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Public Use or Private Abuse?
U.S. Supreme Court Approves Taking of Land for Private Economic Development
By Kristina Dalman
The U.S. Supreme Court, in one of the most important decisions in decades, ruled
5-4 last week that it was proper for a city to condemn private property that
was not blighted in order to further its economic redevelopment plans. In Kelo
v. City of New London, Connecticut, the Court determined that the taking of
private property as part of a larger economic development plan for a 90-acre
area located in the City of New London qualified as a valid public use under
the both the federal and state Constitutions, and rejected the call to require
a heightened standard of judicial review in reviewing takings for economic development.
Homeowners Challenge Taking by City
In Kelo, homeowners living in the Fort Trumbull area of New London contested the city’s use of its eminent domain power to condemn their property as part of a broader plan to redevelop the 90-acre area with new office, retail, hotel, residential, parking and marina uses to stimulate redevelopment throughout the economically depressed municipality. Dire economic conditions had led to the creation of the New London Development Corporation (NLDC), a private, non-profit entity created to assist with economic development.
After a public process, NLDC formulated a development plan for the redevelopment of the Fort Trumbull area, which was approved by the New London City Council in 2000. At that time, the city designated NLDC as its agent to implement the plan and granted NLDC the authority to exercise the power of eminent domain on the City’s behalf. NLDC pursued condemnation of the homeowners’ land after negotiating to acquire most of the planning area. The condemnation was pursued pursuant to a Connecticut statute that specifically authorized the use of eminent domain authority to permit economic development – it was never alleged that the properties were blighted.
The Connecticut Supreme Court rejected the homeowners’ challenge, holding
that the proposed takings were valid. The state court ruled that economic development
was a valid public use under both federal and state Constitutions, because the
city was able to show that the overall redevelopment of the Fort Trumbull area
would create jobs, generate tax revenue and help build momentum for the revitalization
of New London, and because the use of eminent domain for economic development
purposes was specifically permitted under Connecticut state statute.
State Courts Were Divided on Issue
The decision in Kelo was much anticipated because the Court had never addressed whether the taking of land for the purpose of facilitating private economic redevelopment was constitutional and because state courts were divided on the issue. For decades, many courts (including the Connecticut Supreme Court in Kelo ) relied on the position taken by the Michigan Supreme Court in 1981 in Poletown Neighborhood Council v. City of Detroit.
In the Poletown case, the Michigan Supreme Court upheld the City of Detroit’s condemnation of a thriving neighborhood in Detroit to make way for the construction of a new General Motors plant to help reinvigorate the city’s depressed economic condition. The Court determined that the taking of land for economic development purposes was a valid “public use” under the Fifth Amendment. In a stunning turn of events in August 2004, however, the Michigan Supreme Court reversed its position on the issue, declaring in a subsequent case involving the condemnation of land surrounding Detroit Metro Airport for economic redevelopment (Wayne County v. Hathcock), that its prior decision in Poletown was wrong and that the taking of private property in furtherance of economic development was unconstitutional.
More Stringent Standards in Many States
Even prior to the retraction of Poletown, many states had adopted more stringent standards for determining the validity of taking private property for private economic development purposes by statute or by judicial decisions. For example, the Illinois Supreme Court had adopted a narrow interpretation of the “public use” requirement in the 2002 case Southwestern Illinois Development Authority v. National City Environmental, L.L.C.
The Illinois General Assembly had created the Southwestern Illinois Development Authority (SWIDA), a municipal corporation, to promote economic development in Madison and St. Clair Counties. SWIDA, which by statute had the same eminent domain authority provided by the Illinois Code of Civil Procedure as all other municipal corporations, had used its “quick-take” authority to acquire property located adjacent to a privately owned motorsport racetrack and conveyed the property to the racetrack so that the racetrack could expand its surface parking.
In SWIDA, the Illinois Supreme Court held that the taking was unconstitutional because the public benefit of economic development and traffic safety benefits afforded by the additional parking were incidental to the primary benefit to the developer, who could have addressed its need for more parking by building a more expensive parking garage on its existing property. The Illinois Court held that SWIDA improperly used “the power of government for purely private purposes to allow [the racetrack owner] to avoid the open real estate market and expand its facilities in a more cost-efficient manner and thus maximizing corporate profits,” which was “a misuse of the power entrusted by the public.”
Limited Applicability of Kelo
With SWIDA and Hathcock as a backdrop, the U.S. Supreme Court decided to review the Kelo decision. The Court’s ruling in Kelo, affirming the Connecticut Supreme Court’s decision to allow New London’s taking of non-blighted property for private economic development, came as a surprise to most constitutional law experts. Most experts expected the Court to place at least some limits on the use of eminent domain authority in furtherance of economic development. Instead, the Court, in a narrow majority in which Justice Kennedy appears to have been the swing vote, refused to impose any limits or tests on the constitutionality of condemning property for the purpose of economic development.
Although the Court did not impose any limits or tests for determining whether the taking of private property for economic development was constitutional, the Court and Justice Kennedy in a separate concurring opinion clearly cautioned that the decision reached in Kelo should not be viewed as having broad applicability. The Court’s decision stressed that New London’s proposed condemnation was pursuant to a greater development plan approved by the New London City Council and that the city was acting under a state statute that specifically granted municipalities the power to exercise their eminent domain authority in furtherance of economic development activities.
The Court suggests that transferring “citizen A’s property to citizen B for the sole reason that citizen B will put the property to more productive use and thus pay more taxes” if it occurs outside the confines of an integrated development plan, although not presented in Kelo, may be reviewed differently by the Court.
Existing State Law Still Valid
The Court also clearly states that its decision in Kelo should not be viewed as invalidating existing state laws, whether created by the courts or by statute, that more strictly limit the use of eminent domain authority in furtherance of economic development. As a result, in Illinois, SWIDA today remains good law, even though it has imposed a stricter standard for the use of eminent domain authority in the pursuit of economic development. Nevertheless, it remains to be determined whether the States will expand or restrict the SWIDA decision in light of the Kelo decision, which allows courts to give legislative bodies “broad latitude in determining what public needs justify the use of the takings power.”
Effect of Kelo
As a result of the Kelo decision, many municipalities may read this decision as giving them new authority to exercise their eminent domain powers in pursuing economic redevelopment. The use of eminent domain powers after Kelo, however, will be subject to more restrictive state law standards (e.g., SWIDA for Illinois) and by Kelo itself. Thus, local governments and developers will still need to proceed carefully when the use of condemnation is contemplated as part of a redevelopment project until the meaning of Kelo is given further shape by state courts or legislatures.
How will the Kelo decision affect the ability of municipalities to use
their eminent domain authority to acquire brownfield properties for redevelopment?
If the brownfield properties are abandoned or blighted, the Kelo decision
should not be read as limiting local government’s authority to take such
property. However, if the brownfields are not abandoned or blighted, local governments
and developers will need to look to the applicable state law to determine whether
the taking of such property would be valid under state law and to consider the
concerns voiced by the Supreme Court in Kelo about taking land for redevelopment
that is not part of a greater redevelopment plan.
Kristina Dalman is a partner in the Real Estate Land Use practice of Gardner
Carton & Douglas LLP’s Chicago office.