Policy Documents

Costco’s Corporate Welfare

Dana Berliner –
April 1, 2003

With 400 stores worldwide, millions of members, and $38 billion in revenues last year, Costco is one of the nation’s largest retailers. Costco grew thanks to America’s free-market system and constitutionally enshrined respect for private property.

Yet Costco’s management continually tramples the rights of others in order to save itself time and money. Indeed, tracking published reports on the abuse of eminent domain, one finds Costco is the leading beneficiary of this kind of corporate welfare, having taken government-confiscated land three times more often then its next rival. Several examples illustrate Costco’s actions:

Lancaster, California

A federal court found that Costco threatened the city that it would leave unless the city condemned Costco’s neighbor, 99 Cents Only. On June 25, 2001, the court held the only purpose of the condemnation was “to satisfy the private expansion demands of Costco.” Because that is not a public use, the court held the condemnation violated the Constitution.

Port Chester, New York

The village condemned several small, locally owned businesses to make way for a shopping center anchored by Costco. The entire shopping center displaced hundreds of apartment residences, one of the largest employers in the village, specialty retail stores, and local restaurants. Costco sits on land that was once shared by a number of successful small businesses run by hard-working immigrants.

Cypress, California

The City of Cypress sought to condemn the Cottonwood Christian Center for a Costco-based retail development that would generate tax revenue, unlike the tax-exempt church facility. The church had carefully assembled, from willing sellers, all the land it needed for its new center. The city and Costco wanted the benefit of that assembly, without doing any of the work. A federal judge has enjoined the condemnation.

In Its Defense

“Perhaps dozens of times,” the company recently admitted in a letter to a shareholder, Costco developed stores on private property taken by local governments through eminent domain.

Costco offers three defenses for using eminent domain.

First, Costco claims, it does not violate the law--cities take property all the time and it is perfectly legal. Of course, this claim is not entirely accurate. Some states have statutes that permit condemnations for “economic development” and then transfers to private parties, but the Constitution always trumps state statutes. That is why two federal courts in the last two years stopped cities from taking land for Costco because the condemnations violated the constitutional requirement that property can be taken only for a “public” use.

Costco also defends its eminent domain policies on the ground that the development projects are sometimes successful, generating tax dollars and jobs for the municipality. Those benefits are, however, beside the point. Any business replacing a home will create more jobs; a larger business replacing a smaller one will certainly create more taxes. If such justifications were valid reasons to allow the forced transfer of land from one private party to another, then no American’s property would be safe from such confiscations at the behest of the politically powerful.

Costco also claims that if it failed to take advantage of eminent domain, it would not be able to compete with other large retailers that also have no scruples about building on land taken from someone else. Certainly Costco is correct that many private businesses are willing to take other people’s land. As the Institute for Justice will document in a soon-to-be published report, hundreds of projects between 1998 and 2002 used or threatened eminent domain for private parties. In total, more than 5,000 properties were taken or threatened. And these numbers significantly underestimate the problem: They come from a survey of news stories, and most condemnations go unreported.

But Costco has an opportunity to do the right thing, to be a leader in honorable business practices as well as retailing profits. Instead of hiding behind excuses, the company should renounce using eminent domain as a way of getting property for its stores. That is exactly what Susan Watson, a 500-share investor in Costco, asked the company to do at its recent shareholders’ meeting. By rejecting this corporate welfare, the company would show its respect for the principles that have made it possible for Costco to succeed--property rights and enforcement of our Constitution.

Dana Berliner is a senior attorney at the Washington, D.C.-based Institute for Justice.


For more information ...

Government Theft: The Top 10 Abuses of Eminent Domain. Eminent domain is a despotic power. Acting more like real estate agents than public servants, government increasingly uses the eminent domain power to condemn property for private purposes. (Institute for Justice, March 2002, 14pp.)

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