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

Chapter: VI. THE EFFECT OF POST-KELO LAWS ON TAKINGS OF BLIGHTED PROPERTY

« Previous: V. THE EFFECT OF POST-KELO LAWS ON THE USE OF EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT
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Suggested Citation:"VI. THE EFFECT OF POST-KELO LAWS ON TAKINGS OF BLIGHTED PROPERTY." 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:"VI. THE EFFECT OF POST-KELO LAWS ON TAKINGS OF BLIGHTED PROPERTY." 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:"VI. THE EFFECT OF POST-KELO LAWS ON TAKINGS OF BLIGHTED PROPERTY." 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:"VI. THE EFFECT OF POST-KELO LAWS ON TAKINGS OF BLIGHTED PROPERTY." 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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16 (b) A governmental or private entity may not take private property through the use of eminent domain if the taking: (1) confers a private benefit on a particular private party through the use of property; (2) is for a public use that is merely a pretext to confer a private benefit on a particular private party; or (3) is for economic development purposes, unless the eco- nomic development is a secondary purpose resulting from municipal community development or municipal urban renewal activities to eliminate an existing affirmative harm on society from slum or blighted areas….175 The court noted that Texas courts have held that the scope of public use must be ascertained in part by refer- ence to a legislative determination of public use.176 The court remanded the case for consideration of Western Seafood’s claim in light of Section 2206.001, which “places new limitations on the use of eminent domain for economic development purposes, or where the tak- ing confers a benefit on a particular private party.”177 Although the foregoing section did not explicitly narrow or redefine the term “public use,” the section not only “addresses the uses to which the taken property will be put” but also “was passed in response to Kelo, which turned on the interpretation of the public use clause in the United States Constitution.”178 Under Texas judicial precedent, the section may be “construed as [an] effort to narrow or redefine ‘public use’….”179 VI. THE EFFECT OF POST-KELO LAWS ON TAKINGS OF BLIGHTED PROPERTY A. Post-Kelo Reforms and Blighted Property Based on the transportation departments’ responses to the survey, it does not appear that a prohibition on the use of eminent domain for economic development or any exceptions thereto for blighted property have had an impact on the departments’ acquisitions of private property for highway projects. All 26 transportation departments subject to post-Kelo laws that responded to the survey did not report any effect of the reforms in their state on a highway project in a designated blighted area or involving a taking of blighted property. Nevertheless, post-Kelo changes affecting condemna- tion of blighted property may be of interest to transpor- tation departments. In the 43 states180 that enacted 175 Id. at 676 (quoting TEX. GOV’T CODE ANN. § 2206.001(b)). 176 Id. 177 Id. 178 Id. at 676–77. 179 Id. at 676. 180 Alabama, Alaska, Arizona, California, Colorado, Con- necticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michi- gan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South post-Kelo reforms, at least 38 retained or amended their law permitting the condemnation of blighted property for redevelopment.181 Florida and New Mexico182 appar- ently are the only states since the Kelo decision to pro- hibit the use of eminent domain for the taking of prop- erty to eliminate blight or a nuisance. (Utah initially removed eminent domain authority for blight but later reinstated “limited blight authority” and now allows condemnation by a majority vote of the neighbor- hood.183) As for Florida, the statute provides that “tak- ing private property for the purpose of preventing or eliminating slum or blight conditions is not a valid pub- lic purpose or use for which private property may be taken by eminent domain and does not satisfy the pub- lic purpose requirement of s. 6(a), Art. X of the State Constitution.”184 Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washing- ton, West Virginia, Wisconsin, and Wyoming. See citations in note 154, infra. 