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

Chapter: II. THE KELO V. CITY OF NEW LONDON DECISION

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Suggested Citation:"II. THE KELO V. CITY OF NEW LONDON DECISION." 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:"II. THE KELO V. CITY OF NEW LONDON DECISION." 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.
×
Page 4
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Suggested Citation:"II. THE KELO V. CITY OF NEW LONDON DECISION." 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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3 THE RAMIFICATIONS OF POST-KELO LEGISLATION ON STATE TRANSPORTATION PROJECTS By Larry W. Thomas, Attorney at Law, Washington, DC I. INTRODUCTION This digest discusses the impact on the acquisition of private property for transportation projects as a result of constitutional amendments or new legislation at the state level in response to the United States Supreme Court’s decision in 2005 in Kelo v. City of New London, hereinafter the post-Kelo laws or reforms.1 In Kelo, the Court held in a 5-to-4 decision that the use of eminent domain to take nonblighted, private property for a city- approved development plan for the purpose of economic development was constitutional.2 After the decision in Kelo, many states enacted legis- lation that restricted the use of eminent domain or the eminent domain process. The question is whether and to what extent the post-Kelo laws have affected the ac- quisition of private property for highway projects, in particular appraisals, construction, land acquisition, property management, project-planning, relocation as- sistance, and utility relocation, or affected the cost and timely delivery of projects. The digest seeks to identify the post-Kelo changes that have most significantly or adversely affected state highway projects, as well as the overall impact of the post-Kelo laws. In March and April 2011, 29 state departments of transportation (DOTs) responded to a TRB survey seek- ing information on the effect of post-Kelo reforms in their states on the use of eminent domain by transpor- tation departments.3 Twenty-six departments respond- ing to the survey were in states that enacted post-Kelo laws. Of those 26 agencies, 19 departments reported that the enactments had not affected transportation projects in their states.4 Seven departments reported 1 Kelo v City of New London, 545 U.S. 469, 125 S. Ct. 2655, 162 L. Ed. 2d 439 (2005). 2 Prior to Kelo in cases in which the definition of public use was in issue, “federal courts consistently rejected public use challenges to the exercise of eminent domain between 1984 and 2004….” Lynn E. Blais, Urban Revitalization in the Post-Kelo Era, 34 FORDHAM URB. L. J. 657, 666 (2007), hereafter cited as “Blais.” For an analysis of the public use doctrine prior to Kelo, see Robert G. Dreher & John D. Echeverria, Kelo’s Unanswered Questions: The Policy Debate over the Use of Eminent Domain for Economic Development, GEORGETOWN ENVIRONMENTAL LAW & POLICY INSTITUTE 3–11 (2006), available at http://www.law.georgetown.edu/gelpi/current_research /documents/gelpireport_kelo.pdf, hereafter cited as “Dreher & Echeverria,” last accessed on July 5, 2011. 3 See Pt. II.D, infra. 4 Id. some significant effects resulting from the post-Kelo reforms in their states.5 The effects primarily concern increased costs and delays affecting transportation pro- jects, with the reforms more significantly affecting ap- praisals, land acquisition, and project planning and to a lesser extent construction, property management, and relocation assistance. The DOTs’ responses are dis- cussed in more detail in Section VIII of the digest. II. THE KELO V. CITY OF NEW LONDON DECISION In Kelo, the city invoked a state statute that author- ized the use of eminent domain to promote economic development. The economic redevelopment in dispute included a state park and approximately 115 privately- owned properties designated to be used for a hotel, res- taurants, offices, 80 new residences, a museum, and parking. A catalyst for the city’s targeting of the Fort Trumbull area of New London for economic develop- ment was the pharmaceutical company Pfizer’s an- nouncement that it would build a $300 million research facility on a site immediately adjacent to Fort Trum- bull. After obtaining state-level approval, a city- authorized agency, the New London Development Cor- poration (NLDC), finalized an “integrated development plan” that focused on 90 acres of the Fort Trumbull area.6 In December 2000, as a result of the NLDC’s plan to condemn the property of nine private property own- ers, whose properties were not alleged to be blighted, the property owners brought suit in the New London Supreme Court. The Kelo plaintiffs contended that the taking of their properties would violate the Public Use Clause of the Fifth Amendment to the United States Constitution, which permits a governmental taking of private property only for a public use. Although the trial court granted a permanent restraining order pro- hibiting some but not all of the takings, the Supreme Court of Connecticut held that the planned takings of the properties for the proposed economic development 5 California Department of Transportation (Caltrans); Mis- souri Highways and Transportation Commission (MHTC); Nevada Department of Transportation (Nevada DOT); Ohio Department of Transportation (Ohio DOT); Oregon Depart- ment of Transportation (Oregon DOT); Pennsylvania Depart- ment of Transportation (PennDOT); Wyoming Department of Transportation (Wyoming DOT). 6 Kelo, 545 U.S. 473–74, 125 S. Ct. at 2659, 162 L. Ed. 2d at 448.

