Should Private HSR Have Eminent Domain?

Eminent domain — the power to force people to sell their property — can significantly disrupt a society. People at risk of losing their land at any time will be reluctant to invest in improvements, which in turn will limit the nation’s productivity. For this reason, the Fifth Amendment says that eminent domain can only be exercised for “public use” and only with “just compensation.” Even then, people debate what is a “public use” and many who have been forced to sell their property don’t believe the amounts they are paid are “just” if they are significantly less than the unwilling sellers would have asked for in a free exchange.

Most states — no one is sure how many — have decided that railroads are a “public use” and have granted railroads the power of eminent domain. This raises questions like:

• What is the definition of a “railroad”?
• Can anyone call themselves a railroad and begin taking other peoples’ property?
• Does a railroad have to be operating to exercise this power?
• Does a railroad have to have rails to be a railroad?
• Can a railroad take peoples’ property even if they don’t have money to pay for it or to finish building the rail line?

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These and similar questions are addressed in Maryland and Texas courts where private companies that have proposed to build high-speed rail lines have demanded the right of eminent domain even though they don’t actually operate any trains and don’t even have enough money to build the proposed lines. The issue is slightly more straightforward in Texas than it is in Maryland.

The Texas Central Railway exists mainly on paper. It wants to build a high-speed rail line between Houston and Dallas and says it will build it with private funding. However, the railroad never had anything like the $10 billion that it originally estimated the project would cost, and since then the projected cost has doubled. At that cost, I’ve previously calculated, the railway will have to charge passengers far more than it costs to fly, which means it probably won’t have any passengers.

Despite these questionable finances, the Texas Central wanted to use eminent domain to buy right-of-way across Texas farms. Many of the farmers didn’t want to sell because the railroad would divide their property and make it harder to efficiently manage the land. They took the company to court arguing that it wasn’t a railroad because it didn’t own any rails.

In 2019, the court agreed and denied the use of eminent domain. The railway appealed, however, and the appeals court overturned the local court in 2020. A few weeks ago, the Texas Supreme Court refused to hear the landowner’s appeal, effectively affirming the appeals court ruling.

The removes the legal barriers to constructing the line, but what about the financial barriers? As Railway Age points out, the railroad still has no money.

“What private investors in their right financial minds would sink billions in capital into a passenger rail system?” the magazine’s editor asked. “Who are these purported investors?” Anybody who believes the Texas Central will ever be able to cover its capital costs “is smoking funny cigarettes.” Railway Age supports government subsidies for high-speed rail, but points out that “There isn’t an HSR system in the world that hasn’t been government-financed,” and the likelihood that Texas Central will succeed without government subsidies is nil.

So the real question was not whether a paper railroad should have the power of eminent domain but whether a company that doesn’t have enough money to finish a proposed project and doesn’t have a chance of making that project pay enough to investors to make them want to put up the money should be given the power of eminent domain. After using its authority to disrupt numerous lives and businesses, will Texas Central demand government subsidies to justify all of the chaos it has caused?

These questions are even more pertinent in Maryland, where a paper railroad that doesn’t have the money to build a project it is proposing is demanding the right to shut down another company’s business because it would be in the way of the train the first company can’t afford to build. Specifically, the Baltimore Washington Rapid Rail (BWRR) company proposes to spend $10 billion on a magnetically levitated train and says it needs land on Baltimore’s south waterfront for right of way. That land was purchased in 2020 by a developer named Stonewall Capital, which plans to build a mixed-use development with 1,500 residences and commercial and retail space.

In June, BWRR went to court seeking to condemn the Stonewall property, saying that it needed it for the maglev line. Early this week, Stonewall responded with a legal brief arguing that BWRR doesn’t have condemnation authority because, among other reasons, BWRR hasn’t done all that it needs to do to get eminent domain authority from the state of Maryland and, by the way, a maglev line doesn’t use rails and so therefore isn’t a railroad.

While a maglev may not use rails, it is still a “public thoroughfare” in the same sense as a railroad and, if it were financially viable, should have the same authority as a traditional railroad. However, as I’ve noted before, the Baltimore-Washington maglev will be both an environmental and an economic disaster. The real question is whether the promoters of a project that is not financially viable should have the same eminent domain power as people building projects that make economic sense. BWRR could have bought the property when it was for sale in 2020 but probably didn’t have the funds. Now it is seeking to disrupt the plans of the company that did.

Can I declare myself a “railroad” and take your house even if I don’t have a snowball’s chance in hell of ever raising enough private capital to build a rail line through your property? Can I shut down a project you are building on the off-chance that mine will someday become financially viable or get enough government subsidies to make it so?

What happens if I take people’s property and then run out of money and no government entity steps up to build the project in my place? Can I continue to live in your house or otherwise use your property for something other than a railroad, thereby shutting down truly viable economic activities such as Stonewall’s Baltimore development?

Apparently, in Texas, I can do all of these things. A court hearing on the Baltimore case is scheduled for August 30, so we may find out in a few weeks if I can do the same in Maryland as well. I am not a lawyer and this is not a legal opinion, but it strikes me that giving people eminent domain to promote projects that have almost no change of financial success is a terrible public policy.