UPDATE: The Kelo Decision

The Continued Debate Surrounding Government Takings of Private Property for Development

By Emily M. Armstrong, Matthew J. Kiefer and Kevin P. O’Flaherty
Published Online 10-19-07

Armstrong

For centuries, state and local governments have used eminent domain, the power to take private property for public use while fairly compensating the property owner, to build bridges, construct schools, and expand roadways.  Over time, taking authorities have expanded the use of eminent domain beyond these traditional and obvious public projects to take and redevelop private property based on a finding the property taken was “blighted.”  Courts have upheld these urban renewal takings against constitutional challenge, finding that the “public purpose” requirement was satisfied.  However, a recent Supreme Court decision, Kelo v. City of New London has once again brought the scope of “public purpose” to the forefront of a national debate.  As a result of the Kelo case and the debate it engendered, most state legislatures have enacted significant changes to eminent domain laws.  These changes may restrict the options available to developers and planners when they seek to bring forward the type of economic development projects involved in Kelo.

Kiefer

In Kelo, the United States Supreme Court upheld the City of New London’s authority to use eminent domain to condemn and acquire property that was not blighted or otherwise in poor condition.  The case began in 1990 when the state of Connecticut designated the City of New London a “distressed municipality” under a statewide program providing for funding and eminent domain powers to promote economic development.  At the time, New London, like many aging

manufacturing cities, suffered from job and population loss and an eroding tax base, and the corresponding compromise of funding for municipal services.  In an effort to reverse this downward spiral, the City of New London assembled the non-profit New London Development Corporation (NLDC), which focused on Fort Trumbull, an older, working class neighborhood on a peninsula in the Thames River. 

O'Flaherty

With the help of the NLDC, the city produced a plan for redevelopment of Fort Trumbull that proposed 90,000 square feet of office/research and development space for Pfizer, a hotel, a new neighborhood with retail and restaurant uses, and several public amenities.  In addition to using federal land from a closed naval facility, the plan also proposed the acquisition, by purchase or taking, of 115 privately owned properties.  Most landowners were willing to sell, but nine holdouts, including the named plaintiff, Suzette Kelo, were not.  These property owners, with the help of a property rights legal foundation, instigated litigation that eventually made its way to the Supreme Court.

At issue in the case was the meaning of the words “public use” in the Fifth Amendment of the U.S. Constitution. On one side of the debate, strict constructionists argued that the term “public use” in the Fifth Amendment limits government to takings only for publicly owned facilities, like schools or highways.  Property rights proponents complained that private-to-private land transfers lead to the loss of small businesses, the dispersion of communities, and the loss of affordable housing. 

On the other side of the debate, proponents for a more expansive view of the power of eminent domain pointed to the long history of allowing the taking of private property for railroads, utilities, and public facilities.  The supporters of the City of New London based part of their arguments on the Supreme Court’s interpretation of the phrase “public use” to mean “public purpose” in an earlier unanimous decision which found that the elimination of blight in a Washington, D.C. urban renewal area was sufficient justification to take property for private redevelopment as a government sponsored plan to improve the city.  Civic leaders and private developers identified the benefits of development of depressed economic communities as encouraging new jobs, attracting more commercial activity, and creating better housing.

In a divided decision, the Court in Kelo followed past precedent and found that the benefits of economic development - jobs, tax revenue, and public amenities- constitute a sufficient public purpose to justify the use of eminent domain.  The decision was met with a public outcry.  At the center of the protest was the notion that one person’s property, especially one’s home, can be taken by the government and sold to another private owner just to increase jobs and tax revenue.  Although the Kelo decision at first appears to be a victory for private developers involved in urban redevelopment projects, the majority opinion almost invites state legislatures to restrict eminent domain powers.  The majority in Kelo recognized that, while a taking for economic development is not perse unconstitutional, a state may decide to restrict its own eminent domain powers.  Many state legislatures have responded to the invitation implicit in Kelo.

A majority of the states have enacted at least one of the following three general types of changes:
(1) restrictions on the use of eminent domain for private-to-private transfers of land;

(2) additional procedural requirements, such as notice provisions for property owners; and

(3) changes that define or redefine key terms related to eminent domain, like public use and blight. 

The severity of states’ reactions has ranged widely.  Florida, for example, enacted legislation that requires municipalities to wait ten years before transferring private property to private parties and forbids the use of eminent domain powers to eliminate blight.  Similarly, the voters of Michigan passed a state constitutional amendment prohibiting private-to-private transfers of land and requiring that blight is to be determined on a parcel by parcel basis instead of by blocks or communities.  In Arizona, the Private Property Right Protections Act passed by voters in 2005, restricted the definition of “public use” by requiring that the general public retain “possession, occupation and enjoyment of the land.”  Correspondingly, Virginian legislation limits eminent domain only to “traditional” public uses, such as, roads, schools, post offices, etc. 

In a more middle ground approach, Connecticut passed a bill that prohibits condemnations for the primary purpose of increasing tax revenue and requires municipalities to approve taking by a super majority.  Illinois enacted legislation that requires economic development to be a secondary purpose to the primary purpose of urban renewal to eliminate an existing affirmative harm in a community such as removing slums or encouraging public health and safety.  Likewise, Colorado now requires government officials to prove by clear and convincing evidence that “the taking of the property is necessary for the eradication of blight.”

Many states such as Massachusetts, New York, and Hawaii, have not passed any new eminent domain legislation.  In 2006, California’s legislature dismissed many proposed bills with stringent and restrictive “protections” for private property rights, and instead, passed a package of five bills that merely require more procedural safeguards for government takings.

It is uncertain whether more states will attempt to limit or even prohibit the exercise of eminent domain for private development, or whether states that have enacted such legislation will find that the new laws are too great an obstacle for governments struggling with failing communities’ economic needs.  In the meanwhile, city planners and developers will need to understand the contours of these new and judicially untested laws and exercise wisdom and creativity in navigating their way through them. 

Emily Armstrong is an associate and Kevin O’Flaherty is a director in the litigation group of Goulston & Storrs, a Boston-based law firm. Matthew Keifer is a director in the real estate group.   Goulston & Storrs lawyers represent numerous real estate developers, owners and managers in a broad spectrum of real estate matters, including acquisition and disposition, financing, zoning and permitting, commercial landlord/tenant, as well as in land use, real estate and eminent domain litigation. The authors can be reached at earmstrong@goulstonstorrs.com, mkiefer@goulstonstorrs.com and koflaherty@goulstonstorrs.com.