4 were constitutional as a valid public use under federal and state law.7 The United States Supreme Court affirmed, with Justice Stevens delivering the opinion of the five- member majority of the Court, in which he was joined by Justices Kennedy, Souter, Ginsberg, and Breyer. Justice Kennedy filed a concurring opinion. Justice O’Connor filed a dissenting opinion in which Chief Jus- tice Rehnquist and Justices Scalia and Thomas joined. Justice Thomas also filed a dissenting opinion. The Court held that the city’s development plan would benefit the city by creating jobs and increasing tax revenue and further held that the city’s proposed disposition of the property under the development plan qualified as a public use under the Fifth Amendment. Thus, the city could use the power of eminent domain to acquire the unwilling sellers’ property.8 7 It may be noted that prior to the Kelo decision some state courts had defined a public use or purpose to exclude takings for economic development. See Ilya Somin, Controlling the Grasping Hand: Economic Development Takings after Kelo, 15 S. CT. ECON. REV. 183, 187 n.17, hereafter cited as “Somin” (citing some of the following decisions: Sw. Ill. Dev. Auth. v. Nat’l City Envtl. LLC, 199 Ill. 2d 225, 768 N.E.2d 1, 11 (2002) (holding that a taking for transfer to a private party to build a parking lot next to a racetrack was not constitutional because a contribution to regional economic growth is not a public use), cert. denied, 2002 U.S. LEXIS 6453 (U.S. Oct. 7, 2002); Baycol Inc. v. Downtown Dev. Auth., 315 So. 2d 451, 457 (Fla. 1975) (holding that a public economic benefit is not synonymous with a public purpose); In re Petition of Seattle, 96 Wash. 2d 616, 638 P.2d 549, 556–57 (1981) (disallowing a plan to use eminent domain to build a retail shopping center when the purpose was not to eliminate blight); Owensboro v. McCormick, 581 S.W.2d 3, 8 (Ky. 1979) (holding that no public use exists when land of one private party is condemned merely to enable another pri- vate party to build a factory); Karesh v. City of Charleston, 271 S.C. 339, 247 S.E.2d 342, 345 (1978) (striking down a taking that was justified only by economic development); City of Little Rock v. Raines, 241 Ark. 1071, 411 S.W.2d 486, 495 (1967) (private economic development project held not to be a public use); Hogue v. Port of Seattle, 54 Wash. 2d 799, 341 P.2d 171, 181–91 (1959) (holding that residential property could not be condemned so that it could be devoted to a higher and better economic use); Opinion of the Justices, 152 Me. 440, 131 A.2d 904, 905–06 (1957) (condemnation for industrial development to enhance the economy held not to be a public use); City of Bozeman v. Vaniman, 271 Mont. 514, 898 P.2d 1208, 1214–15 (1995) (holding unconstitutional a condemnation to transfer property to a private business unless the transfer is “insignifi- cant” and “incidental” to a public project). In other states, the courts had permitted such takings. For example, in Missouri, “prior to legislative modification in 2006, economic develop- ment could be the sole basis for taking private prop- erty…[when] doing so was ‘in the public interest’ to foster em- ployment or discourage [the] flight of business development to another state.” Stanley A. Leisure & Carol J. Miller, Eminent Domain–Missouri’s Response to Kelo, 63 J. MO. B. 178, 185 (2007). 