On June 23, 2005, the United States Supreme Court held in Kelo v. City of New London that the government can seize private property and transfer it to another private party for economic development. This type of taking was deemed to be for a “public use” and allowed under the Fifth Amendment of the United States Constitution.
As a result, if a city claims that a certain privately owned property would generate additional tax revenue, create more jobs, or even simply make the city more attractive if owned by another private party, that city can use the power of eminent domain to seize the property. Private-property ownership has become a precarious proposition, subject to the economic development whims of the government. After Kelo, one’s home is one’s castle only until the government thinks someone else can build a better castle.
States have responded by passing laws that are intended to provide protection from these economic development takings. However, Congress has failed to take meaningful action in the decade since this landmark decision. At the tenth anniversary of the Kelo case, Congress should provide property owners in all states necessary protection against economic development and closely related takings.
Overview of Kelo
In the late 1990s, New London, Connecticut, was facing tough times, with an unemployment rate nearly double that of the state and the population at its lowest in nearly 80 years. To promote economic growth and revitalize the city, New London sought to redevelop its Fort Trumbull area. As proposed, the area would have included a new conference hotel, restaurants, shops, a renovated marina, and research and development office space. The large pharmaceutical company Pfizer had announced its plan to build a major research facility in the area, and the city’s planned development was intended to capitalize on the company’s arrival.
To implement its plan, the city used eminent domain to seize multiple non-blighted properties for this economic development effort, including the home of Susette Kelo. The specific question that had to be answered in Kelo was whether the seizure of private property for economic development constituted a “public use” under the Fifth Amendment. The Takings Clause, found in the Fifth Amendment of the United States Constitution, restricts the government’s ability to seize private property: “Nor shall private property be taken for public use, without just compensation.” In a 5–4 opinion, the Supreme Court held that New London’s taking of Kelo’s home and other properties was a public use and therefore a constitutional exercise of eminent domain.
Implications of Kelo
Even before Kelo, the Supreme Court had interpreted “public use” more broadly than what the language would suggest. As might be expected, it does cover takings of property for “use by the public.” This would include takings for public ownership, such as a road, and takings for private parties for use by the public, such as a utility. However, before Kelo, the Supreme Court had also determined that “public use” should mean “public purpose.” This dramatic shift ignored express constitutional language that covers narrow situations and applied new language to cover very broad situations.
This “public purpose” approach led to great expansions of eminent domain power allowing private property to be transferred to other private parties. In 1954, the court held in Berman v. Parker that non-blighted property could be seized in an alleged blighted area. In 1984, the court held in Hawaii Housing Authority v. Midkiff that property could be seized to address an unusual land oligopoly situation where land ownership was extremely concentrated.
In her dissent in Kelo, Justice Sandra Day O’Connor claimed that those two cases were distinguishable from Kelo because the takings targeted property that was inflicting “affirmative harm on society.” While Justice O’Connor was trying to suggest a narrow application of the eminent domain power prior to Kelo, this is not a completely accurate characterization.
The Berman case in particular has far broader implications than she suggested, giving government the ability to abuse blight laws to seize private property. Regardless, the term “public use” still placed some limit on what could be seized. Kelo changed all of that. In Kelo, the court effectively deleted “public use” from the Fifth Amendment.
No Property Is Safe. Thanks to Kelo, if the government believes that another private party can make better economic use of a property, it can be seized. This problem is exacerbated because courts defer to government about whether something is a public use and whether a plan even makes sense. Justice O’Connor truly captured the extent of the problems with Kelo in her dissent, including this important point: “The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.”
Those who will be harmed the most will be low-income individuals. There will be a “reverse Robin Hood effect.” The government is not likely to go after valuable properties to help promote economic development and generate more tax revenue. Instead, it will seek out properties that are not generating the desired economic benefits (and cost less) and transfer those properties to private parties whom government officials think will provide the desired effects. Further, those with fewer resources are less able to challenge the seizures of property, making it easier for government to seize the property.
No Practical Protection from Takings for Private Use. The majority opinion asserted that private property still may not be seized for the sole purpose of transferring it to another private party nor can property be taken “under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit.”
This is nice in theory, but is a fallacy in practice. If the government seizes private property because government officials want to help a developer build a shopping mall, for example, the taking will still appear to have a public purpose because presumably it will have an alleged economic benefit. It is virtually impossible to determine whether a taking is for a private benefit or for a public purpose. As Justice O’Connor explained, “The trouble with economic development takings is that private benefit and incidental public benefit are, by definition, merged and mutually reinforcing.”
