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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 some significant effects resulting from the post-Kelo reforms in their states.5 The effects primarily concern This digest discusses the impact on the acquisition of increased costs and delays affecting transportation pro- private property for transportation projects as a result jects, with the reforms more significantly affecting ap- of constitutional amendments or new legislation at the praisals, land acquisition, and project planning and to a state level in response to the United States Supreme lesser extent construction, property management, and Court's decision in 2005 in Kelo v. City of New London, relocation assistance. The DOTs' responses are dis- hereinafter the post-Kelo laws or reforms.1 In Kelo, the cussed in more detail in Section VIII of the digest. Court held in a 5-to-4 decision that the use of eminent domain to take nonblighted, private property for a city- II. THE KELO V. CITY OF NEW LONDON DECISION approved development plan for the purpose of economic development was constitutional.2 In Kelo, the city invoked a state statute that author- After the decision in Kelo, many states enacted legis- ized the use of eminent domain to promote economic lation that restricted the use of eminent domain or the development. The economic redevelopment in dispute eminent domain process. The question is whether and included a state park and approximately 115 privately- to what extent the post-Kelo laws have affected the ac- owned properties designated to be used for a hotel, res- quisition of private property for highway projects, in taurants, offices, 80 new residences, a museum, and particular appraisals, construction, land acquisition, parking. A catalyst for the city's targeting of the Fort property management, project-planning, relocation as- Trumbull area of New London for economic develop- sistance, and utility relocation, or affected the cost and ment was the pharmaceutical company Pfizer's an- timely delivery of projects. The digest seeks to identify nouncement that it would build a $300 million research the post-Kelo changes that have most significantly or facility on a site immediately adjacent to Fort Trum- adversely affected state highway projects, as well as the bull. After obtaining state-level approval, a city- overall impact of the post-Kelo laws. authorized agency, the New London Development Cor- In March and April 2011, 29 state departments of poration (NLDC), finalized an "integrated development transportation (DOTs) responded to a TRB survey seek- plan" that focused on 90 acres of the Fort Trumbull ing information on the effect of post-Kelo reforms in area.6 In December 2000, as a result of the NLDC's plan their states on the use of eminent domain by transpor- to condemn the property of nine private property own- tation departments.3 Twenty-six departments respond- ers, whose properties were not alleged to be blighted, ing to the survey were in states that enacted post-Kelo the property owners brought suit in the New London laws. Of those 26 agencies, 19 departments reported Supreme Court. The Kelo plaintiffs contended that the that the enactments had not affected transportation taking of their properties would violate the Public Use projects in their states.4 Seven departments reported 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- 1 Kelo v City of New London, 545 U.S. 469, 125 S. Ct. 2655, hibiting some but not all of the takings, the Supreme 162 L. Ed. 2d 439 (2005). Court of Connecticut held that the planned takings of 2 Prior to Kelo in cases in which the definition of public use the properties for the proposed economic development 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 5 California Department of Transportation (Caltrans); Mis- Questions: The Policy Debate over the Use of Eminent Domain souri Highways and Transportation Commission (MHTC); for Economic Development, GEORGETOWN ENVIRONMENTAL Nevada Department of Transportation (Nevada DOT); Ohio LAW & POLICY INSTITUTE 311 (2006), available at Department of Transportation (Ohio DOT); Oregon Depart- http://www.law.georgetown.edu/gelpi/current_research ment of Transportation (Oregon DOT); Pennsylvania Depart- /documents/gelpireport_kelo.pdf, hereafter cited as "Dreher & ment of Transportation (PennDOT); Wyoming Department of Echeverria," last accessed on July 5, 2011. Transportation (Wyoming DOT). 3 See Pt. II.D, infra. 6 Kelo, 545 U.S. 47374, 125 S. Ct. at 2659, 162 L. Ed. 2d at 4 Id. 448.