181 ALA. CODE §§ 11-47-170(b), 11-80-1(b), and 24.2-2(c); ALASKA STAT. § 18.55.950(2)(2); ARIZ. REV. STAT. §§ 12- 1136(5)(a)(iii) and (iv); CAL. CONST. art 1, § 19(c); COLO. REV. STAT. ANN. § 38-1-101; CONN. GEN. STAT. § 8-193; 29 DEL. CODE ANN. § 9501A(c)(3)(a.1); GA. CODE ANN. § 22-1-1; IDAHO CODE § 7-701A(2)(ii)(1)-(3); ILL. REV. STAT. § 5111-74.4- 3(a)(1)(A-M); IND. CODE ANN. § 32-24-4.5-7; IOWA CODE § 6A.22(2)(5)(a); KAN. STAT. ANN. § 26-501b(e); KY. REV. STAT. ANN. §§ 99.340 (1) and (2) and 99-370(6); LA. CONST. art. 1, § 4(B)(2)(c); ME. REV. STAT. ANN. §§ 5101, 5102, and 5201(5); MICH. COMP. LAWS § 213.23(8); MINN. STAT. §§ 117.025 subd. 6 and subd. 7; see also MINN. STAT. § 117.025 subd. 11; MO. REV. STAT. § 523.274(1); MONT. CODE ANN. § 7-15-4206(2); NEB. REV. STAT. § 18-2103(11); NEV. REV. STAT. § 279.388; N.H. REV. STAT. ANN. § 205:3-b(I)(c); N.C. GEN. STAT. §§ 160A- 503(2) and 160A-515; OHIO REV. CODE ANN. §§ 303.26(F), 1.08(A), and 1.08(B); OR. REV. STAT. § 35.015(2)(a); 26 PA. CONS. STAT. §§ 204(b)(3) and 205; R.I. GEN. LAWS §§ 42-64.12- 6(d), 45-31-6, 45-31-8(2), 45-31-8(3), 45-31-8(6), and 45-31- 8(18); S.C. CONST. art 1, § 13(B); TENN. CODE ANN. § 13-20- 201; TEX. GOV’T CODE ANN. § 374.003(3); VA. CODE ANN. § 1- 219.1(A); W. VA. CODE ANN. §§ 16-18-3(c), (d), and (t); WIS. STAT. ANN. § 32.03(6)(a); WYO. STAT. § 1-26-801(c). 182 Castle Report, supra note 40. See UTAH CODE ANN. § 17C-2-601. 183 UTAH CODE ANN. §§ 17C-2-601(2)(c)(i) and (ii)(A) (stating that [a]n agency may not acquire by eminent domain single-family residential owner occupied property unless: (i) the owner con- sents; or (ii) (A) a written petition requesting the agency to use eminent domain to acquire the property is submitted by the owners of at least 80% of the owner occupied property within the relevant area representing at least 70% of the value of owner oc- cupied property within the relevant area….). 184 FLA. STAT. ANN. § 73.014(2). See FLA. STAT. ANN. §§ 73.014(1) (providing that any “entity to which the power of eminent domain is delegated may not exercise the power of eminent domain to take private property for the purpose of abating or eliminating a public nuisance” and that “abating or eliminating a public nuisance is not a valid public purpose or use for which private property may be taken by eminent do- main and does not satisfy the public purpose requirement of s. 6(a), Art. X of the State Constitution”); FLA. STAT. ANN. § 73.014(2) (providing also that any “entity to which the power

17 In its response to the survey, Caltrans observed that there “are certain areas along major freeways that are currently being widened that perhaps have been desig- nated blighted by the local jurisdiction” but there was no “specific knowledge of a ‘blighted’ designation [with respect to] communities.”185 The department’s response observed that the processes for its right-of-way activi- ties do not change in regard to blighted versus non- blighted designations but that the involvement of blighted property “may have an impact…in the plan- ning stages when investigating environmental justice issues on a given alignment.”186 As for cases involving post-Kelo reforms and takings of blighted property, a Louisiana case concerned an amendment of the Louisiana Constitution;187 the court held that the property at issue had “not been taken for the predominant use of a private party nor for the pur- pose of transferring the property to a private person.”188 The court held that Louisiana’s constitutional proscrip- tion that “property shall not be taken…(a) for predominant use by any private person or entity; or (b) for transfer of owner- ship to any private person or entity”…merely prevents expropriations initiated with the goal of transferring pri- vate property to a specific recipient, rather than as a bar to expropriation with a legitimate basis that may include a subsequent transfer.189 No cases were located for the digest since the Kelo decision or post-Kelo reforms that involved a transpor- tation department and a taking of blighted property. B. Definition of Blighted Property Unlike Florida and New