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June 23, 2005

Kelo v. City of New London

As a land use and environmental planner by trade, I have developed what many have called “socialist” positions on land use and zoning-related issues. For example, I have the audacity to believe that citizens should not be able to use local government as a tool to artificially constrain residential development in an attempt to limit housing opportunities for people of all incomes or pad their own wallets (i.e., boost property values). If I own a tract of land and want to put low-income apartments on it, I should be able to do so with MY LAND. For reasons beyond me, this position draws ire from my conservative friends.

Also drawing ire from conservatives (including friends), is today’s Kelo v. City of New London SCOTUS decision.

Local governments now have the power to condemn private land for private economic development projects. A local jurisdiction’s power of eminent domain to acquire land for public uses, such as schools, roads, fire stations, libraries, etc., while often abused, has gained rather wide public acceptance. However, this expansion of power will allow cities to, as the article puts it, “bulldoze residences for projects such as shopping malls and hotel complexes in order to generate tax revenue.”

Don’t get me wrong, local redevelopment agencies have done this for a while now. In the 2003 report, Public Power, Private Gain, the Institute for Justice documented more than 10,000 cases where condemnation was used for private gain. It’s just that Kelo sanctions Constitutional a practice that many cities in the past have pursued with relative caution. The floodgates are now open.

Allow me to summarize the petition, majority opinion of the Court, O’Connor’s dissent, and present my thoughts on the decision and its effect in California.

In 1998, Pfizer expressed interest in building a research facility near the Fort Trumbull neighborhood of New London Connecticut. With an unemployment rate twice as high as the County’s and this part of the city experiencing an greater degree of decay than other parts of the city, New London’s City Council gave the go ahead to the New London Development Corporation (NLDC) to prepare a development plan for 90-acres of the Fort Trumbull area. The plan was essentially built around the Pfizer concept plan for a research facility and strived to “create jobs, increase tax and other revenues, encourage public access to and use of the city’s waterfront, and eventually build momentum for the revitalization of the rest of the city” (App. to Pet. for Cert. 5). The Kelo petitioners own property in two of the seven parcels of the NLDC development plan. One of the parcels was designated for “research and office space” while the other was designated, rather vaguely, for “park support” (possibly parking).

Understand that the NLDC is not a public entity. It is a non-profit entity effectively created by the city to assist the City Council with redevelopment and economic development planning. It is not therefore directly accountable to the public, although the City Council, which has the power to condemn the land, is.

The Court ruled that New London’s condemnation of Kelo et al’s property for economic development qualifies as a public use and is therefore not an unconstitutional take. Rejected was the claim that the condemnation was an abuse of public power for private gain. The City had established a thorough development plan that the Court did not find to be adopted for the purpose of benefiting “a particular class of identifiable individuals” (Midkiff, 467 U. S., at 245). The Court argued that “public use” has been defined broadly with deference given to local jurisdictions in defining what justifies use of eminent domain (Berman, 348 U. S. 26; Midkiff, 467 U. S. 229; Ruckelshaus v.Monsanto Co., 467 U. S. 986. Pp. 6.13).

The City’s development plan for the area, which included Kelo’s property, included a variety of proposed land uses, including commercial, residential, and recreational uses, together would provide a number of public benefits, including, but not limited to new jobs and increased tax revenue. Therefore, the petition was considered in context of the whole benefit to be provided by implementation of the City’s development plan. The Court felt that the City’s redevelopment plan for the entire area “unquestionably” provided for a public use and therefore taking of Kelo et al’s property met the public use standard.

In her dissent, Justice O’Connor wrote:

To reason, as the Court does, that the incidental public benefits resulting from the subsequent ordinary use of private property render economic development takings for public use is to wash out any distinction between private and public use of property and thereby effectively to delete the words for public use from the Takings Clause of the Fifth Amendment. Accordingly I respectfully dissent.
O’Connor argues that the majority’s references to Berman and Midkiff are inappropriate. In both those cases, the land condemned “inflicted harm on society.” That is, the land had a direct impact on the public good and the Court’s decided in both cases that removing the direct harm caused a direct public benefit. In Kelo, the land in question caused no immediate societal harm, only that the economic and aesthetic environment had a chance of improving if the land was condemned.

This is a subtle, but wholly consequential shift from the Court.

In moving away from our decisions sanctioning the condemnation of harmful property use, the Court today significantly expands the meaning of public use. It holds that the sovereign may take private property currently put to ordinary private use, and give it over for new, ordinary private use, so long as the new use is predicted to generate some secondary benefit for the public, such as increased tax revenue, more jobs, maybe even aesthetic pleasure… It was possible after Berman and Midkiff to imagine unconstitutional transfers from A to B. Those decisions endorsed government intervention when private property use had veered to such an extreme that the public was suffering as a consequence. Today nearly all real property is susceptible to condemnation on the Court’s theory.
I’m not too familiar with state-local fiscal regimes of other states, but I have an idea how this will play out in California.

