Eminent Domain: Private Property Rights v. Economic Development

*"Ain't that America, home of the free little pink houses for you and me."* John (Cougar) Mellencamp's sentiment in his 1984 hit Pink Houses may be precisely what has fueled the controversy following the United States Supreme Court ruling on June 23, 2005 that local governments may exercise eminent domain powers to take private property for economic development.

“Ain’t that America, home of the free little pink houses for you and me.”

John (Cougar) Mellencamp’s sentiment in his 1984 hit Pink Houses may be precisely what has fueled the controversy following the United States Supreme Court ruling on June 23, 2005 that local governments may exercise eminent domain powers to take private property for economic development.

Generally, eminent domain, also referred to as “condemnation,” is the taking of private property by local, state or federal government for a “public use” or “public purpose.”

In a five-to-four ruling, the high court held in Kelo v. City of New London, 125 S. Ct. 2655 (2005), that New London, Connecticut could properly exercise eminent domain power in furtherance of an economic development plan. At issue was the scope of the Fifth Amendment to the U.S. Constitution, which allows governments to take private property through eminent domain if the land is for
“public use.”

New London, Connecticut had fallen on hard economic times. The city was economically distressed after its last major employer, the U.S. Naval Undersea Warfare Center, closed in 1996. Its tax base and population were continually decreasing, and city leaders were desperate for some form of economic development. In 1998, the pharmaceutical giant Pfizer began construction of a major research facility on the outskirts of the Fort Trumbull neighborhood of New London. Seeing an opportunity, the city activated the New London Development Corporation, a private entity under the control of the city government, to consider plans to redevelop the area and encourage new economic activities that might be brought in by the Pfizer plant. The development corporation created a development plan that included a resort waterfront hotel and conference center (New London is located on both the Thames River and Long Island Sound), a new state park, new residences, and various research, office and retail spaces.

In 2000, New London approved the development plan, which was projected to create numerous jobs, increase taxes and other revenues and revitalize the economically distressed city, including its downtown and waterfront areas. Working to assemble the land needed for the project, the city’s development agent negotiated and purchased property from willing sellers, and utilized the power of eminent domain to acquire the remainder of the property from unwilling owners in exchange for just compensation.

Susette Kelo and eight of her neighbors who were unwilling to sell their 15 properties brought an action claiming that the taking of their property, via condemnation proceedings, violated the “public use” restriction in the Fifth Amendment’s Takings Clause. Ms. Kelo, the lead plaintiff, owned a small home on the Thames River. Although the trial court granted a permanent restraining order prohibiting the taking of certain property, the Connecticut Supreme Court, relying on U.S. Supreme Court cases such as Hawaii Housing Authority v. Midkiff, 467 U.S. 229 (1984), and Berman v. Parker, 348 U.S. 26 (1954), upheld the proposed takings.

The U.S. Supreme Court granted certiorari to consider the question of “whether the [c]ity’s proposed disposition of this property qualifies as a ‘public use’ within the meaning of the Takings Clause of the Fifth Amendment to the Constitution.” The case required the Supreme Court to revisit its 51-year-old precedent in Berman and was the first major eminent domain case heard by the Supreme Court since Midkiff in 1984.

Eminent domain, also referred to as “condemnation,” is the taking of private property by local, state or federal government for a “public use” or “public purpose.”

The Evolution of Eminent Domain Law

Historically, eminent domain has been used to take private property for highways and other public works. But in 1954, in the landmark Berman case, the Supreme Court expanded the definition of “public use” to grant local governments broad authority to condemn “blighted areas” to improve them. The ruling in Berman cleared the way for urban renewal projects in the 1960s and 1970s, as the definition of “public use” gradually expanded to include economic development purposes.

Over the years, state and local governments slowly extended their use of eminent domain, frequently to include economic development purposes.1 For example, in 1981, the Michigan courts affirmed the power of the City of Detroit to condemn and raze the Poletown neighborhood to clear the area for a General Motors plant.2 Throughout the 1990s, big-box retailers like Home Depot and Costco expanded into cities with the help of local governments’ power to clear land for development.

