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The Ramifications of Post-Kelo Legislation on State Transportation Projects (2012)

Chapter: V. THE EFFECT OF POST-KELO LAWS ON THE USE OF EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT

« Previous: IV. THE EFFECT OF POST-KELO REFORMS ON PUBLIC USE AND TRANSPORTATION PROJECTS
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Suggested Citation:"V. THE EFFECT OF POST-KELO LAWS ON THE USE OF EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT ." National Academies of Sciences, Engineering, and Medicine. 2012. The Ramifications of Post-Kelo Legislation on State Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/14631.
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Suggested Citation:"V. THE EFFECT OF POST-KELO LAWS ON THE USE OF EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT ." National Academies of Sciences, Engineering, and Medicine. 2012. The Ramifications of Post-Kelo Legislation on State Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/14631.
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Suggested Citation:"V. THE EFFECT OF POST-KELO LAWS ON THE USE OF EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT ." National Academies of Sciences, Engineering, and Medicine. 2012. The Ramifications of Post-Kelo Legislation on State Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/14631.
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13 In sum, of interest to transportation departments is that at least 16 states’ post-Kelo laws include a prohibi- tion on using eminent domain for the purpose of trans- ferring property to another private party.135 Based on the post-Kelo cases discussed in this section, it appears to be unlikely that a transportation department’s emi- nent domain actions will be affected unless a taking is for the purpose of transferring property to a private interest. As discussed in the next subpart, some states permit such transfers if a private use is incidental to the public use. D. No Effect on Takings for a Public Use When a Private Use Is Incidental In at least 10 states, a taking for economic develop- ment or for transfer to a person or private interest or entity is allowed if the private use is incidental to the public use of the condemned property136 or if the private use is “secondary.”137 In Iowa, the definition of a public use, public purpose, or public improvement permits a “[p]rivate use that is incidental to the public use of the property, provided that no property shall be condemned solely for the purpose of facilitating such incidental pri- vate use.”138 Kentucky’s statute provides: No provision in the law of the Commonwealth shall be construed to authorize the condemnation of private prop- erty for transfer to a private owner for the purpose of eco- nomic development that benefits the general public only indirectly, such as by increasing the tax base, tax reve- nues, or employment, or by promoting the general eco- nomic health of the community. However, this provision shall not prohibit the sale or lease of property to private entities that occupy an incidental area within a public project or building, provided that no property may be condemned primarily for the purpose of facilitating an in- cidental private use.139 As stated, in Louisiana, a condemnor may not take property for the “predominant use by any private per- son or entity….”140 An incidental or secondary purpose was at issue in a Pennsylvania case that involved a taking of property that had been declared blighted 30 years earlier but that was to be conveyed to a religious entity as part of a dergo the same schedule impacts and considerations in the post-Kelo world as do non-PPP projects. 135 See note 76, supra. 