Proposition 13 capped property taxes in the 1970s and other initiatives in the state require supermajorities to raise taxes, forcing local jurisdictions to rely on other revenue sources to balance municipal budgets. Since land use powers are a last vestige of local autonomy in California, and a jurisdiction can increase local revenue by increasing the amount of sales-tax generating uses within its borders, a phenomenon referred to as the “fiscalization of land use” ensued. (See this publication for a good overview of CA issues and Fulton’s The Reluctant Metropolis offers a fascinating case study of fights (even lawsuits) between neighboring Ventura County jurisdictions over sales-tax revenue generating uses.)

In my article, A Marriage of Convenience: Fiscal Incentives and Residential Development Patterns, I define fiscalization of land use as a “phenomenon whereby local land use decisions are mostly influenced by fiscal concerns, contrary to the expressed desires of the affected community.” In light of today’s decision, this definition falls a bit short as it is limited to land use and zoning powers, not powers of eminent domain. Nevertheless, the concept is the same. In California, where the State has a penchant for raiding local revenues to balance its budget, the incentive to bulldoze otherwise viable neighborhoods to capture sales tax revenue is even greater. Local governments now are freer to condemn land to pad local coffers and where jurisdictions have limited revenue alternatives, land use fiscalization can be expected to increase.

As detailed in Fulton’s book linked above and elsewhere in the literature, neighboring jurisdictions often offer a variety of concessions to developers of retail uses to “win” the new big-box use. Under this arrangement, non-constituent private corporations, become a client of the jurisdiction. Set aside for the moment the moral problem with condemning private land to make a buck, stuck between a rock and a hard place, the suburbs, dependent on sales tax revenue, may discount the expressed opinions of their current constituents when considering requests from powerful corporations.

Fiscalization of land use is one likely unintended consequence of the decision. Justice O’Connor’s nailed another with this statement:

Any property may now be taken for the benefit of another private party, but the fallout from this 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. As for the victims, the government now has license to transfer property from those with fewer resources to those with more.
With Kelo, incentives are structured to encourage local governments to discount the opinions of existing, perhaps less mobilized or influential, constituents in pursuit of balancing local budgets. But objecting to the Kelo decision on these grounds is a bit wonkish.

Kelo blurs further the line between public and private land. While I agree that in the specific Kelo case, the overall development plan would provide for a public benefit, since the petitioners’ property was causing no immediate harm to the public, the government’s role is to establish the plan, and the market’s job to implement it. If Pfizer could not purchase the land required to build their factory, then they have to take their project elsewhere; they have no inherent right to the property. Taking it in this instance is not only unconstitutional (despite what five justices say), it is immoral.

QUESTION: Does anyone know what impact, if any, this decision may have on protections afforded under the Religious and Institutionalized Persons Land Use Protection Act? Can a City now condemn a church to make way for a WalMart?

Posted by Rick at June 23, 2005 04:12 PM

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Prop 13 limits property tax increases until there is a transaction that triggers a re-assessment of the property. It seems to me that since a transaction/re-assessment results in higher taxes, municipalities could simply engage in property tax arbitrage. They could accomplish this by doing and/or encouraging "projects" in older areas where there may be a lot of long term owners. Just take the properties, the muni or private developer slaps some fresh paint on them, and re-sells them. The "project" establishes increased assessed values thus increasing property tax revenues. Anything to prevent that?

Posted by: Ed at June 23, 2005 05:56 PM

QUESTION: Does anyone know what impact, if any, this decision may have on protections afforded under the Religious and Institutionalized Persons Land Use Protection Act? Can a City now condemn a church to make way for a WalMart?

This is one of the first things that came to my mind. Especially with O'Conner's discent of " other property"

I don't see why not, Until today .. they weren't guarenteed to take your homes.
Under Sec 2:
(1) GENERAL RULE- ... unless the government demonstrates that imposition of the burden on that person, assembly, or institution--
(A) is in furtherance of a compelling governmental interest; and
(B) is the least restrictive means of furthering that compelling governmental interest.

Sounds like they can to me.

Posted by: Morningsun at June 23, 2005 06:52 PM

I am neither a legal scholar nor an economic expert, but what is the potential damage to the real estate market? Doesn’t this make small and medium real estate investments far more risky due to the potential interruption of any long term real estate investment project? Imagine you purchase a piece of land, begin to do resedential development under the forecast that it will increase dramatically in value over the next 10 years, but 1 year into the project the government tells you there is interest to build a movie theatre on that land so they have decided to sell it to United Artist at its current value rather than its potential value. How will longer term real estate investors behave differently? Is it even an issue or would such governmental action be so rare that it would have no impact on behavior? Just a thought.

Posted by: Charles at June 23, 2005 07:11 PM

You might think that little piece of land you own as an investment will appreciate and you can sell it at a profit only to find that the governemnt will take it "at a fair price" to turn over to the developer who gave you a low offer for the property because he knew he could get it cheap through his government cronies if you don't take his offer. The "fair price" the government offers will reflect that you have no choice and there is essentially no free market value to your property (because there is no free market.)

