Probate & Property Magazine


P R O B A T E   &   P R O P E R T Y
March/April
Vol. 22 No. -2

Legislative and Judicial Reactions to Kelo: Eminent Domain’s Continuing Role in Redevelopment

By Christopher W. Smart

Christopher W. Smart is an associate in the Tampa, Florida, office of Carlton Fields, PA, and chair of the Land Use and Zoning Committee.

 

The U.S. Supreme Court’s decision in Kelo v. City of New London, 545 U.S. 469 (2005), has led to a deluge of legislative proposals and numerous judicial decisions. Most of these have sought to limit governmental use of the power of eminent domain to take private property for public use, particularly when the public use identified is redevelopment. Some citizen-sponsored legislative proposals also were intended to limit the government’s ability to regulate the use of private property per se. Both apologists and critics of the use of eminent domain for redevelopment have challenged these legislative and judicial reactions as either too restrictive or not restrictive enough. Others have sought a more balanced approach, under which eminent domain for retransfer for private redevelopment would have a continuing, but limited, role.

Kelo v. City of New London

In Kelo, the Supreme Court held that the city’s comprehensive redevelopment plan, which was designed to economically benefit New London, qualified as a permissible “public use” under the Fifth Amendment Takings Clause of the Constitution. As a result, the Supreme Court held that the city could take privately owned real property in furtherance of its redevelopment plan, even though the land would be leased to private companies and would not be required to be open to the general public. Id. at 478–79, 490. Although this seemed to some practitioners of constitutional and eminent domain law a relatively benign and uncontroversial holding, it raised the specter of the government taking private property from one person to give it to another. To many Americans, this smacked of central redistribution.

Of course, the Fifth Amendment has always prohibited the exercise of eminent domain solely for the purpose of conferring a private benefit by requiring that private property be taken only for “public use.” As the Supreme Court noted early in its history, a “law that takes property from A and gives it to B” would not comport with due process of law. Calder v. Bull, 3 U.S. 386, 388 (1798). Courts, however, have long recognized government’s ability to delegate the power of eminent domain to take private property for another private entity, so long as the property so acquired would be open for general “public use,” as in the case of the infrastructure of railways and private toll roads on which the country is built. See, e.g., Noble v. Oklahoma City, 297 U.S. 481 (1936) (railway); Luxton v. N. River Bridge Co., 153 U.S. 525 (1894) (bridge). The issue in Kelo was whether the city of New London’s “public purpose” of “economic development” qualified as a sufficient “public use.”

What seemed to shock the public conscience so in Kelo was the idea of the delegation by the city of New London of its eminent domain powers to a private redevelopment corporation that in turn would take Susette Kelo’s property and the home built on it, a restored picturesque 1893 cottage, for a redevelopment plan that, unlike railways and roadways, would not be open to the general public. To many, the plan seemed to be specifically designed to benefit private companies like Pfizer, Inc., which had opened an adjoining research center, more directly than the general public.

The fallout from the Kelo decision was massive and re-focused public attention on what has always been a tenuous balance in this country between private property rights and government regulation of those rights. On the legislative side, politicians and grassroots organizations clamored for laws that would provide more protection from eminent domain and, since 2005, some 42 states have adopted some form of anti- Kelo legislation. In addition, courts, previously generally deferential to redevelopment plans, also appear to have reacted to Kelo. These courts have picked up on the majority’s holding that nothing in the decision limited the states from placing further restrictions on the power of eminent domain and its statement that, in fact, many states already had just such constitutional restrictions.

How We Got Here

Oregon ’s Measure 37

Even before Kelo, property rights advocates in Oregon in 2000 were unhappy with what they perceived as government overregulation of private property. In response, they sponsored Measure 7, a proposed constitutional amendment that would have required the government to reimburse property owners for reduction in value to property because of government regulation. Although voters approved Measure 7, it was promptly struck down by the Oregon Supreme Court as impermissibly involving more than one issue. League of Oregon Cities v. State, 56 P.3d 892 (Or. 2002). Measure 37, another similar ballot initiative that was legislative rather than constitutional in nature, was adopted in 2004. Like Measure 7, the law resulting from Measure 37 allows property owners to claim reimbursement from local governments for diminution in value to their property because of governmental regulation. If the government does not pay, Measure 37 allows the owner to use the property subject only to the restrictions in place at the time the owner purchased.