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4 were constitutional as a valid public use under federal The Kelo Court approved the condemnation of non- and state law.7 blighted properties because the city believed that the The United States Supreme Court affirmed, with properties would be more productive if they were con- Justice Stevens delivering the opinion of the five- demned and transferred to a private owner/developer. member majority of the Court, in which he was joined Justice Stevens' opinion emphasized several features of by Justices Kennedy, Souter, Ginsberg, and Breyer. the process leading up to the NLDC's plan to condemn Justice Kennedy filed a concurring opinion. Justice the petitioners' properties. As held by the Supreme O'Connor filed a dissenting opinion in which Chief Jus- Court of Connecticut when it decided the Kelo case, the tice Rehnquist and Justices Scalia and Thomas joined. city's proposed takings were authorized by the state's Justice Thomas also filed a dissenting opinion. municipal development statute. The statute "expresses The Court held that the city's development plan a legislative determination that the taking of land, even would benefit the city by creating jobs and increasing developed land, as part of an economic development tax revenue and further held that the city's proposed project is a `public use' and in the `public interest.'"9 disposition of the property under the development plan Moreover, various state agencies had studied the pro- qualified as a public use under the Fifth Amendment. ject's economic, environmental, and social ramifica- Thus, the city could use the power of eminent domain to tions,10 and, of course, the NLDC intended to capitalize acquire the unwilling sellers' property.8 on the expected Pfizer facility and the commerce and tax revenue that it would generate. 7 It may be noted that prior to the Kelo decision some state The Kelo Court agreed with the trial judge and the courts had defined a public use or purpose to exclude takings Connecticut Supreme Court that "the City's develop- for economic development. See Ilya Somin, Controlling the ment plan was not adopted `to benefit a particular class Grasping Hand: Economic Development Takings after Kelo, 15 of identifiable individuals.'"11 The Court stated that the S. CT. ECON. REV. 183, 187 n.17, hereafter cited as "Somin" case did not involve the payment of compensation for (citing some of the following decisions: Sw. Ill. Dev. Auth. v. the taking of one person's property "for the sole purpose Nat'l City Envtl. LLC, 199 Ill. 2d 225, 768 N.E.2d 1, 11 (2002) of transferring it to another private party...."12 Al- (holding that a taking for transfer to a private party to build a though "a State may transfer property from one private parking lot next to a racetrack was not constitutional because party to another if future `use by the public' is the pur- a contribution to regional economic growth is not a public use), cert. denied, 2002 U.S. LEXIS 6453 (U.S. Oct. 7, 2002); Baycol pose of the taking,"13 the Court recognized in the Kelo Inc. v. Downtown Dev. Auth., 315 So. 2d 451, 457 (Fla. 1975) case that the city was not "planning to open the con- (holding that a public economic benefit is not synonymous with demned land--at least not in its entirety--to use by the a public purpose); In re Petition of Seattle, 96 Wash. 2d 616, general public."14 The proposed takings, nevertheless, 638 P.2d 549, 55657 (1981) (disallowing a plan to use eminent were held to be for a public use. The Court explained domain to build a retail shopping center when the purpose was that its prior precedents were clear, that the Court had not to eliminate blight); Owensboro v. McCormick, 581 S.W.2d "`rejected any literal requirement that condemned prop- 3, 8 (Ky. 1979) (holding that no public use exists when land of erty be put into use for the general public.'"15 Because of one private party is condemned merely to enable another pri- the "evolving needs of society," the Court had "em- vate party to build a factory); Karesh v. City of Charleston, 271 braced the broader and more natural interpretation of S.C. 339, 247 S.E.2d 342, 345 (1978) (striking down a taking that was justified only by economic development); City of Little public use as `public purpose.'"16 Rock v. Raines, 241 Ark. 1071, 411 S.W.2d 486, 495 (1967) Two precedents relied on principally by the Court for (private economic development project held not to be a public its decision in Kelo are Berman v. Parker17 and Hawaii use); Hogue v. Port of Seattle, 54 Wash. 2d 799, 341 P.2d 171, Housing Authority v. Midkift.18 In Berman, the Court 18191 (1959) (holding that residential property could not be upheld the taking of an owner's department store, condemned so that it could be devoted to a higher and better which was not blighted, because the redevelopment of a economic use); Opinion of the Justices, 152 Me. 440, 131 A.2d blighted area must be planned as a whole, not on a 904, 90506 (1957) (condemnation for industrial development piecemeal basis. In Midkift, the Court upheld a Hawaii to enhance the economy held not to be a public use); City of Bozeman v. Vaniman, 271 Mont. 514, 898 P.2d 1208, 121415 (1995) (holding unconstitutional a condemnation to transfer 9 545 U.S. at 476, 125 S. Ct. at 2660, 162 L. Ed. 2d at 449 property to a private business unless the transfer is "insignifi- (citations omitted). cant" and "incidental" to a public project). In other states, the 10 courts had permitted such takings. For example, in Missouri, Id. at 474 n.3, 125 S. Ct. at 2659 n.2, 162 L. Ed. 2d at 448 "prior to legislative modification in 2006, economic develop- n.2. 11 ment could be the sole basis for taking private prop- Id. at 478, 125 S. Ct. at 2662, 162 L. Ed. 2d at 451. 12 erty...[when] doing so was `in the public interest' to foster em- Id. at 477, 125 S. Ct. at 2661, 162 L. Ed. 2d at 450. ployment or discourage [the] flight of business development to 13 Id. another state." Stanley A. Leisure & Carol J. Miller, Eminent 14 Id. at 478, 125 S. Ct. at 2662, 162 L. Ed. 2d at 451. DomainMissouri's Response to Kelo, 63 J. MO. B. 178, 185 15 (2007). Id. at 479, 125 S. Ct. at 2662, 162 L. Ed. 2d at 451 (cita- 8 tion omitted). See John M. Zuch, Kelo v. City of New London: Despite the 16 Outcry, the Decision is Firmly Supported by Precedent-- Id. 17 However, Eminent Domain Critics Still Have Gained Ground, 348 U.S. 26, 75 S. Ct. 98, 99 L. Ed. 27 (1954). 18 38 U. MEM. L. REV. 187 (2007). 467 U.S. 229, 104 S. Ct. 2321, 81 L. Ed. 2d 186 (1984).