Mexico, it does not appear that other states prohibit the use of the taking of blighted property for transfer to another person or pri- vate entity for redevelopment.190 In response to the Kelo case, some statutes have been amended to narrow the definition of blight. Thus, some states revised their definition so that property may be designated as blighted and subject to redevelopment when it is shown that the property is unsafe191 or when it presents a threat to the health and safety of the community.192 In New Hampshire, although a public use does “not include the public benefits resulting from private eco- of eminent domain is delegated may not exercise the power of eminent domain to take private property for the purpose of preventing or eliminating slum or blight conditions”). 185 Caltrans’ Survey Response, dated Mar. 18, 2011. 186 Id. 187 LA. CONST. art. 1, § 4(B). 188 New Orleans Redevelopment Auth. v. Johnson, 16 So. 3d 569, 583 (La. App. 2009). 189 Id. at 584 (emphasis supplied). 190 Castle Report, supra note 40. 191 ALA. CODE § 24.2-2(C)(c)(1); GA. CODE ANN. § 22-1- 1(1)(A)(i); KAN. STAT. ANN. § 26-501b(e). 192 DEL. CODE ANN. tit. 29, § 9501A(c)(3)(b); N.H. REV. STAT. ANN. §§ 205:1(b) (“menace to the health and safety”) and 498- A:2(VII(a)(3)); WYO. STAT. § 1-26-801(c). nomic development and private commercial enterprise,” the term “public use” does include “[t]he acquisition of real property to remove structures beyond repair, public nuisances, structures unfit for human habitation or use, and abandoned property when such structures or prop- erty constitute a menace to health and safety.”193 Oregon’s response to the survey stated that in Ore- gon, “[i]n the realm of using condemnation for urban redevelopment, the definition of ‘blighted property’ was modified to include actual physical deterioration of tar- get properties.”194 Under some states’ statutes that permit takings of blighted property, the condition of streets is a factor that may be considered in determining whether an area is blighted and whether the use of eminent domain is permissible.195 In an Illinois case, the court upheld a village’s determination of blight in connection with a redevelopment project based on various statutory fac- tors. One of the factors was deterioration, which was defined by the statute to include the condition of road- ways, alleys, curbs, gutters, sidewalks, and off-street parking, as well as the presence of crumbling pave- ment, potholes, depressions, and loose paving mate- rial.196 C. Designation of Blight on a Property-by- Property Basis One of the most pervasive post-Kelo reforms in states authorizing the taking of blighted property is to require that a condemnor make a determination of blight on a property-by-property basis.197 As a result of post-Kelo reforms, Georgia limits takings of blighted property to one property at a time so that it is no longer 193 N.H. REV. STAT. §§ 205:3-b(I)(c) and 498-A:2(VII)(a)(3). See also OHIO REV. CODE ANN. § 1.08(C) (stating that in “de- termining whether a property is a blighted parcel or whether an area is a blighted area or slum for the purposes of this sec- tion, no person shall consider whether there is a comparatively better use…or whether the property could generate more tax revenues if put to another use”). 194 Oregon DOT’s Survey Response, dated Mar. 10, 2011. 195 N.H. REV. STAT. ANN. § 205:1(d) (street layouts as a fac- tor preventing proper development of the real property). See Fulmore v. Charlotte County, 928 So. 2d 1281 (Fla. 2d DCA 2006) (stating that although “roads and roadways are synony- mous, a substantial number of deteriorated or deteriorating roads is a different concept than a predominance of defective or inadequate roadways”). 196 Capital Fitness of Arlington Heights, Inc., v. Village of Arlington Heights, 394 Ill. App. 3d 913, 923, 915 N.E.2d 826, 835 (Ill. App. 2009) (citing 65 ILL. COMP. STAT. 5/11-74.4- 3(a)(1)(C)), appeal denied, 234 Ill. 2d 518, 920 N.E.2d 1071 (2009). 197 Alabama, Arizona, Georgia, Iowa, Kansas, Louisiana, Michigan, Missouri (until a preponderance are blighted), North Carolina, Oregon, Texas, West Virginia, Wisconsin (each spe- cific property must be blighted), and Wyoming. See Castle Re- port, supra note 40.