Oregon property rights advocates were focused, not on eminent domain—the government’s power to take private property for a public use on payment of just compensation—but rather on so-called “regulatory takings.” Supreme Court case law beginning with Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), has long recognized that government regulation may amount to a confiscation if it goes “too far.” Nevertheless, Oregon’s law is relevant because, in the wake of Kelo, it would come to serve as a model for similar ballot initiatives in other states put forward to voters eager to curb the perceived untrammeled abuse of government power.

Anti- Kelo Legislation

When Kelo was decided in 2005, property rights advocates and detractors of government regulation of property used the general public’s overwhelmingly negative reaction to initiate legislation to limit, in one fashion or another, the government’s power to regulate and take private property. As of this writing, 42 states have enacted some form of anti- Kelo legislation. These laws range from providing for an eminent domain ombudsman to “ Kelo Plus” legislation designed to curb not only the exercise of eminent domain, but also to seriously limit the government’s ability to regulate the use of private property. See, e.g., The National Conference of State Legislatures, Eminent Domain: 2006 Legislation, at www.ncsl.org/programs/natres/emindomainleg06.htm#al (listing legislation enacted in 2006).

The anti- Kelo laws can be arranged into a few basic categories:

 

• States such as Alaska took a direct approach and adopted laws simply prohibiting the use of eminent domain to transfer private property to a private entity or for economic development purposes. Alaska Stat. § 09.55.240.

• States such as Indiana have re-defined “public use” to mean the actual “possession, occupation and enjoyment of the property by the public, public agencies or public utilities” and have redefined “blight” to emphasize a risk to public health and safety. Ind. Code § 32-24-4.5-1 et seq.

• States such as West Virginia also have adopted more protective procedures such as requirements that the government negotiate in good faith with property owners, give broader public notice, allow more public hearings, and require approval by the elected governing body. W. Va. Code
§ 54-1-2(a)(11).

• States such as Kansas have focused on the compensation side of the equation by requiring that more than fair market value be paid as compensation when the property is the owner’s principal residence. Kan. Stat. Ann. § 26-501b(f).

• States such as Ohio and Missouri have adopted a potpourri of measures including placing moratoria on the use of eminent domain for economic development, establishing task forces to study the problem, and appointing eminent domain ombudsmen. Ohio Rev. Code Ann. § 163.01 et seq.; Mo. Rev. Stat. § 523.001 et seq.

 

In addition to these laws, a series of “ Kelo Plus” initiatives, modeled to one degree or another on Oregon’s Measure 37, were proposed in a handful of western states, including California, but were defeated in court or at the polls, with the exception of Arizona’s Proposition 207. Under Measure 37, more than 6,500 claims have been filed, more than $19 billion in compensation has been sought for regulatory takings, but not one dollar has been paid. If Oregon is any indication of what might have happened in the states where similar legislation was proposed, we can judge from it whether the failure of these initiatives is to be counted as a success or failure.

Anti- Kelo Judicial Decisions

Courts also have responded to the Kelo decision primarily by looking more carefully at state constitutions and finding additional protections above and beyond what the U.S. Constitution provides. For example, in Gallenthin Realty Development, Inc. v. Borough of Paulsboro, 924 A.2d 447 (N.J. 2007), the New Jersey Supreme Court rejected arguments that the legislature could define the term “blight” by statute and thus control the courts’ interpretation of the New Jersey Constitution. The court held that a property could not be deemed “blighted” merely because it was not being put to optimum use.

In Mayor and City Council of Baltimore City v. Valsamaki, 916 A.2d 324, 353 (Md. 2007), the court found that the lack of a comprehensive redevelopment plan was fatal to the city’s attempt to take property, holding that a “judicial determination of public purpose provides a check, no matter how abbreviated, on the Legislature’s, and in this case the City’s, eminent domain power.” Id. Similarly, in City of Norwood v. Horney, 853 N.E.2d 1115, 1141 (Ohio 2006), the court held that economic benefits alone were insufficient to satisfy the public use requirement of the Ohio Constitution and that the courts owe no deference to a legislative finding that a proposed taking will create an economic benefit.

