Supreme Court Upholds Authority of City to Take Private Property
"Public Use" is Interchangeable With "Public Purpose"

The U.S. Supreme Court issued its decision on the much debated eminent domain issue in Kelo v. City of New London, 545 U.S. ___ (2005). The question was what protection the 5th Amendment "public use" requirement provides for individuals whose property is being condemned, not to eliminate slums or blight, but for the sole purpose of “economic development” that will perhaps increase tax revenues and improve the local economy.   

In a controversial 5-4 decision, the Court ruled in favor of the government and decided that economic development is a “public use” under the 5th Amendment of the Constitution.  While the fallout may be profitable for developers who take advantage of government use of eminent domain in order to develop private projects that may be part of an area-wide development plan when blight is not involved, the precedent set here is that local governments may take from one private property owner and give to another as long as it can show some benefit to the public.

 Background

The City of New London sought to redevelop approximately 90 acres of land that was neither in a slum nor a blighted area.  The parcels of land at issue are adjacent to a Pfizer global research facility, and the City sought to transfer control over the property to private developers to build a business and technology park.  By way of justification, the City estimated increased revenue in property taxes and claimed that the plan would complement the Pfizer complex, provide employment recently curtailed by the closing of a local U.S. Naval facility, encourage access to the city’s waterfront, and build momentum for the revitalization of the downtown area.  The property owners claimed that it was a naked transfer of land from one private property owner to another in violation of the 5th Amendment.  In March 2004, the Connecticut Supreme Court took a broad approach to the public use issue and decided in favor of the government.

In its amicus curiae brief, NAHB argued that the Court should provide a framework for an intermediate level of scrutiny such that other courts can determine whether a condemnation involving significant private interests is appropriate, especially in cases where economic development is the sole justification for condemnation. 

The Decision

Justice Stevens, who wrote the majority opinion, agreed with the Connecticut Supreme Court that “public use” is interchangeable with “public purpose” and that broad deference should be given to a legislature which determines that such a public purpose exists.  Justice Kennedy, the swing vote, wrote a concurring opinion pointing out that the courts do need to look at the stated purpose for pretext, but that a rational basis for a local government’s decision will be enough.  He did not provide guidance as to how a court would make that determination.  Justice O’Connor (joined by Justices Rehnquist, Scalia and Thomas) provided a dissenting opinion that incidental public benefits are not enough to constitute a public use and that the courts have a responsibility to review carefully public-private takings.  Justice Thomas took his dissent one giant step further to argue that based on historic interpretation of the Constitution, “public use” should mean uses by the public.  The narrow majority of justices and the strong dissents underscore the controversy surrounding this decision as well as the potential negative ramifications for property owners.

 Impacts on Property Owners and Developers

 Without a doubt, giving the local governments such wide latitude is a blow to property rights.  The door is open for local governments to abuse their eminent domain powers and take existing residential properties or developable land for any commercial purpose, which will always produce more tax revenue than a residential use.  Existing multifamily properties deemed to be less profitable than a new multifamily property could be subject to condemnation without any pretense of showing of slum or blight.  The majority almost refused to recognize that abuses including private-to-private transfers really do take place.  Further, in the economic development plan context, the majority found that the local governments do not even need to show that an economic development plan can actually benefit the public in the end. 

 The majority did point out that many state courts hold a much narrower definition of public use (like Michigan), and the states are free (by statute or constitutional interpretation) to limit the power of eminent domain further.  However, most states have not taken a solid position on this issue.   

If you have any questions on the case, or would like additional information, please contact Mary Lynn Pickel, Director of Legal Services at NAHB, toll-free at 800-368-5242 x8485, or via e-mail at mlpickel@nahb.com. 

For the U.S. Supreme Court opinion, please click on the link below: http://a257.g.akamaitech.net/7/257/2422/23jun20051201/www.supremecourtus.gov/opinions/04pdf/04-108.pdf

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