Cronyism at Its Worst. A developer can use the government as its middleman to seize properties and avoid paying what likely would be their true costs. Cronyism is bad enough when favors are provided to politically connected interests through subsidies and other special treatment. Kelo has made it easy for government officials to benefit their friends and politically connected businesses using the awesome power of eminent domain. A family’s home could be demolished and their property rights trampled to help a developer. On top of that, the government can use this power in a haphazard manner, with the court unlikely to question the merits of the takings, regardless of how unnecessary or poorly conceived the takings might be.
Why Congressional Action Is Necessary
If the Supreme Court gutted First Amendment protections or other fundamental rights, there would be widespread outrage. While states could provide some protection, it is highly unlikely that the public or policymakers would deem this adequate in protecting federal constitutional rights. The same holds true for private property rights. This by itself is a reason to take action.
Most states have responded in some fashion to Kelo. Many of the reforms will likely be sufficient to address the unusual and rare situation, as in Kelo, where a city readily admits that it is seizing private property solely for economic development. However, most of these reforms are statutory, not constitutional, and therefore do not provide the level of protection that is warranted; a statute can generally be changed far more easily than a constitutional amendment. Further, the reforms do not properly address the way economic development takings usually happen, such as through overly broad blight laws. There are post-Kelo abuses that illustrate that eminent domain abuse is alive and well.
In New York, private property was seized for office space and apartment towers. In another New York project, property was seized for Columbia University, a private institution. A Glendale, Colorado, carpet store could soon be seized and ownership transferred to a developer for an entertainment district. These examples are all based on addressing so-called blight. New Jersey’s Casino Reinvestment Development Authority, unrelated to any claim of blight, is seeking to seize a home to redevelop the surrounding neighborhood, even though it has no clear plans for the property.
Blight Abuse. City officials do not usually admit that they are taking private property solely for economic development. They generally claim another reason to serve as a pretext for seizing property for economic development. Blight is one of the most frequent reasons.
On the surface, the idea that government would be seizing property to address blight may not sound particularly bad. However, there are two critical ways that many state blight laws allow government to abuse eminent domain power.
- Blight definition: The word “blight” suggests property that is unfit to live in or is somehow unsafe. However, blight laws generally do not use such a definition. Instead, the definition is often extremely broad, covering properties that are in perfectly fine condition, allowing almost any property to fall under the definition. These broad and subjective definitions make it easier for cities to seize private property for economic development while pointing to “blight” as the justification. It also makes it easier to benefit private interests and exacerbate the cronyism problem.
- Non-blighted properties in blighted areas: Even if a property is in pristine condition, the government might be able to seize it if it falls under a subjectively determined blighted area. Even if distinct boundaries could be established between a blighted area and a non-blighted area, this does not necessarily mean that a city could still not label all the properties as existing in one blighted area.
It is important to remember that courts generally do not scrutinize the actions and conclusions of the government when it comes to takings for blight. If a city claims that a property is blighted or in a blighted area, that usually suffices.
Urban renewal laws that address blight have caused serious harm, particularly among minority communities. A 2007 Institute for Justice Report found that:
Under that act [Federal Housing Act of 1949], which was in force between 1949 and 1973, cities were authorized to use the power of eminent domain to clear “blighted neighborhoods” for “higher uses.” In 24 years, 2,532 projects were carried out in 992 cities that displaced one million people, two-thirds of them African American.
An amicus brief filed in Kelo by the NAACP, along with other organizations, argued:
The history of eminent domain is rife with abuse specifically targeting minority neighborhoods. Indeed, the displacement of African-Americans and urban renewal projects were so intertwined that “urban renewal” was often referred to as “Negro removal.”
Blight laws are still being abused to promote economic development. One important example is the Atlantic Yards project in New York. The government seized alleged blighted property for a basketball arena for the now Brooklyn Nets as well as property for apartment and office towers.
In 2009, the highest New York court, the Court of Appeals, in Goldstein v. New York State Urban Development Corp. allowed a very broad definition of blight, admitting:
It may be that the bar has now been set too low—that what will now pass as “blight,” as that expression has come to be understood and used by political appointees to public corporations relying upon studies paid for by developers, should not be permitted to constitute a predicate for the invasion of property rights and the razing of homes and businesses. But any such limitation upon the sovereign power of eminent domain as it has come to be defined in the urban renewal context is a matter for the Legislature, not the courts.