8 See John M. Zuch, Kelo v. City of New London: Despite the Outcry, the Decision is Firmly Supported by Precedent— However, Eminent Domain Critics Still Have Gained Ground, 38 U. MEM. L. REV. 187 (2007). The Kelo Court approved the condemnation of non- blighted properties because the city believed that the properties would be more productive if they were con- demned and transferred to a private owner/developer. Justice Stevens’ opinion emphasized several features of the process leading up to the NLDC’s plan to condemn the petitioners’ properties. As held by the Supreme Court of Connecticut when it decided the Kelo case, the city’s proposed takings were authorized by the state’s municipal development statute. The statute “expresses a legislative determination that the taking of land, even developed land, as part of an economic development project is a ‘public use’ and in the ‘public interest.’”9 Moreover, various state agencies had studied the pro- ject’s economic, environmental, and social ramifica- tions,10 and, of course, the NLDC intended to capitalize on the expected Pfizer facility and the commerce and tax revenue that it would generate. The Kelo Court agreed with the trial judge and the Connecticut Supreme Court that “the City’s develop- ment plan was not adopted ‘to benefit a particular class of identifiable individuals.’”11 The Court stated that the case did not involve the payment of compensation for the taking of one person’s property “for the sole purpose of transferring it to another private party….”12 Al- though “a State may transfer property from one private party to another if future ‘use by the public’ is the pur- pose of the taking,”13 the Court recognized in the Kelo case that the city was not “planning to open the con- demned land—at least not in its entirety—to use by the general public.”14 The proposed takings, nevertheless, were held to be for a public use. The Court explained that its prior precedents were clear, that the Court had “‘rejected any literal requirement that condemned prop- erty be put into use for the general public.’”15 Because of the “evolving needs of society,” the Court had “em- braced the broader and more natural interpretation of public use as ‘public purpose.’”16 Two precedents relied on principally by the Court for its decision in Kelo are Berman v. Parker17 and Hawaii Housing Authority v. Midkift.18 In Berman, the Court upheld the taking of an owner’s department store, which was not blighted, because the redevelopment of a blighted area must be planned as a whole, not on a piecemeal basis. In Midkift, the Court upheld a Hawaii 9 545 U.S. at 476, 125 S. Ct. at 2660, 162 L. Ed. 2d at 449 (citations omitted). 10 Id. at 474 n.3, 125 S. Ct. at 2659 n.2, 162 L. Ed. 2d at 448 n.2. 11 Id. at 478, 125 S. Ct. at 2662, 162 L. Ed. 2d at 451. 12 Id. at 477, 125 S. Ct. at 2661, 162 L. Ed. 2d at 450. 13 Id. 14 Id. at 478, 125 S. Ct. at 2662, 162 L. Ed. 2d at 451. 15 Id. at 479, 125 S. Ct. at 2662, 162 L. Ed. 2d at 451 (cita- tion omitted). 16 Id. 17 348 U.S. 26, 75 S. Ct. 98, 99 L. Ed. 27 (1954). 18 467 U.S. 229, 104 S. Ct. 2321, 81 L. Ed. 2d 186 (1984).