But a backlash was brewing. In 2004, the Michigan Supreme Court overturned Poletown and blocked the condemnation of small businesses surrounding a county airport.3 In Kelo, Susette Kelo and her co-petitioners similarly urged the high court to restore the term “public use” to its original meaning and to hold that private economic development does not constitute a public use.

The Kelo case thus became the focus of vigorous discussion and debate by supporters on both sides. Some 40 amicus curiae briefs were filed in the case, including 25 on behalf of the petitioners by various nonprofit, public policy and public rights organizations, including the NAACP and AARP.

The Kelo case was argued before the Supreme Court on February 22, 2005. Interestingly, the argument was heard by only seven members of the Court. Associate Justice Sandra Day O’Connor presided because Chief Justice William Rehnquist was recuperating at home from medical treatment. Associate Justice John Paul Stevens was delayed on his return to Washington, D.C. from Florida. Although absent from the oral argument, Chief Justice Rehnquist and Justice Stevens read the briefs and oral argument transcripts and participated in the decision.

The Supreme Court, in a closely decided decision, upheld the Connecticut Supreme Court’s ruling, holding that because New London’s proposed disposition of the subject property did qualify as a public use, it was a legitimate taking. Justice Stevens, who wrote for the majority, noted that “[t]he [c]ity has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including — but by no means limited to — new jobs and increased tax revenue.” The majority opinion further noted that, had the city taken the property simply to confer a private benefit upon a particular person or corporation, that would not pass constitutional muster.

Although the city did not plan to open the condemned land in its entirety to use by the general public, the majority noted that the Court “long ago rejected any literal requirement that condemned property be put into use for the . . . public.” Rather, the majority held that the Court “has embraced the broader and more natural interpretation of public use as ‘public purpose.'” The Court has defined the “concept [of public purpose] broadly, reflecting its longstanding policy of deference to legislative judgments” as to what public needs justify the use of the takings power. Thus, the majority found that the city’s determination that the area at issue was sufficiently distressed to justify a program of economic rejuvenation is entitled to deference.

In the majority’s opinion, the city’s plan unquestionably served the public purpose and therefore satisfied the requirements of the Fifth Amendment. Thus, under the Court’s ruling, if an economic project creates new jobs, increases taxes and other revenues, and revitalizes a depressed (even if not blighted) urban area, it qualifies as a public use.

The majority decision pre-empted criticism that the ruling could be abused for private purposes by noting that “the hypothetical cases posited by petitioners can be confronted if and when they arise. They do not warrant the crafting of an artificial restriction on the concept of public use.” Justice Stevens also emphasized the importance of judicial restraint, stating that the Court recognized that condemnation of property may entail hardship and that the individual states were free to impose restrictions on the use of this power by local authorities.

Justices Kennedy, Souter, Ginsburg and Breyer joined in the majority opinion. Justice Kennedy also filed a separate concurring opinion.

Justice O’Connor, however, issued a strong dissenting opinion arguing that local government should not have unlimited eminent domain authority to displace families, even if they are compensated, simply to accommodate private developers. Justice O’Connor concluded that “[a]ny property may now be taken for the benefit of another private party, but the fallout from [the majority’s] decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms.” She reasoned that the decision eliminates “any distinction between private and public use of property — and thereby effectively [deletes] the words ‘for public use’ from the Takings Clause of the Fifth Amendment.” Chief Justice Rehnquist and Justices Scalia and Thomas joined in the minority opinion.

Justice Thomas also filed a separate dissenting opinion, in which he argued that the precedents upon which the Court’s decision relied were flawed and that “something has gone seriously awry with this Court’s interpretation of the Constitution.” Justice Thomas accused the majority of replacing the Fifth Amendment’s “public use” clause with a very different “public purpose” test: “This deferential shift in phraseology enables the Court to hold, against all common sense, that a costly urban-renewal project whose stated purpose is a vague promise of new jobs and increased tax revenue, but which is also suspiciously agreeable to the Pfizer Corporation, is for a ‘public use.'” Justice Thomas also argued that “[l]osses will fall disproportionately on poor communities. Those communities are not only systematically less likely to put their lands to the highest and best social use, but are also the least politically powerful.”

The government’s idea of just compensation does not take into account the subjective value of a property owner’s home.