The agency with the power to seize the property did not talk about blight until two years after the project was announced and the developer paid for the blight study. George Mason University law professor Ilya Somin has argued, “In Goldstein v. New York State Urban Development Corp., the Court of Appeals adopted a virtually limitless definition of ‘blight’ that includes any area where there is ‘economic underdevelopment’ or ‘stagnation.’” In his dissent, Judge Robert Smith stated: “They [the state agency’s consultants] did not find, and it does not appear they could find, that the area where petitioners live is a blighted area or slum of the kind that prompted twentieth century courts to relax the public use limitation on the eminent domain power.”
All of these factors were still not enough for the New York Court of Appeals to block the takings. Even worse, the federal Second Circuit Court of Appeals upheld the taking, stressing the need for deference just like the New York Court of Appeals.
What Should Congress Do?
At a minimum, the immediate response, in light of the tenth anniversary of Kelo, should be to address economic development and closely related takings. There are many ways that legislation can address these takings, but there are some important considerations that Congress should remember. The devil is in the details; the way any protections are drafted is critical and can make the difference between real protection and the mere perception of protection. Government will seek to find end runs around any prohibitions. It is vital that these end runs are addressed.
There is no question that drafting language to provide clear protections from these economic development takings can be challenging. Critics will likely claim that language is either over-inclusive or under-inclusive in terms of when property may not be seized. While well-established takings consistent with a “use by the public,” such as for utilities and common carriers, should not be prohibited, it is better to be over-inclusive than under-inclusive when prohibiting takings. Individual rights should easily trump the government’s power to use eminent domain.
Creating a Burden of Proof. Often, prohibitions are drafted in a manner that a taking is prohibited “for” a particular reason. Such a prohibition requires courts to examine the subjective intent of why a city or other governmental body seized private property.
If language states that the government may not take property for economic development, then that may seem like economic development takings are prohibited. However, the government will simply assert a non-economic development reason for taking private property, and courts are unlikely to try to figure out whether this is merely a pretext for economic development takings.
As a result, if language has this type of subjective element, burden of proof language is essential. Both Michigan and Nevada in their post-Kelo state constitutional amendments created such language. The purpose is to require that the government prove that a taking is for a proper public use. Since there may be multiple reasons for taking property, the government should ideally prove that it would have seized the property even if there was no economic development benefit.
Addressing Blight Abuse. Any legislation should expressly address the abuse of blight laws. “Blight” should not be so broadly defined to cover almost anything. For property to be considered blighted, it should pose a concrete and imminent risk to public health and safety. Only property that itself is blighted should be allowed to be taken; non-blighted properties should not be seized on the grounds that they are located in an alleged blighted area.
Enforcement. While most economic development and closely related takings are on the state and local level, the law should also apply to the federal government. To address takings by state and local governments, the law should make states and local governments that engage in prohibited activities ineligible to receive certain federal funds (as opposed to simply prohibiting funds for use in a prohibited activity). The relevant funding should at least cover federal economic development funds, including Community Development Block Grants.
Private Right of Action. Private property owners should be able to challenge takings under any new law in court. In addition, reasonable attorney’s fees and related incurred costs should be available to reimburse a property owner who wins his case.
Bipartisan Support for Reform
Addressing economic development takings is far from a partisan issue. Just last year, the U.S. House of Representatives passed the Private Property Rights Protection Act of 2014 by an overwhelming 353-to-65 vote. The legislation attempted to prohibit economic development takings and had several important provisions, including a private cause of action and a burden of proof requirement requiring the government “to show by clear and convincing evidence that the taking is not for economic development.” The legislation though does not appear to properly address the problems with blight takings, at least not in an express manner.
Congress Has a Real Chance to Pass a Meaningful Law. When the City of New London seized private property for economic development, that was bad enough. But those takings served no purpose. Empty fields now sit where the seized homes used to stand. The abuse of blight laws has allowed arrogant government officials to seize people’s homes and neighborhoods simply because they think their vision for a community trumps the rights of the individuals who live in that community.
It is easy to see why there is such wide support for addressing Kelo. This support, in conjunction with the 10th anniversary of the infamous case, should give Congress a real chance to enact protections for property owners. The American dream of owning a home should no longer be threatened by the nightmare of eminent domain abuse.
—Daren Bakst is Research Fellow in Agricultural Policy in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.