The Oklahoma Supreme Court’s ruling, Board of County Commissioners of Muskogee County v. Lowery, 136 P.3d 639, 651 (Okla. 2006), nicely sums up what various other state courts have held: “[W]e determine that our state constitutional eminent domain provisions place more stringent limitation on governmental eminent domain power than the limitations imposed by the Fifth Amendment . . . [and w]e join other jurisdictions including Arizona, Arkansas, Florida, Illinois, South Carolina, Michigan, and Maine, which have reached similar determinations on state constitutional grounds.”

Summarizing the Kelo Debate

Why America Needs Kelo-style Redevelopment

Apologists for redevelopment and local government’s ability to regulate property generally lament these various legislative and judicial responses. They are primarily concerned that the redevelopment baby is being tossed out with the Kelo bathwater. The free market, they point out, has failed to revitalize blighted and contaminated neighborhoods on its own, and redevelopment is needed to revitalize these areas by attracting businesses that bring with them jobs, families, housing, and infrastructure. In turn, crime, poverty, and environmental contamination would be reduced.

Moreover, proponents observe that redevelopment is one of the only effective tools against sprawl, and its critics have not offered a meaningful alternative. By redeveloping blighted urban areas, communities can grow inward as opposed to outward and thus avoid using undeveloped land and important natural resources. By creating housing in the urban core, redevelopment also helps many to minimize long commutes to work and cross-align central shopping locations.

Redevelopment also has substantial environmental benefits. Redevelopment, of course, often focuses on cleaning up contaminated property or brownfields, but, by bringing more people into the urban core and reducing auto travel and carbon emissions, it also reduces the suburban footprint and protects natural habitats, streams, and wetlands that are critical resources for the communities they surround as much as they are for the animals and plants that live in them. The overall effect is to reduce some of the various factors that are contributing to global warming.

Advocates of redevelopment point to a documented track record of these benefits, which they claim would not be possible without public-private partnerships armed with the power of eminent domain. Land is frequently too difficult to assemble through simple negotiation because of the problem of the holdout landowner who either refuses to sell or who demands a ridiculous price that would make the project financially unfeasible. To allow one property owner to thwart the economic redevelopment plans of a community, advocates argue, would create a tyranny of the minority of the most damaging sort.

Such advocates thus see the legislative reforms responding to Kelo as a direct threat to redevelopment. They argue such reforms are misinformed and misguided at best and, at worst, attempts to exploit the general public’s ignorance and confusion over the actual holding in the Kelo decision. Restrictions on the ability to convey property taken by eminent domain, they argue, will limit redevelopment and its benefits and result in more redevelopment projects being wholly owned and operated by governments, an ironic result given that most advocates for such restrictions favor smaller, less intrusive government. Moreover, advocates note that reforms are not necessary because substantial and sufficient safeguards are already in place.

By and large, governments use eminent domain only as a last resort in the case of holdouts. When it is employed, governments already are required to pay fair market value for property, including the cost of replacement property, moving costs, the costs to reestablish a business, and rent subsidies to residential and business tenants. Moreover, judicial safeguards are in place to ward off other abuses of the power of eminent domain.

With these substantial safeguards in place and the numerous benefits of redevelopment, advocates of redevelopment argue that eminent domain should continue to be used to help local governments and private businesses partner to help revitalize communities.

Why America Cannot Afford Kelo-style Redevelopment

Critics of government use of eminent domain in general and of its use for redevelopment in particular decry the holding in Kelo and point to what they perceive as a long history of eminent domain abuse for redevelopment projects, many of which have been unsuccessful. Many redevelopment projects, the critics point out, have not created the promised economic growth and development of jobs, homes, and revitalized communities. Such projects have also tended to prey on primarily poor minority communities for the benefit of large corporations.

Following the standards set forth early on by the Supreme Court in Berman v. Parker, 348 U.S. 26 (1954), state courts had generally given substantial deference to redevelopment efforts. Before Kelo, however, this deference had been weakening as the initial idealism of redevelopment became tainted with the brush of gentrification, and many minority communities began to feel that governments were focusing solely on them. See, e.g., Garret v. City of Hamtramck, 335 F. Supp. 16, 25–27 (E.D. Mich. 1971); Arrington v. City of Fairfield, 414 F.2d 687 (5th Cir. 1969). Recent years have brought what critics of redevelopment saw as a judicial trend against the deferential standards afforded redevelopment. See, e.g., County of Wayne v. Hathcock, 684 N.W.2d 765 ( Mich. 2004); Bailey v. Myers, 76 P.3d 898 (Ariz. Ct. App. 2003); Sw. Ill. Dev. Auth. v. Nat’l City Env’tl, LLC, 768 N.E.2d 1 ( Ill. 2002).

