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Legislature quietly slashes DOT condemnation interest rate

Move affects property owners across the state

Fearing that the state would hemorrhage hundreds of millions of dollars after losing a legal fight over the Map Act, lawmakers pushed through a bill with a last-minute provision that drastically reduces the interest that gets folded into the compensation residents receive when the North Carolina Department of Transportation takes their land.

Eminent domain attorney George Autry of Raleigh called the provision “criminal,” while his wife and law partner, Stephanie Autry, asserted that it was unconstitutional.

“It’s deplorable,” Mr. Autry said. “The legislature has just been admonished by the court, so what do they do? They say, ‘We’re going to go back and try to do the same thing another way. We’re going to kill property owners’ ability to get their fair remedy by making the interest rate negligible.’”

The provision that was quietly slipped into House Bill 959 drops the state DOT condemnation interest rate from the statutory 8 percent simple interest to the floating prime rate, which is 3.5 percent. It also caps the rate at 8 percent, preventing owners from benefiting if the prime rate were to spike.

“Now that the bill [for land takings under the Map Act] has come due … our lawmakers want to squeeze little grandmothers and grandfathers out of interest due them for takings that occurred in 1996, 1997, 2006, 2008 and so on,” said Matthew Bryant, the Winston-Salem lawyer who led the charge against the Map Act.

“When given the opportunity to do the right thing, or say it’s sorry, we get this reaction from our leaders,” he added. “Disappointing.”

Eminent domain lawyers across the state were caught off-guard by the interest rate change – it did not appear in the House or Senate versions of the bill and was added at the 11th hour by members of a joint conference committee.

“There was no way to anticipate this bill,” said Anne Fisher, a partner at Henson Fuerst in Boone who represents landowners in Map Act suits.

House representatives adopted the committee substitute of the bill with a 90-17 vote shortly after 7 p.m. on June 29. The Senate passed the legislation the next afternoon with a 43-3 vote.

House Speaker Pro Tem Paul Stam, an Apex attorney who has been seen as a defender of property rights, voted for the bill, as did state Rep. Deborah Conrad, who sponsored a bill to repeal the Map Act.

Stam and Conrad did not respond to interview requests, and neither did the eight members of the joint conference committee, which was co-chaired by Sen. Bill Rabon and Rep. Frank Iler. They both also serve as chairs of transportation committees.

‘Somebody’s going to have to appeal’

Durham-based eminent domain lawyer Jason Campbell, who formerly represented the DOT as an assistant attorney general, said he went to Raleigh and tried to defeat the legislation after learning about it, but he was already too late.

“I wouldn’t call it shady. I would call it politics,” he said. “They intended to get something through and the easiest way to get something through is if there’s no opposition. And if no one hears about it there’s no opposition.”

Campbell, Fisher and other attorneys familiar with the situation noted that the conference committee apparently violated legislative procedural rules, which disallow the insertion of new language in a bill in conference.

“A provision that is harmful to the citizenry was passed and I believe that it was not passed in compliance with the various rules that are designed to make sure there can be public scrutiny of what the legislature does,” Fisher said. “I’m hopeful there will be much done to undo this ill-advised provision. I think a lot of people voted for it without realizing the provision was in there.”

Meanwhile, Campbell added that the “sovereign creates its own rules for operating and if the sovereign breaks those rules there are no penalties. Certainly it did not follow its operating procedures, but that doesn’t make the bill unconstitutional.”

What makes the legislation unconstitutional, according to Mrs. Autry, is the fact that it treats similarly situated property owners differently. Owners already involved in legal actions against the state over a Map Act filing or an outright DOT land taking are still entitled to the 8 percent interest, while their neighbors who have not yet hired a lawyer will only get the prime rate.

“Interest is part of just compensation. The right to just compensation is guaranteed by the U.S. and North Carolina Constitution,” Mrs. Autry said. “When a [eminent domain] case is filed after this bill is passed and the DOT says interest is based on this new statute somebody’s going to have to appeal and get the court to say this is an unconstitutional application of these statutes.”

‘It was a knee jerk reaction’

In early June, the North Carolina Supreme Court drove a stake through the heart of the Map Act by affirming a state Court of Appeals decision in Kirby v. DOT, which held that the state’s use of the 1987 law constituted a land taking.

The DOT had filed road project plans under the Map Act to freeze development on the properties in the path of the projects indefinitely, creating blighted neighborhoods with lower property values. The legislation that slashes the interest rate also creates a one-year moratorium on new Map Act filings and rescinds all existing filings.

But the damage has already been done.

“Hundreds of millions, if not billions, of dollars have been saved to the benefit of all taxpayers but taken from owners,” Bryant said. “That was wrong then and it was wrong before the Supreme Court recently ruled.”

Some residents have been waiting two decades for the state to buy their land, which has been damaged by the Map Act filings, and calculating the interest they are owed under the new law – assuming they have yet to take legal action – will require some onerous number crunching because the prime rate has had a rollercoaster-esque history.

“The idea that we can set prime today to set an interest rate calculation for whatever happened how many years ago – those Kirby guys have a strong argument for winning,” Campbell said. “They may file a lawsuit today or tomorrow, but their injury was 10 or 15 years ago. For them, this [prime rate] is not a very logical solution. … But in the short term this hurts the straightforward condemnation people a lot more than the Kirby people.”

Campbell added that the lower interest rate is a “stiff sock in the jaw to the people whose land has been taken,” and is the result of a hasty attempt to stem the state’s losses from the Map Act takings that ended up hurting every property owner in the state.

“It was a knee jerk reaction,” he said. “The legislature probably needed to take a few deep breaths and hear from other people.”

Campbell planned to argue that owners who lose land to the state are now entitled to compound interest on the prime rate – the legislation is silent on the issue. If he’s successful, he will be able to secure more compensation for his clients, but they still won’t receive the amount of money they would have gotten from 8 percent simple interest.

“They [lawmakers] had no right to change the interest rates to try to go back and hurt all these people,” he added. “It’s ridiculous.”

Follow Phillip Bantz on Twitter @NCLWBantz

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