5 statute pursuant to which fee title was taken for just compensation from lessors and transferred to lessees to reduce the concentration of land ownership. The fact that Hawaii “immediately transferred the properties to private individuals” did not “diminish[] the public char- acter of the taking.”19 In emphasizing that the courts are to be deferential to the judgment of legislatures regarding the public need for redevelopment, the Court stated that its “pub- lic use jurisprudence has wisely eschewed rigid formu- las and intrusive scrutiny in favor of affording legisla- tures broad latitude in determining what public needs justify the use of the takings power.”20 Those who govern the City were not confronted with the need to remove blight in the Fort Trumbull area, but their determination that the area was sufficiently dis- tressed to justify a program of economic rejuvenation is entitled to our deference. …Given the comprehensive character of the plan, the thorough deliberation that pre- ceded its adoption, and the limited scope of our review, it is appropriate for us, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.21 As for the petitioners’ argument that under the cir- cumstances the economic development project did not qualify as a public use, Justice Stevens’ response was that the government’s promotion of economic develop- ment is a traditional government function and that a public use is no less a public use because there is a benefit to a private interest or interests.22 “Quite sim- ply, the government’s pursuit of a public purpose will often benefit individual private parties.”23 Thus, the Kelo case was not a matter of taking one private per- son’s property to transfer it to another private party; “a one-to-one transfer of property, executed outside the confines of an integrated development plan, is not pre- sented in this case.”24 Justice Kennedy’s concurrence emphasized a point made in Judge Stevens’ opinion for the Court: a gov- ernment must not “be allowed to take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit.”25 Justice Ken- nedy agreed that the rational-basis standard of review, rather than a heightened level of scrutiny as argued by the petitioners, was appropriate for the case. One rea- son was that “the projected economic benefits of the 19 Kelo, 545 U.S. at 482, 125 S. Ct. at 2664, 162 L. Ed. 2d at 453. 20 Id. at 483, 125 S. Ct. at 2664, 162 L. Ed. 2d at 453. 21 Id. at 483–84, 125 S. Ct. at 2664–65, 162 L. Ed. 2d at 454 (footnote omitted). 22 Id. at 484–85, 125 S. Ct. at 2665–66, 162 L. Ed. 2d at 454–55. 23 Id. at 485, 125 S. Ct. at 2666, 162 L. Ed. 2d at 45. 24 Id. at 487, 125 S. Ct. at 2667, 162 L. Ed. 2d at 456. 25 Id. at 478, 125 S. Ct. at 2661, 162 L. Ed. 2d at 450. project cannot be characterized as de minimis.”26 Never- theless, Justice Kennedy did not rule out the possibility that in other cases “[t]here may be private transfers in which the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebut- table or otherwise) of invalidity is warranted under the Public Use Clause.”27 Justice O’Connor’s dissent, oft-quoted by opponents of the Kelo decision, argues that the Court’s interpreta- tion of the Public Use Clause results in an abandon- ment of a “basic limitation” on government power, be- cause “[u]nder the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded.”28 Justice O’Connor’s view of the Public Use Clause is that “[g]overnment may compel an individual to forfeit her property for the public’s use, but not for the benefit of another private person.”29 Jus- tice O’Connor agreed that the Court had previously held that “to meet certain exigencies, takings that serve a public purpose also satisfy the Constitution even if the property is destined for subsequent private use.”30 However, in this case the economic development tak- ings are not constitutional31 when the petitioners’ “well- maintained homes” are not “the source of any social harm.”32 For Justice O’Connor, the Court’s decision fails to explain how the courts are to conduct a “complicated inquiry” to ferret out those “takings whose sole purpose is to bestow a benefit on the private transferee.”33 In Justice O’Connor’s opinion, the Kelo Court expanded the meaning of public use to such an extent that “[t]he specter of condemnation hangs over all property. Noth- ing 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. …Today nearly all real prop- erty is susceptible to condemnation on the Court's the- ory.”34 Finally, Justice Thomas’s dissent argued that the urban-renewal project at issue means that if “‘economic development’ takings are for a ‘public use,’ any taking 26 Id. at 493, 125 S. Ct. at 2670, 162 L. Ed. 2d at 460 (Ken- nedy, J., concurring). 27 Id. 28 Id. at 494, 125 S. Ct. at 2671, 162 L. Ed. 2d at 461 (O’Connor, J., dissenting). 29 Id. at 497, 125 S. Ct. at 2672, 162 L. Ed. 2d at 462 (O’Connor, J., dissenting). 30 Id. at 498, 125 S. Ct. at 2673, 162 L. Ed. 2d at 463 (O’Connor, J., dissenting). 31 Id. 32 Id. at 500, 125 S. Ct. at 2675, 162 L. Ed. 2d at 465 (O’Connor, J., dissenting). 33 Id. at 502, 125 S. Ct. at 2675, 162 L. Ed. 2d at 466 (O’Connor, J., dissenting). 34 Id. at 503, 504, 125 S. Ct. at 2676, 2677, 162 L. Ed. 2d at 466, 467 (O’Connor, J. dissenting) (citations omitted).

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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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