Any land in the path of any commercial development is now worth nothing to the current "owners."

Posted by: Todd at June 23, 2005 09:28 PM

Excellent summary and analysis. Thank you. I wonder, if citizens are required as a "tax base", how a city can expect growth if that city is so thoughtless about property rights? That said, how can a "projected revenue stream" result from a development that causes average people to doubt the safety of buying and living in that community? Are not now the projections for growth and revenue from this development in doubt? I suspect this city has caused itself real long-term financial difficulties. Theft can catch up with thieves in the long run.

Posted by: Peter Hughes at June 23, 2005 10:50 PM

Thank you for drawing attention to this reprehensible decision. Perhaps there was a legal basis for it. But it certainly sets a terrible precedent for the abuse of eminent domain and undercuts what little security low-income home owners have under existing law. Finding safe, affordable housing has always been difficult for poor people. And now it may get a lot more so.

Posted by: dem at June 23, 2005 11:01 PM

Wow dem, we finally agree on something!

Posted by: Rick Brady at June 23, 2005 11:23 PM

He shoots and he scores.

Good one, Rick.

Posted by: Matt at June 23, 2005 11:52 PM

Well, the fair price is normally awarded by a jury, in MA anyway... sympathy normally wouldn't run with wal-mart, I would think.

Posted by: Leo at June 24, 2005 02:49 AM

This is a first-rate analysis. Thanks for tackling this. I still can't believe the Supreme Court decided this way. It is fundamentally contrary to the values of the founding fathers and shakes a pillar of the American dream.

Posted by: Jim Jewell at June 24, 2005 07:56 AM

Thanks for the e-mail heads up ... corruption amongst the rich and influencial is rampant today; I see no reason for the unprincipled to hesitate in exploiting this to their advantage.

Though it will take time, I see the trial lawyers jockeying now.

My question is this: how will "the least of these" defend themselves? Churches and other non-profits are especially vulnerable, as-well-as those on fixed income.

I see no public good coming from this decision!

Lawyers, lawyers ... everywhere you look there are lawyers!

Posted by: John at June 24, 2005 12:06 PM

To me, this has the potential to be the worst decision since Roe vs. Wade. One reason the family farmer had had so many advantages over the years is to prevent the large agribusineeses from having a monopoly on farm land and, therefore, on the cost of food - this says that if the large agribusinesses will pay land tax at a graduated rate (the more land you own, the higher your rate), then family farms can be confiscated. Congress needs to forget the flag buring amendment and get to work on this one.
I am not surprised that O'Conner went with the Conservatives - she is a liberterian (sp?) in the Barry Goldwater tradition (keeping the govenment out of our business).

Posted by: Fran at June 24, 2005 01:09 PM

Does Kelo extend to things other than real property? Suppose a museum wants your private colelction to display? What about grabbing your organs as well? If Bill Gates (for example) needs a new liver, can he have mine condemned becuase he will pay more taxes than I will if he gets it?

Posted by: Kevin at June 24, 2005 01:45 PM

A couple of points to address:

- Regarding your "socialist" views on land use, bear in mind that the court's conservatives ruled against this, and the conservative press is livid.

- On your example of being able to do whatever you like with your own property, I confess to disagreeing, but let me show that folks like Rush and Hannity would take your side.

Posted by: Matt at June 24, 2005 03:38 PM

"Most people think the battle is conservative versus liberals when it's actually originalists versus living constitutionalists." Justice Antonin Scalia

Posted by: Dan O at June 27, 2005 11:36 AM

I believe Bad girrl Bader Ginzburg voted for this so that shoots the 'conservative' side of the court vote argument down. This is obviously just another socialist move by activist judiciary to pave the way for the no borders, no sovereignty NWO of the West view the Socialist Dems and Left of center Repubicans hold. Clinton was in on it, the Bushes are in on it. Lets let in hordes of unskilled workers, let out blue collar work leave by the boatload. Meanwhile a militaristic China waits to cash in on thier controling stock ownership of the US. Can somebody tell me how this helps the common man?

Posted by: gnome at June 28, 2005 02:53 PM

Better yet, it looks like justice David Souter just got owned by his own socialist ruling. I hope he doesn't like it one bit. And I hope they give him half it's current value too. Justice will then be served.

Posted by: gnome at June 28, 2005 02:56 PM

How can we try to attack this or vote against this? Please send me a form or site and I will pass it on to many others. This law needs to be more specific and understood. I live in a mobile home park and of course it does not generate much tax revenue for the city. There are many mobile home parks in this city and I realize that this law (if not specified) could have us all taken out legally and quickly if the city suddenly decided to "kick us out."
Thanks, Billy

Posted by: Billy at June 28, 2005 04:51 PM

I think that the ruleing on this case is incredibley outrageous, and should be re-considerd, this case has opened the US to alot of contriversy, and very many hard years ahead

Posted by: wesley kubie at December 12, 2005 11:13 AM