18 possible “to condemn property just because the area it is in is predominately blighted.”198 Likewise, in Missouri, the statute now requires that when there is a determination that an area is blighted, the condemning authority must “individually consider each parcel of property in the defined area.”199 The con- demning authority may proceed with condemnation if it finds that a “preponderance of the defined redevelop- ment area is blighted….”200 As construed by a Missouri appellate court, although the statute requires a con- demning authority to evaluate each parcel, there is “nothing in the statute that requires the authority to make a specific finding for each parcel.”201 The court held that the condemning authority must determine whether a defined redevelopment area is blighted based on a consideration of total square footage rather than on whether a preponderance of the individual parcels is blighted.202 Finally, since the Kelo decision, a Maryland court has held that a Maryland statute permits municipal corporations to condemn blighted properties within ar- eas that are generally nonblighted.203 D. Other Changes Affecting Takings of Blighted Property 1. Requirement of a Vote or a Vote by a Super-Majority Various states require a vote by the governing body before the use of eminent domain or the transfer to a private person or entity of property taken by eminent domain. In Florida, where takings of blighted property are prohibited, private property taken by eminent do- main “may not be conveyed to a natural person or pri- vate entity except as provided by general law passed by a three-fifths vote of the membership of each house of the Legislature.”204 In Georgia, a resolution by the ap- propriate governing body may be required a specified number of days prior to the condemnor being permitted to bring an action for condemnation.205 Some states require a vote by a super-majority of the applicable governing authority before property may be designated as blighted.206 In Connecticut, 198 Jody Arogeti, Anita Bhushan, Jill M. Irwin & Jesica Kat- tula, General Provisions and Condemnation Procedure: Provide a Comprehensive Revisions of Provisions Regarding the Power of Eminent Domain, 23 GA. ST. U. L. REV. 157, 188 (2006). 199 MO. REV. STAT. § 523.274(1). 200 Id. 201 Allright Props. Inc. v. Tax Increment Fin. Comm'n, 240 S.W.3d 777, 779 (Mo. App. 2007). 202 Id. at 780. 203 City of Frederick, Md. v. Pickett, 392 Md. 411, 897 A.2d 228 (Md. Ct. App. 2006) (stating that MD. CODE ANN. art. 23A, § 2(b)(37) was “clear and unambiguous”). 204 FLA. CONST. art. X, § 6(c). 205 GA. CODE ANN. § 22-1-10.1 (30 days). 206 CONN. GEN. STAT. § 8-193(b)(3)(A); INDIANA CODE § 32- 24-4.5-11(c)(2) (two-thirds); IOWA CODE § 6A.22(5)(a) (two- thirds); KAN. STAT. ANN. § 17-1773(a) (requiring two-thirds [n]o parcel of real property may be acquired by eminent domain under this section except by approval by vote of at least two-thirds of the members of the legislative body of the municipality or, in the case of a municipality for which the legislative body is a town meeting or a repre- sentative town meeting, the board of selectmen.207 Even so, “the benefits to the public and any private en- tity that will result from the development project” must be considered, and it must be “determined that the pub- lic benefits outweigh any private benefits….”208 2. Requirement of Clear and Convincing Evidence In some states the burden of proof is on the public agency to establish by clear and convincing evidence that a taking is necessary for the eradication of blight.209 For example, in Michigan, the state’s constitu- tion requires that in a condemnation action to take property “for the eradication of blight…the burden of proof is on the condemning authority to demonstrate, by clear and convincing evidence, that the taking of that property is for a public use.”210 