Although the critics were disappointed that the Supreme Court did not adopt this view in Kelo, they point to subsequent state court decisions that have begun to reign in the exercise of eminent domain for redevelopment by tightening the definition of “blighted,” generally a required finding under state law for property to be taken for redevelopment, and by finding that economic benefits alone will not satisfy the public use requirement under their state constitutions. See, e.g., Gallenthin Realty Dev., Inc. v. Borough of Paulsboro, 924 A.2d 447, 460 (N.J. 2007); City of Norwood v. Horney, 853 N.E.2d 1115, 1140–42 (Ohio 2006).

The critics do not necessarily deny that the benefits of redevelopment touted by its proponents are desirable, but argue instead that redevelopment does not require the use of eminent domain. For example, more than a decade ago, a project in Seattle acquired three blocks in the heart of downtown and redeveloped them as retail without using eminent domain. See Dave Copeland, Seattle Can Identify with Pittsburgh’s Plan C, Pittsburgh Trib.-Rev., Apr. 4, 2002, available at www.pittsburghlive.com/x/pittsburghtrib/news/cityregion/s_64604.html. The initial investors got anchor stores interested through land swaps, contingency contracts, and promises the city would provide street maintenance. Once the anchors were in place, smaller retail stores and other businesses came in. Other successful redevelopments that have not relied on eminent domain include CityPlace in West Palm Beach, Florida, Santana Row in San Jose, California, Mockingbird Station in Dallas, Texas, and Rivercenter in San Antonio, Texas. See, e.g., Edward Lopez, One Year After Kelo : Backlash Taking the Eminent Domain Out of Economic Development, North County Times, June 24, 2006, available at www.nctimes.com/articles/2006/06/25/perspective/20_04_176_24_06.txt.

The critics of Kelo argue that because redevelopment and its benefits can be achieved without the use of eminent domain and clear dangers and opportunities for abuse are associated with condemnation, limitations need to be placed on the exercise of eminent domain in general and for redevelopment in particular.

How America Can Learn to Live with Kelo-style Redevelopment

The most salutary aspect of the Kelo decision is its recognition that, for the most part, eminent domain is an important issue that should be addressed seriously by state constitutions, legislatures, and courts. The legislative and judicial reaction to Kelo and the debate surrounding it have raised important points on both sides, the importance of redevelopment on the one and the obvious perception of abuse on the other.

One thing that is clear is that eminent domain is a governmental power that is fundamentally necessary to the good ordering of society and long-range planning, and it is not going away. It is also clear that, although eminent domain may not be necessary for redevelopment, it makes many projects much easier, quicker, and more likely to occur. One cannot ignore, however, the obvious public outcry against what is perceived as a basically unfair process that benefits large companies to the detriment of the fundamental property rights of often poor and minority individuals.

In light of these two valid perspectives on the problem, the most productive reforms are likely not to be ones that hinder government from redeveloping or that continue as before with a process people clearly feel is alienating and disenfranchising.

Instead, the most successful and productive reforms are likely to be ones that focus on three areas: communication, compensation, and participation. By communicating early and often with the owners whose property is being considered for redevelopment, local governments and their private partners can put a human face on what can seem an otherwise arbitrary and alienating system. In addition, by creating ombudsman positions staffed by people who understand the process and can help guide the property owner through it, much of the process’s frustration will likely be removed. Greater compensation also should be considered because fair market value does not account for the more intangible loss of an owner’s ability to choose what is done with his, her, or its property. Finally, the opportunity for an owner whose property has been taken for a redevelopment project to share in the fruits of that project, perhaps through equity participation, also should be considered as a way to create allies, as opposed to enemies, in the effort to redevelop and make our communities stronger.

 

 


P R O B A T E   &   P R O P E R T Y
January/February 2008
Vol. 22 No.2