Economic Development and the Future of Eminent Domain

12/13/2005 |

Experts look at impact of Kelo case and subsequent legislative proposals

The ability of localities to continue using the power of eminent domain to acquire land for economic development purposes - in light of last summer’s U.S. Supreme Court decision allowing such use, and subsequent legislative proposals to ban that use - was debated by legal and industry experts during the Urban Land Institute’s (ULI) recent annual fall meeting.

The discussion centered around what some participants characterized as an “uproar” in response to the Supreme Court’s decision in Kelo v. New London, a case in which the court’s ruling allows a government entity to exercise its eminent domain authority to take private property (in return for just compensation to the owner) in pursuit of economic development purposes that provide public benefit, even if the property in question is transferred to another private owner.

In reaction to the ruling, legislation recently passed the U.S. House of Representatives (HR 4128) that prohibits the use of eminent domain for economic development. Under this legislation, jurisdictions that use eminent domain for economic development would lose all federal economic development funds for 2 years. Courts would have the authority to determine whether a particular project constitutes economic development and a new private right of action would be established allowing citizens to sue local governments for potential violations. The bill defines economic development broadly to mean any "enterprise carried on for profit, or to increase tax revenue, tax base, employment, or general economic health."

In addition to HR 4128, other bills have been proposed in Congress, and legislation has been proposed in many states that would also effectively override the high court’s decision.

Leonard A. Zax, partner at Latham and Watkins, LLP in Washington, D.C., questioned the current legislative proposals, maintaining that they could ultimately curb legitimate uses of eminent domain for projects that could provide substantial economic and social benefits to communities. “Eminent domain is a critical tool that has been used successfully by cities for decades,” Zax said. He cited several revitalization projects that involved the use of eminent domain, including Baltimore’s Inner Harbor, Pennsylvania Avenue in Washington, California Plaza in Los Angeles, and portions along New York City’s 42nd Street.

While Zax conceded that there are development failures related to misuse of eminent domain, he said the legislation now proposed to restrict use of eminent domain is not the best way to deal with such abuses. It is better, he suggested, to tailor responses to specific abuses rather than apply a “broad-brush” legislative approach.

Panelist Bruce Babbitt, former U.S. Secretary of the Interior, concurred with Zax that while the issue of condemnation abuse needs thoughtful review, “a stampede to change the (impact of the Supreme Court) ruling will yield bad results.” Babbitt pointed out that the legislative reaction to the
Kelo v. New London ruling is further complicated by the fact that in many urban areas, facilities that traditionally have been publicly owned, such as toll roads and sports arenas, are now increasingly privately owned, while those that have been privately owned, such as shopping centers and hotels, are increasingly publicly owned. Eminent domain cannot be effectively used if there is a widely held notion that “private ownership is bad and public ownership is good,” he said. That perception - which appears prevalent in some of the legislative responses - “would make eminent domain impossible to implement in the urban environments that exist today,” Babbitt said.

Tim Keller, a representative of the Institute for Justice in Washington, D.C., predicted three likely responses to the Supreme Court’s decision: 1) a rise in the use of eminent domain to take property for economic development purposes; 2) a rise in litigation related to the use of eminent domain; and 3) a “battle” within legislative bodies. (According to Keller, legislation has either been introduced or will be introduced in 39 states. At least nine federal bills, including HR 4128, are before Congress, and the issue is being considered in at least 50 municipalities, he said).

The Institute for Justice, which represented the plaintiff in Kelo v. New London, believes that while there is justification for eminent domain in circumstances related to the removal of blight, the sole pursuit of economic well-being and increased tax revenue does not justify the use of eminent domain, Keller said. “Economic development can occur without eminent domain,” he maintained.

James A. Ratner, chief executive officer of Forest City Commercial Development in Cleveland, countered Keller’s view by pointing out that eminent domain is one of the only remaining tools left for cities - many of which are in dire fiscal straits - to use to spur much-needed economic development. “It is one of the few things that a city with true economic distress can employ to incentivize private development. Without it, it is questionable that a city can maintain a level of services for its citizens,” Ratner said.

In many cases, eminent domain has been a key catalyst for downtown and inner-city neighborhood revitalization, including areas that have long been underserved, he added. “If a city is unable to use eminent domain, development will not occur in economically distressed areas, and those are the projects that make all the difference,” he said.

According to Ratner, cities should exercise their power of eminent domain judiciously, using it only if they can demonstrate that by doing so, they will create significant economic benefits for their citizens. “Its use for economic development is a reasonable use, provided there is open debate and substantial public benefit,” he said.

The panelists agreed that one way to address concerns over eminent domain is the creation of a clearer, more comprehensive definition of blight - a condition that localities can use to make the case for property condemnation and acquisition. However, a revised definition of blight needs to reflect individual requirements of communities and be responsive to specific circumstances, they said.

Zax encouraged session participants to contact their federal, state and local representatives regarding concerns with the current legislative proposals. “The best way to get better legislation is to get actively involved,” he said.

This article was reprinted with permission from the Urban Land Institute, a non-profit education and research institute supported by its members. Its mission is to provide responsible leadership in the use of land in order to enhance the total environment. Each year, the institute honors an extraordinary community builder through the ULI J.C. Nichols Prize for Visionaries in Urban Development. Established in 1936, the institute has more than 28,000 members representing all aspects of land use and development disciplines. For more information, visit (www.uli.org).

 

 


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