136 CAL. CONST. art. 1, § 19(e)(5); IOWA CODE § 6A.22(2)(a)(3); KAN. STAT. ANN. § 26-501b(a); KY. REV. STAT. ANN. § 416.675(3); LA. CONST. art. 1, § 4(B)(1); NEV. REV. STAT. § 37.010(2)(b)(1); N.H. REV. STAT. ANN. § 205:3-b(I)(d); 26 PA. CONS. STAT. § 204(b)(2)(iii); R.I. GEN. LAWS § 42-64.12-7(a); TEX. GOV’T CODE ANN. § 2206.001(b)(3). See also GA. CODE ANN. § 22-1-1(4)(A); LA. CONST. art. 1, § 4(B)(2)(b) (public pur- pose limited to “continuous public ownership”); R.I. GEN. LAWS §§ 42-64.12-5(e) (defining “public ownership”) and 42-64.12-6. 137 TEX. GOV’T CODE ANN. § 2206.001(b)(3). 138 IOWA CODE § 6A.22(2)(a)(3). 139 KY. REV. STAT. ANN. § 416.675(3) (emphasis supplied). 140 LA. CONST. art. 1, § 4(B)(1)(a). redevelopment plan.141 The court held that although the effect of the taking would benefit a religious organiza- tion’s mission, the effect was “clearly not the principal or primary effect,” which was to eliminate blight.142 In response to the survey, although the DOTs in three states (California, Nevada, and Pennsylvania) reported generally that the new laws had affected tak- ings by eminent domain for transportation projects, no department indicated that an incidental private use exception had affected the use of eminent domain or a taking for a transportation project. E. Summary of the Effects of Post-Kelo Changes on Transportation Departments Some states’ more restrictive definition of public use exempts a condemnation of property for transportation projects.143 Some statutes also provide that a taking must result in public ownership of the condemned prop- erty. Pursuant to some post-Kelo laws, a transfer to a private party of a property acquired by eminent domain is prohibited, whereas under some of the new laws, a taking is permissible as long as the public use predomi- nates or any private use is incidental or secondary to the taking. As a group, at least 22 states have one or more of the foregoing provisions as part of their post-Kelo re- forms.144 Of the aforesaid 22 states, the DOTs in 11 of them responded to the survey, with the DOTs in three states, California, Nevada, and Pennsylvania, reporting that post-Kelo changes in their state had affected de- partmental takings. However, the meaning of public use, or one of the other changes noted immediately above restricting the use of eminent domain, was not reported by any department as having affected the de- partment’s use of eminent domain. V. THE EFFECT OF POST-KELO LAWS ON THE USE OF EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT A. Post-Kelo Reforms’ Prohibitions on the Use of Eminent Domain for Economic Development Since Kelo, at least 21 states have limited or prohib- ited the use of eminent domain for the taking of private property for economic development,145 but only Florida 141 In Re: A Condemnation Proceeding in Rem by the Rede- velopment Authority of the City of Philadelphia, etc., 595 Pa. 241, 249, 938 A.2d 341, 346 (2007). 142 Id. at 251, 938 A.2d at 347 (emphasis in original). 143 There is some overlap in the states’ post-Kelo changes discussed in Pt. III of the digest. 144 Alabama, Alaska, Arizona, California, Delaware, Flor- ida, Georgia, Idaho, Iowa, Kansas, Kentucky, Louisiana, Michigan, Nevada, New Hampshire, North Dakota, Pennsyl- vania, Rhode Island, South Dakota, Texas, Vermont, and Vir- ginia. 145 ALASKA STAT. §§ 09.55.240(d) and 29.35.030(b); ARIZ. REV. STAT. § 12-1136(5)(b); COLO. REV. STAT. ANN. § 38-1-

14 and New Mexico have prohibited takings of blighted property for redevelopment.146 As one source observes, “[m]ost states that passed legislative reforms focused primarily on tightening their definition of public use to exclude development projects or projects aimed at in- creasing tax revenue while leaving an exception for blighted areas.”147 The exception for takings of blighted property is discussed in Section V of the digest. Some of the post-Kelo constitutional or statutory re- forms prohibit the use of eminent domain for economic development, such as for the purpose of enlarging the tax base148 or increasing tax revenue.149 Other reforms also prohibit the use of eminent domain for economic 101(1)(b)(I); GA. CODE ANN. § 22-1-1(4); IDAHO CODE ANN. § 7- 701A(2)(b); IND. CODE ANN. § 32-24-4.5-(a)(3); IOWA CODE § 6A.22(2)(b); KY. REV. STAT. ANN. § 