy in 2001, announced that it was putting the ranch up for sale. Yolo County wanted to buy the ranch for the purposes of preserving farmland and open space and retaining water rights. When negotiations broke down in July, the county entered into eminent-domain proceedings.

“The sale of the Conaway Ranch to a private-party purchaser poses significant threats to a continuation of the current agricultural and other uses of that property,” the county declared. “The only means of fully protecting against uses contrary to the public interest is for county acquisition of the Conaway Ranch.”

In December 2004, the board’s worst fears were realized when Conaway Preservation Group, a corporation composed of some of the Sacramento region’s largest developers, including Steve Gidaro, John Reynen, Carl Panattoni and Jack Sweigart, purchased the ranch for $60 million. Gidaro’s involvement in the deal was particularly troubling. In the early 1990s, Gidaro and a group of investors called the Conaway Conservancy Group contracted with PG&E to develop 4,000 acres of the ranch. The project was abandoned, but not before the group sold more than $6.5 million in water rights, resulting in a “substantial fallowing of farmland acreage,” according to the county.

Shortly after the December 2004 sale to the Conaway Preservation Group, Yolo County Supervisor Helen Thomson said she began receiving inquiries about developing the ranch and the availability of its water rights.

“Some were developers, and some were water agencies, looking for the possibility of water,” she said. “Some were from Southern California. One was from Las Vegas. The board wasn’t interested. There is no excess water on the ranch.”

While the board cites preserving the rural character of the ranch as one of the public interests justifying its eminent-domain action, it’s evident that water rights are of primary importance.

“It became abundantly clear to us that the water rights, the value and the ability to sell them off, were a significant incentive for the investors,” said McGowan, commenting on the depositions provided by Conaway Preservation Group investors in the case. “We have very limited authority over a property owner’s right to sell their water rights. We couldn’t regulate them from not doing it; our only course was to acquire them ourselves. My biggest fear is that they’ll sell their rights and our water will end up in swimming pools in L.A.”

Thomson seconded the notion. “Water is liquid gold in California, and we want that gold in Yolo County,” she said. Like McGowan, she believes that the Kelo case and Yolo County’s attempt to gain ownership of Conaway have little in common. “This is not condemning a house that someone has been living in,” she said.

Certainly, the case for public interest is much more clear-cut in the ranch’s case. Yolo County residents repeatedly have expressed their preference for retaining the county’s rural character, and water rights remain vitally important to both local communities and area farmers. Other than the fact that both cases involve eminent domain, there appear to be few similarities between Kelo and Conaway.

Nevertheless, the county’s opponents continually raise the specter of Kelo. For example, a March survey commissioned by the Family Water Alliance, another property-rights group opposing Yolo’s acquisition of Conaway, prefaced its poll with a brief description of Kelo vs. New London. Given Kelo’s particulars, it shouldn’t be too surprising that the survey of 585 likely Yolo County voters found a substantial majority opposed to eminent domain.

Neither Steve Gidaro nor any of the other members of the Conaway Preservation Group would comment for this article, but the group’s spokesman, Tovey Giezentanner of Wilson Miller Communications, believes the comparisons between Kelo and Conaway are valid.

“I realize Conaway doesn’t appear to be the typical Kelo case and the victims are developers, not seniors, churches or small business owners,” he said in a written statement provided to SN&R. “However, I believe Conaway is actually quite similar to Kelo—the ends are the same, but the means are disturbingly different and will have troubling implications for how government pursues eminent domain in the future.”

Apparently, such implications didn’t trouble the state Supreme Court, which in April declined to review the county’s right to pursue the property using eminent domain. Still, Giezentanner suggested that board members are being disingenuous when they claim they’re trying to preserve rural Yolo County. “I think it’s going to collapse under the weight of their dishonest approach,” he said.

Even though the Rumsey Band of Wintun Indians has agreed to finance the county’s purchase of the ranch, sooner or later the loan will have to be paid back. To do that, Giezentanner said, the county will have to unlock the value of some of the ranch’s assets, for example, by selling water rights or permitting some development.

“On June 13, a jury trial will convene to determine the property’s value,” Giezentanner said. “Public appraisals range from $57 million to $241 million.”

Annual income from the ranch is $3.5 million. So, even at the low end of the scale, the property’s income won’t cover the cost of financing the loan, which likely means there will need to be some change to the property to help pay for the property.”

But it’s the Conaway Preservation Group that’s being disingenuous, counters McGowan. He notes that the lower $57 million appraisal is the value determined by the county’s assessor. The Preservation Group’s $241 million assessment, four times the original 2004 purchase price of $60 million, is arrived at by selling off the ranch’s assets, including its water rights.

“The only way you get to that larger number is to cannibalize the assets,” McGowan said. “The only way they get to these values is if they do the things we are trying to prevent. My bottom line is that their approach to valuation has validated the county’s effort to protect the ranch.”

If ongoing closed settlement talks fail to yield a compromise, the ranch’s fate will be determined this June, when the jury convenes to determine its value. If the value is closer to the county’s estimate, McGowan believes Yolo will be available to afford to preserve Conaway. If it’s closer to the high end of the scale, the county may have to abandon its attempt to acquire the ranch. Either way, it won’t be the last time property-rights proponents and developers cry Kelo.