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The Use of Eminent Domain a Contentious Issue for Corporate Site Selectors

The taking of land for "public use" - a contentious and litigious issue - is something that corporate executives may need to consider when acquiring property for a new facility.

Feb/Mar 10
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Backlash at the State Level
For those opposed to eminent domain, the silver lining in all of this has been the subsequent backlash at the grassroots level.

According to the Institute for Justice, which represented Kelo, 43 states have since passed laws that place limits and safeguards on eminent domain, giving property owners greater security in their homes. Prior to the Kelo decision, only eight states specifically prohibited the use of eminent domain for economic development, except to eliminate blight.

As Scott Bullock, Kelo's co-counsel in the case, told the Hartford Courant, "This shows the folly of these redevelopment projects that use massive taxpayer subsidies and other forms of corporate welfare and abuse eminent domain."

Pfizer to Leave the City
In a surprising turn of events, last November, Pfizer, the anchor of the New London redevelopment plan, told city officials that it would close its large research center as a cost-cutting measure. The company plans to transfer most of the 1,400 people working there to its facility in nearby Groton, Conn.

For many former homeowners in New London, Pfizer's departure is a bad ending to a story that never should have been written. Yet, according to a statement provided by a Pfizer spokeswoman, Liz Power, the company says that it had no stake in the outcome of the Kelo case or any interest in the development of the land that was acquired via eminent domain.

According to a report by The New York Times, the Pfizer complex is currently assessed at $220 million, said Robert M. Pero, who is now the mayor of New London. The company pays tax on 20 percent of that value and the state pays an additional 40 percent, Pero told The Times. This will end in 2011, around the time that Pfizer, currently the city's biggest taxpayer, plans to complete its withdrawal.

Where Are We Now?
Although the tide has turned somewhat against eminent domain at the state level, numerous courts continue to interpret the high court's decision differently. For example, in December 2009, a New York State appellate court blocked the state from seizing private properties for the $6.3 billion expansion of Columbia University. In a 3-to-2 ruling, the court said that the state misused eminent domain to help Columbia assemble the land that it needs.

On the flip side, in a recent 6-to-1 decision by the New York State Court of Appeals, the court ruled that Brooklyn's Atlantic Yards, a commercial development firm, can use eminent domain to secure land to build new housing and a basketball arena for the Nets.  Also in New York, just a few blocks from Times Square, New York State has used eminent domain to make way for the new headquarters of The New York Times.

According to CBS' 60 Minutes, The Times teamed up with a major real estate developer, convincing New York State to use eminent domain to force property owners out by declaring the block "blighted." New York State's Supreme Court agreed, ruling that the newspaper's new headquarters would eliminate the blight. And even though a private entity (The New York Times) is the main beneficiary, the court said that improving the block would benefit the public.

In Ohio, the City of Lakewood tried to use eminent domain to make way for expensive condominiums. The city tried to label the residential area as "blighted." However, that effort failed. Lakewood residents rejected the proposed development, removed the "blight" label from the affected neighborhood, and voted the mayor who spearheaded this action out of office.

This controversial issue is not likely to be resolved anytime soon. Although many states are more discriminate now in their use of eminent domain, the Institute for Justice says that it has documented more than 10,000 instances of government taking property from one person to give it to another in just the last five years.

Wherever this debate ends up, one thing is certain: eminent domain and the definition of "public use" will continue to evolve on a case-by-case basis, and will likely remain a contentious and litigious issue for years to come - and something that corporate executives may need to consider when acquiring property.

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