Justice Thomas also wrote that “[t]he consequences of [the majority’s] decision are not difficult to predict, and promise to be harmful.” Said Thomas, “So-called ‘urban renewal’ programs provide some compensation for the properties they take, but no compensation is possible for the subjective value of these lands to the individuals displaced and the indignity inflicted by uprooting them from their homes.” Although the Fifth Amendment requires “just compensation” for property taken for public use, the compensation often falls woefully short of just. For example, in establishing the price, the government does not consider the very thing that supposedly justifies the condemnation: the more profitable use to which a private developer will put the property. Instead, local governments typically hire appraisers who establish low property valuations based on the current use of the property and then threaten the use of eminent domain to intimidate property owners to sell at below-market rates. Local governments also avoid paying relocation costs for businesses and homeowners and ignore the value of “good will” and other intangible value implicit in the reputation or location of a business. Likewise, as noted by Justice Thomas, the government’s idea of just compensation does not take into account the subjective value of a property owner’s home. For example, Ms. Kelo’s waterfront view and co-petitioners Wilhelmina and Charles Dery’s love for the home where Ms. Dery was born in 1918 and where they had lived together for more than half a century are worth more to them than the city’s estimate of market value.

The majority and minority opinions both analyzed the Fifth Amendment, which provides that private property may not “be taken for public use without just compensation.”

Despite Justice O’Connor’s warning about the “fallout” from the majority’s opinion, and Justice Thomas’s warning that the majority decision “promises to be harmful,” it remains to be seen whether the decision in Kelo will clear the way for unfettered private development projects through the use of eminent domain. For example, the Kelo decision will have little effect in the nine states — Arkansas, Florida, Illinois, Kentucky, Maine, Michigan, Montana, South Carolina and Washington — that already specifically prohibit the use of eminent domain for economic development except to eliminate blight. Other states, such as Alabama, Delaware, Nevada, Texas and Utah acted quickly to ban takings like those authorized in Kelo. Additionally, states such as Alabama, California, Florida, Georgia, Michigan, New Jersey and Texas are all considering the extra safeguard of constitutional amendments for the same purpose. Eminent domain is expected to be a major issue in upcoming political elections and state and federal legislative sessions. Indeed, there has been a groundswell of support for homeowners and property rights, and politicians and legislatures are acting quickly to rein in eminent domain authority.

Congressional Response

The day after the Kelo decision was announced, Senator Johnny Isakson (R-Ga.) issued a press release stating that the decision “is deeply troubling and sets a very dangerous precedent. It opens the door for government to use the power of eminent domain beyond what I believe was the intent of our Founding Fathers.” On June 27, 2005, Senator John Cornyn (R-Texas) introduced legislation in the United States Senate, the “Protection of Homes, Small Businesses, and Private Property Act of 2005” (S.B. 1313), to limit the use of eminent domain for economic development. The operative language prohibits the federal government from exercising eminent domain power if the only justifying “public use” is economic development and imposes the same limit on state and local government exercise of eminent domain power “through the use of Federal funds.” The co-sponsors of S.B. 1313 include Senator Isakson. Congressmen Phil Gingrey (R-Ga.) and Dennis Rehberg (R-Mo.) introduced companion bills (H.R. 3087 and H.R. 3083, respectively) in the United States House of Representatives. Other similar bills subsequently have been introduced in the House by James Sensenbrenner (R-Wis.), John Conyers (D-Mich.) and others. Additionally, House Resolution 340, introduced by Congressman Phil Gingrey (R-Ga.) and expressing “grave disapproval” of the Kelo decision, overwhelmingly passed the House on June 30, 2005. Further, in a sharp rebuff of Kelo, the House approved a bill (H.R. 4128) on November 3, 2005 that bars the use of eminent domain for economic development by any state or local government receiving federal economic development funds in the fiscal year in which the power is exercised. The bill also prohibits the federal government from exercising the power of eminent domain for economic development, which is defined as taking private property without the owner’s consent and conveying or leasing it to a private person or entity for a commercial enterprise for profit or to increase tax revenue, employment or general economic health.

Eminent Domain in Georgia

Subsequent to the Kelo decision, Georgia’s Governor Sonny Perdue created a committee to study eminent domain and make recommendations on how to protect private property owners in Georgia.