3. Time Limit for Commencing Condemnation of Blighted Property One reform since Kelo has been the requirement that a condemnation proceed within a designated number of years from the date the property is designated as blighted. Condemnors, for example, may be required to proceed within 4 or 5 years of authorization.211 A post- Kelo change in Missouri is that an action to acquire property by eminent domain in a redevelopment area must be commenced no later than 5 years from the date of the determination that the property is blighted.212 However, a Missouri court has held that the post-Kelo vote to condemn property in a redevelopment district); see also KAN. STAT. ANN. § 12-1773 (requiring two-thirds vote of the governing body for any transfer by the developer of real prop- erty acquired pursuant to this section). 207 CONN. GEN. STAT. § 8-193(b)(3)(A). 208 Id. See also KAN. STAT. ANN. § 12-1773(a) (providing that if a redevelopment project plan has been adopted and if two- thirds of the members of the governing body approve, eminent domain may be used to acquire real property that the govern- ing body deems necessary for a project that is located within the redevelopment district); UTAH CODE ANN. §§ 17C-2- 601(2)(c)(ii)(B) and (2)(d)(ii)(B) (the sections providing that that an agency may not acquire by eminent domain either a single- family residential, owner-occupied property or a commercial property unless two-thirds of all agency board members vote in favor of the acquisition by eminent domain). 209 COLO. REV. STAT. ANN. § 38-1-01(2)(b). See also ARIZ. REV. STAT. § 12-1132(B); IDAHO CODE § 7-701A(2)(b)(ii); DEL. CODE ANN. tit. 29, § 9501A(d); IDAHO CODE ANN. § 7-701A; MICHIGAN CONST. art. X, § 2; MICH. COMP. LAWS § 213.23(4). 210 MICH. CONST. art. X, § 2. 211 MD. CODE ANN. § 12-105.1(a). 212 MO. REV. STAT. § 523.274(2).

19 laws did not nullify a redevelopment authority’s prior finding of blight.213 4. Pre-Condemnation Hearing A public hearing may be required before proceeding with the condemnation of blighted property. In Minne- sota, “[i]f the taking is for the mitigation of a blighted area…a public hearing must be held before a local gov- ernment or local government agency commences an eminent domain proceeding….”214 5. Requirement of Additional Compensation A post-Kelo requirement in some states is that a con- demnor must pay additional compensation,215 that is, more than fair market value, when property is taken purely for economic development (if allowed) or if blighted property is taken for redevelopment.216 In Rhode Island, when property is taken for economic de- velopment, a property owner must be compensated for a minimum of 150 percent of the fair market value of the real property, as well as for incidental expenses, such as the charge for prepaying a mortgage entered into in good faith and “actual, reasonable, and necessary” relo- cation expenses.217 In Kansas, the legislature may authorize the use of eminent domain for private economic development pur- poses, but “the legislature shall consider requiring com- pensation of at least 200 percent of fair market value to property owners….”218 6. Federal Highway Administration Reimbursement of “Supercompensation” Although a few DOTs responding to the survey indi- cated having to pay increased acquisition costs because of post-Kelo reforms, the responses did not raise any issue of reimbursement by the Federal Highway Ad- ministration (FHWA) of the additional costs. It is be- cause of some states’ post-Kelo reforms that “mandate just compensation payments in amounts that exceed fair market value” that FHWA chose to issue its “Policy 213 Land Clearance for Redevelopment Auth. of the City of St. Louis v. Inserra, 284 S.W.3d 641, 644 (Mo. App. 2009) (the court noting that after the reforms took effect the redevelop- ment authority’s resolution affirmed the previous finding of blight and that a second study concluded that the landowner’s property in particular was blighted). 