416.675(3); LA. CONST. art. 1, § 4(B)(3); MICH. CONST. art X, § 2 and MICH. COMP. LAWS § 213.23, § 3(3); MINN. STAT. § 117.025, subd. 11(b); MO. REV. STAT. §§ 523.71(1) and 523.71(2); N.H. REV. STAT. ANN. § 205:3-b(II); N.D. CONST. art. 1, § 16; R.I. GEN. LAWS §§ 42- 64.12-3, 42-64.12-5(a), 42-64.12-7, 42-64.12-7(c), and 42-64.12- 8(a) (authorizing minimum compensation of 150 percent of market value of property taken for economic development); S.C. CONST. art. 1, § 13(A); S.D. CODIFIED LAWS § 11-7-22.1 (not specifically including the term “economic development”); TENN. CODE ANN. § 29-17-101(2); TEX. GOV’T CODE ANN. § 2206.001(b) (including an exception for economic develop- ment when it has “a secondary purpose resulting from munici- pal community development or municipal urban renewal ac- tivities to eliminate an existing affirmative harm on society from slum or blighted areas”); VT. STAT. ANN. tit. 12, § 1040(a); VA. CODE ANN. § 1-219.1 (not specifically using the term “eco- nomic development” but restricting the use of eminent domain use for takings or property for public use or owner for public use and ownership or the elimination of blighted property). 146 See Pt. V, infra. 147 Nedzel, supra note 51, at 1014. 148 ARIZ. REV. STAT. § 12-1136(5)(b); GA. CODE ANN. § 22-1- 1(4); IND. CODE ANN. § 32-24-4.5-1(a)(3); KY. REV. STAT. ANN. § 416.675(3); MINN. STAT. § 117.025, subd. 11(b); MO. REV. STAT. § 523.71(2); N.D. CONST. art. 1, § 16; R.I. GEN. LAWS § 42-64.12-5; VA. CODE ANN. § 1-219.1(D). 149 ALA. CODE §§ 11-47-170(b) and 11-80-1(b); ARIZ. REV. STAT. § 12-1136(5)(b); COLO. REV. STAT. ANN. § 38-1- 101(1)(b)(I); CONN. GEN. STAT. § 8-193(b)(1); GA. CODE ANN. § 22-1-1(4); IND. CODE ANN. § 32-24-4.5-1(a)(3); IOWA CODE § 6A.22(2)(b); KY. REV. STAT. ANN. § 416.675(3); LA. CONST. art. 1, § 4(B)(3); MICH. CONST. art. X, § 2; MICH. COMP. LAWS § 213.23, § 3(3); MINN. STAT. § 117.025, subd. 11(b); MO. REV. STAT. § 523.71(2); N.H. REV. STAT. ANN. § 205:3-b(II); N.D. CONST. art. 1, § 16, OHIO REV. CODE ANN. § 1.08(C); S.D. CODIFIED LAWS § 11-7-22.1(2); TENN. CODE ANN. § 13-20- 201(a) (in connection with defining blighted areas and welfare of the community); VA. CODE ANN. § 1-219.1(D). development to increase employment150 or to improve the community’s general economic health.151 In Iowa, a “public use” or “public purpose” or “public improvement” does not mean economic development activities resulting in increased tax revenues, increased employment oppor- tunities, privately owned or privately funded housing and residential development, privately owned or privately funded commercial or industrial development, or the lease of publicly owned property to a private party.152 Likewise, in New Hampshire, a public use does “not include the public benefits resulting from private eco- nomic development and private commercial enterprise, including increased tax revenues and increased em- ployment opportunities” unless permitted elsewhere in the code.153 Other states define public use to exclude the use of eminent domain for economic development, as in Michi- gan where both the state’s constitution and its code prohibit the use of eminent domain for such a purpose. The Michigan Constitution provides that a “‘[p]ublic use’ does not include the taking of private property for transfer to a private entity for the purpose of economic development or enhancement of tax revenues.” Pursu- ant to the state code, a “‘public use’ does not include the taking of private property for the purpose of transfer to a private entity for either general economic develop- ment or the enhancement of tax revenue.”154 Also appearing in some statutes is a provision that the term “public use” does not include, or that eminent domain may not be used for, the development of private housing,155 retail businesses,156 or private businesses or enterprises,157 or for commercial158 or industrial pur- 150 ARIZ. REV. STAT. § 12-1136(5)(b); GA. CODE ANN. § 22-1- 1(4); IND. CODE ANN. § 32-24-4.5-1(a)(3); IOWA CODE § 6A.22(2)(b); KY. REV. STAT. ANN. § 416.675(3); MINN. STAT. § 117.025, subd. 11(b); MO. REV. STAT. § 523.71(2); N.H. REV. STAT. ANN. § 205:3-b(II); N.D. CONST. art. 1, § 16, R.I. GEN. LAWS § 42-64.12-5(a); VA. CODE ANN. § 1-219.1(D). 