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5 statute pursuant to which fee title was taken for just project cannot be characterized as de minimis."26 Never- compensation from lessors and transferred to lessees to theless, Justice Kennedy did not rule out the possibility reduce the concentration of land ownership. The fact that in other cases "[t]here may be private transfers in that Hawaii "immediately transferred the properties to which the risk of undetected impermissible favoritism private individuals" did not "diminish[] the public char- of private parties is so acute that a presumption (rebut- acter of the taking."19 table or otherwise) of invalidity is warranted under the In emphasizing that the courts are to be deferential Public Use Clause."27 to the judgment of legislatures regarding the public Justice O'Connor's dissent, oft-quoted by opponents need for redevelopment, the Court stated that its "pub- of the Kelo decision, argues that the Court's interpreta- lic use jurisprudence has wisely eschewed rigid formu- tion of the Public Use Clause results in an abandon- las and intrusive scrutiny in favor of affording legisla- ment of a "basic limitation" on government power, be- tures broad latitude in determining what public needs cause "[u]nder the banner of economic development, all justify the use of the takings power."20 private property is now vulnerable to being taken and Those who govern the City were not confronted with the transferred to another private owner, so long as it need to remove blight in the Fort Trumbull area, but might be upgraded."28 Justice O'Connor's view of the their determination that the area was sufficiently dis- Public Use Clause is that "[g]overnment may compel an tressed to justify a program of economic rejuvenation is individual to forfeit her property for the public's use, entitled to our deference. ...Given the comprehensive but not for the benefit of another private person."29 Jus- character of the plan, the thorough deliberation that pre- tice O'Connor agreed that the Court had previously ceded its adoption, and the limited scope of our review, it held that "to meet certain exigencies, takings that serve is appropriate for us, as it was in Berman, to resolve the a public purpose also satisfy the Constitution even if challenges of the individual owners, not on a piecemeal the property is destined for subsequent private use."30 basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings However, in this case the economic development tak- challenged here satisfy the public use requirement of the ings are not constitutional31 when the petitioners' "well- Fifth Amendment.21 maintained homes" are not "the source of any social harm."32 For Justice O'Connor, the Court's decision fails As for the petitioners' argument that under the cir- to explain how the courts are to conduct a "complicated cumstances the economic development project did not inquiry" to ferret out those "takings whose sole purpose qualify as a public use, Justice Stevens' response was is to bestow a benefit on the private transferee."33 In that the government's promotion of economic develop- Justice O'Connor's opinion, the Kelo Court expanded ment is a traditional government function and that a the meaning of public use to such an extent that "[t]he public use is no less a public use because there is a specter of condemnation hangs over all property. Noth- benefit to a private interest or interests.22 "Quite sim- ing is to prevent the State from replacing any Motel 6 ply, the government's pursuit of a public purpose will with a Ritz-Carlton, any home with a shopping mall, or often benefit individual private parties."23 Thus, the any farm with a factory. ...Today nearly all real prop- Kelo case was not a matter of taking one private per- son's property to transfer it to another private party; "a erty is susceptible to condemnation on the Court's the- ory."34 one-to-one transfer of property, executed outside the confines of an integrated development plan, is not pre- Finally, Justice Thomas's dissent argued that the sented in this case."24 urban-renewal project at issue means that if "`economic Justice Kennedy's concurrence emphasized a point development' takings are for a `public use,' any taking 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- 26 nedy agreed that the rational-basis standard of review, Id. at 493, 125 S. Ct. at 2670, 162 L. Ed. 2d at 460 (Ken- rather than a heightened level of scrutiny as argued by nedy, J., concurring). 27 the petitioners, was appropriate for the case. One rea- Id. son was that "the projected economic benefits of the 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 19 Kelo, 545 U.S. at 482, 125 S. Ct. at 2664, 162 L. Ed. 2d at (O'Connor, J., dissenting). 453. 30 Id. at 498, 125 S. Ct. at 2673, 162 L. Ed. 2d at 463 20 Id. at 483, 125 S. Ct. at 2664, 162 L. Ed. 2d at 453. (O'Connor, J., dissenting). 21 Id. at 48384, 125 S. Ct. at 266465, 162 L. Ed. 2d at 454 31 Id. (footnote omitted). 32 Id. at 500, 125 S. Ct. at 2675, 162 L. Ed. 2d at 465 22 Id. at 48485, 125 S. Ct. at 266566, 162 L. Ed. 2d at (O'Connor, J., dissenting). 45455. 33 Id. at 502, 125 S. Ct. at 2675, 162 L. Ed. 2d at 466 23 Id. at 485, 125 S. Ct. at 2666, 162 L. Ed. 2d at 45. (O'Connor, J., dissenting). 24 Id. at 487, 125 S. Ct. at 2667, 162 L. Ed. 2d at 456. 34 Id. at 503, 504, 125 S. Ct. at 2676, 2677, 162 L. Ed. 2d at 25 Id. at 478, 125 S. Ct. at 2661, 162 L. Ed. 2d at 450. 466, 467 (O'Connor, J. dissenting) (citations omitted).