214 MINN. STAT. § 117.0412, subd. 2(a). 215 R.I. GEN. LAWS § 42-64.12-8(a) (applicable to takings for economic development). 216 See also IND. CODE ANN. §§ 32-24-4.5-8(2)(A) (150 per- cent of the fair market value of real property occupied by the owner as a residence) and 32-24-4.5-11(d)(1) (requiring that for acquisitions of property in certain project areas a payment to an owner equal to 125 percent of fair market value); MICH. CONST. art. X, § 2 (not less than 125 percent of the property’s fair market value); MICH. COMP. LAWS § 213.23, § 3(5). 217 R.I. GEN. LAWS §§ 42-64.12-8(a)-(c) and 42-64.12-8.1 (the latter section applicable to tenants). 218 KAN. STAT. ANN. § 26-501b(f). and Guidance on Supercompensation Payments In- curred for Acquisition of Real Property on Projects Eli- gible for Federal Funding” (Guidance).219 FHWA’s Guid- ance responds to “questions…concerning eligibility for reimbursement of that portion of the payment in excess of fair market value” and confirms that that there is federal-aid participation for “supercompensation” pay- ments.220 Supercompensation “refers to legislatively mandated eminent domain damage payments that are based on [the] payment of 100 percent of fair market value plus some additional percentage for inconvenience, senti- mental value, or some other type of personal imposi- tion.” FHWA points out that in Missouri, for example, “recent legislation addressing compensation associated with acquisition of property by [the] exercise of eminent domain defines ‘Just Compensation’ to be [Fair Market Value or FMV] multiplied by 125 percent (homestead taking) or FMV multiplied by 150 percent (heritage taking).”221 FHWA’s Guidance advises that a payment in excess of fair market value is reimbursable as part of a prop- erty’s acquisition cost. Like other costs of acquisition that exceed fair market value (i.e. cost of administrative settlements, court awards, and costs incidental to the condemnation process (See 23 CFR 710.203 (b)), where appropriately docu- mented, the amount by which just compensation exceeds fair market value, is a direct eligible cost if all other re- quirements are met.222 As for Replacement Housing Payments (RHP) and supercompensation payments, FHWA states: Considering supercompensation payments, defined by state law, as a component of “acquisition cost” for pur- poses of an RHP calculation is not only consistent with the provisions governing reimbursement, it is also consis- tent with the manner in which other acquisition costs eli- gible for reimbursement (such as administrative settle- ments, legal settlements, or court awards) have been treated in determining the eligibility for, and the amount of, any RHP authorized by the Uniform Act and regula- tions at 49 CFR Part 24.223 219 FHWA Memorandum, Policy and Guidance on Super- compensation Payments Incurred for Acquisition of Real Prop- erty on Projects Eligible for Federal Funding, dated Jan. 27, 2007, available at: http://www.fhwa.dot.gov/realestate/supercompguid.htm, last accessed on July 5, 2011, hereafter cited as “FHWA Guid- ance,” at 1. See also Federal Highway Administration, Office of Real Estate Services, Accomplishments and Activities Report, dated Nov. 14, 2008, available at http://www.fhwa.dot. gov/realestate/accompact08.htm (supercompensation payments reimbursable as a direct cost of acquisition pursuant to 23 C.F.R. 710.203), last accessed also on July 5, 2011. 220 FHWA Guidance at 1. 221 Id. at 2. 222 Id. See also Federal-Aid Policy Guide (FAPG) Non- regulatory Supplement for Part 24, Subpart B, § 24.102 ¶ 8. 223 FHWA Guidance at 3.

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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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