151 ARIZ. REV. STAT. § 12-1136(5)(b); GA. CODE ANN. § 22-1- 1(4); IND. CODE ANN. § 32-24-4.5-1(a)(3); KY. REV. STAT. ANN. § 416.675(3); MINN. STAT. § 117.025, subd. 11(b); MO. REV. STAT. § 523.71(2); N.D. CONST. art. 1, § 16. 152 IOWA CODE § 6A.22(2)(b). 153 N.H. REV. STAT. ANN. §§ 205:3-b(I) and (II). 154 MICH. COMP. LAWS § 213.23, § 3(3). See also GA. CODE ANN. § 22-1-(9)(B); KY. REV. STAT. ANN. § 416.675(3). 155 IOWA CODE §§ 6A.21(b) and 6A.22(2)(b). 156 ALA. CODE §§ 11-47-170 (“Notwithstanding any other provision of law, a municipality or county may not condemn property for the purposes of private retail, office, commercial, industrial, or residential development; or primarily for en- hancement of tax revenue; or for transfer to a person, nongov- ernmental entity, public-private partnership, corporation, or other business entity.”); see also ALA. CODE § 11-80(b). 157 26 PA. CONS. STAT. §§ 204(a) and (b); S.D. CODIFIED LAWS §§ 11-7-22.1 and 11-7-22.2. 158 ALA. CODE §§ 11-47-170(b) and 11-80-1(b); IOWA CODE §§ 6A.21(1)(b), (c) and 6A.22(2)(b); N.H. REV. STAT. ANN. § 205:3-b(II).

15 poses.159 Other states’ legislative changes were more “modest,”160 with some states redefining what consti- tuted blighted property,161 the remediation of blighted areas usually being an exception to a prohibition of or restriction on the use of eminent domain for economic development. Of the foregoing 21 states that limit or prohibit the use of eminent domain for economic development, eight of the states’ transportation departments responded to the TRB survey.162 The transportation department in one of the eight states (Missouri) reported that the post- Kelo laws had affected the department’s acquisition of real property by eminent domain. The Nebraska De- partment of Roads’ response to the survey stated that, although its statute prohibits condemnation primarily for an economic development purpose, the “statute ex- empts public ‘right-of-way projects’ from the new prohi- bition. Therefore, almost all NDOR acquisitions are not impacted by this statutory change.”163 None of the sur- vey respondents indicated that a state prohibition of or restriction on takings for economic development had affected a transportation project. B. State Court Decisions Since Kelo Several court decisions since Kelo are consistent with the foregoing prohibitions on the use of eminent domain for economic development purposes. In a 2006 Ohio case, the court held that “the fact that the appropriation would provide an economic benefit to the government and community, standing alone, does not satisfy the public-use requirement of Section 19, Article I of the Ohio Constitution.”164 The court observed that the Ohio legislature had stated that, as a result of Kelo, “the interpretation and use of the state’s eminent domain law could be expanded to allow the taking of private property that is not within a blighted area, ultimately re- sulting in ownership of that property being vested in an- other private person in violation of Sections 1 and 19 of Article I, Ohio Constitution.”165 The court held further that “although economic bene- fit can be considered as a factor among others in deter- mining whether there is a sufficient public use and benefit in a taking, it cannot serve as the sole basis for finding such benefit.”166 Furthermore, the court stated that in Ohio the courts should “apply heightened scrutiny when review- 159 ALA. CODE §§ 11-47-170(b) and 11-80-1(b); IOWA CODE §§ 6A.21(1)(b) and 6A.22(2)(b). 160 Lopez, supra note 59, at 592 (citing as examples Ken- tucky and Missouri). 161 Id. at 593 (citing as an example Pennsylvania). 162 Idaho, Iowa, Missouri, North Dakota, Rhode Island, South Carolina, Tennessee, and Virginia. 163 Nebraska Department of Roads’ Survey Response, dated Feb. 18, 2011 (citing NEB. REV. STAT. § 76-710.04). 