Currently, counties, cities and housing authorities in Georgia may exercise redevelopment powers as authorized by the General Assembly, including the power to sell or otherwise dispose of property acquired by eminent domain to private enterprise for private use.4 The Georgia Constitution provides that “the development of trade, commerce, industry, and employment opportunities is a ‘public purpose vital to the welfare of the people of this state’ and development authorities are authorized to further that purpose.”5

The Georgia General Assembly has authorized counties and cities to condemn property for private use under four different laws: (1) the Redevelopment Law, O.C.G.A. § 8-4-1, et seq.; (2) the Urban Redevelopment Law, O.C.G.A. § 36-61-1, et seq.; (3) the Redevelopment Powers Law, O.C.G.A. § 36-44-1, et seq.; and (4) the Downtown Development Authorities Law, O.C.G.A. § 36-42-1, et seq.

Since the decision in Kelo, multiple bills and resolutions have been introduced in the Georgia General Assembly addressing the issue of eminent domain. Senate Bill 86, sponsored by State Senator Jeff Chapman of Brunswick, provides in pertinent part that “in no event shall a public purpose be construed to include the exercise of eminent domain solely or primarily for the purpose of improving tax revenue or the tax base or the purpose of economic development.” Senate Bill 86 passed the Georgia Senate on March 10, 2005 and is currently tabled in the Georgia House.

The Georgia Senate Study Committee on Eminent Domain and Economic Development, chaired by Senator Chapman, has been conducting hearings on the subject of eminent domain. As a result, Senator Chapman has also filed a bill for a moratorium on the use of eminent domain for urban development purposes (S.B. 391) and a resolution to amend the Georgia Constitution to limit the power to take private property through eminent domain for economic development purposes (S.R. 652).

House Bill 943, sponsored by Georgia Representative Tom Knox, specifies among other things that the power of eminent domain shall not be used for economic development or redevelopment. Likewise, Georgia House Resolutions 1036 and 1037, sponsored by Representatives Tim Bearden and Tom Knox, respectively, propose amendments to the Georgia Constitution that effectively prohibit the use of eminent domain solely or primarily for the purpose of improving tax revenue or for the purpose of economic development. In February 2006, Governor Perdue proposed comprehensive legislation to tighten laws regulating the use of eminent domain. The proposed legislation allows government to take “blighted” property by eminent domain and sell it to private developers to redevelop. However, only elected officials would be able to condemn property and the definition of “blight” is narrow.

Currently, counties, cities and housing authorities in Georgia may exercise redevelopment powers, including the power to sell or otherwise dispose of property acquired by eminent domain to private enterprise for private use.

The Kelo decision is one of the most controversial decisions issued by the Supreme Court in recent memory. Because the decision makes clear that state legislatures can limit eminent domain authority, the issue of whether and how to do so is one of the hottest currently facing lawmakers. As shown above, there already has been a burst of legislation attempting to deal with the Kelo ruling. In a rare display of unanimity that cuts across partisan lines, lawmakers in virtually every state are advancing bills and constitutional amendments to limit the use of eminent domain to take property for economic development purposes.

As it turns out, according to a press release issued by Susette Kelo’s attorneys at the Institute for Justice, “the little pink house in New London, Connecticut that started a nationwide property rights revolt still stands one year after the U.S. Supreme Court heard arguments and then eventually ruled that it could be torn down for private development.” Susette Kelo and her neighbors still remain in their houses. Shortly after the Kelo decision, the state legislature and the governor of Connecticut established a moratorium on all takings for economic development while the legislature revisited the law. In February 2006, the City Council unanimously voted to find a way to save the homes. Susette Kelo states that she has no plans to move out of her little pink house.

Endnotes


  1. See, e.g., Maher v. City of New Orleans, 516 F.2d 1051 (5th Cir. 1975). 

  2. Poletown Neighborhood Council v. Detroit, 304 N.W.2d 455 (Mich.
    1981). 

  3. County of Wayne v. Hathcock, 684 N.W.2d 765 (Mich. 2004). 

  4. 1983 Ga. Const. art. IX, § II, ¶ VII. 

  5. Id. at art. IX, § VI, ¶ III.