164 City of Norwood v. Horney, 110 Ohio St. 3d 353, 356, 853 N.E.2d 1115, 1123 (Ohio 2006). 165 Id. at 355, 853 N.E.2d at 1122. 166 Id. at 378, 853 N.E.2d at 1141. ing statutes that regulate the use of eminent-domain powers.”167 The court held that “Norwood’s use of ‘dete- riorating area’ as a standard for appropriation [was] void for vagueness” and that “the use of the term ‘dete- riorating area’ as a standard for a taking [was] uncon- stitutional because the term inherently incorporates speculation as to the future condition of the property to be appropriated rather than the condition of the prop- erty at the time of the taking.”168 In an Oklahoma case involving the taking of right-of- way easements for a future, private generation plant, the court held that the general eminent domain statute did not authorize the use of eminent domain for the sole purpose of economic development.169 The court noted that there was no statute in Oklahoma authorizing the use of eminent domain for economic development in the absence of blight. The effect of post-Kelo reform may be seen in West- ern Seafood Co. v. United States,170 in which the city of Freeport, Texas, sought to condemn a portion of West- ern Seafood’s property along the Old Brazos River for the purpose of economic development. The city planned to take and thereafter transfer Western Seafood’s prop- erty to Freeport Waterfront Property, a private entity, to build a private marina. When the city sought a per- mit from the U.S. Army Corps of Engineers, Western Seafood sued for injunctive relief to prevent the United States and the city from building marina piers in front of Western Seafood’s property.171 The plaintiff also sought to enjoin the city’s condemnation suit in state court. In both actions Western Seafood alleged that the defendants would be violating the Texas Development Corporation Act and the Taking Clauses of the United States and Texas Constitutions.172 As for the federal constitutional claim, particularly in light of the Kelo decision, the court held that the pro- posed taking did not violate the Fifth Amendment. In- deed, the court stated that “[t]he facts in Kelo bear a strong relationship to the circumstances in this case.”173 The court rejected Western Seafood’s argument that the Kelo case was distinguishable because in Kelo “the beneficiaries of the transfer of property were not identi- fied prior to New London’s exercise of eminent do- main.”174 However, because of a change in the Texas code after the Kelo decision, the court reversed the district court’s entry of judgment for the city on the state law claims. As a result of the enactment of Texas Government Code § 2206.001 pursuant to the Limitations on Use of Emi- nent Domain Act, Texas law provides in part that 167 Id. at 356, 853 N.E.2d at 1123. 168 Id. 169 Bd. of County Comm’rs of Muskogee County v. Lowery, 2006 Ok. 31, *P12, *18, 136 P.3d 639, 648, 650 (2006). 170 202 Fed. Appx. 670 (5th Cir. 2006). 171 Id. at 671–72. 172 Id. at 672. 173 Id. at 674. 174 Id. at 675.

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TRB's National Cooperative Highway Research Program (NCHRP) Legal Research Digest 56: The Ramifications of Post-Kelo Legislation on State Transportation Projects explores the consequences of legislation enacted by state legislatures that limits the use of eminent domain in response to the 2005 United States Supreme Court case of Kelo v. the City of New London, where the Court held that the use of eminent domain to take nonblighted, private property for a city-approved, privately implemented economic development plan was constitutional.

The report examines how state legislation has affected the use of eminent domain for economic development, for condemning blighted and nonblighted property, and for restricting transfers of condemned property to private parties. The report also examines how states have legislatively redefined the concept of “public use.”

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