What responsibility does a company have to the community when it successfully uses eminent domain to acquire new property, and then decides to back out of the deal? Do the rights of local municipalities to "eliminate blight" through urban redevelopment supersede the rights of citizens to protect their private property from government "takings"?
The controversial issue of eminent domain - that is, a state's inherent power to seize a citizen's private property, without the owner's consent, for government or public use - first became law via the Fifth Amendment to the Constitution. The most common reason that eminent domain is used is for building new and larger roadways, airports, or government buildings. Over the years, however, the boundaries have been stretched by the courts to encompass economic development projects that promise jobs and tax revenues. But do the ends really justify the means? There are strong arguments on both sides.
Arguments on Both Sides
Proponents argue that economic development is a valid public use for the purpose of eminent domain. They note that the public-private partnerships that have evolved to assist governments in meeting redevelopment needs are a necessary and appropriate strategy fostering a valid public use. And they claim that the new jobs and added tax revenues generated by these urban renewal projects benefit the community as a whole.
Those opposed, however, claim that it simply comes down to the almighty dollar. Local governments, they say, are using eminent domain to force people off their land so that private developers can build more expensive homes and offices that will pay more in property taxes than the buildings they're replacing.
New London: A City in Turmoil
The citizens of New London, Conn., have experienced the ramifications of eminent domain in a very personal way.
More than a decade ago, in an effort to bring jobs to New London and revitalize their ailing town, city officials decided to create an urban village that would add jobs and draw tourists to the area. Officials used that plan, and financial incentives, to lure pharmaceutical giant Pfizer to construct a headquarters for its research division on 26 acres nearby. Agreeing to pay just one fifth of its property taxes for the first 10 years, Pfizer spent a reported $294 million on a 750,000-square-foot complex that opened in 2001.
Part of the deal with Pfizer included clearing out - via eminent domain - a nine-acre neighborhood adjacent to the company's new headquarters to make way for stores, hotels, and condominiums. Susette Kelo, a homeowner in that residential neighborhood, and several other property owners fought the taking by going all the way to the U.S. Supreme Court - and lost.
U.S. Supreme Court's Decision
In 2005, in what has become a landmark debate about urban redevelopment, the U.S. Supreme Court reset the boundaries for governments to seize private land for commercial use, giving cities across the country the right to use eminent domain to take property for private development. In a controversial 5-to-4 decision, the high court ruled that the benefits a community enjoyed from economic growth qualified such redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment. This case was the first major eminent domain case heard by the Supreme Court since 1984.
In the Kelo case, the development corporation was basically a private entity. Therefore, the plaintiffs argued that it was not constitutional for the city to take private property from one individual or corporation and give it to another, if the government was merely doing so because the repossession would generate higher tax revenue. The high court, however, ruled in favor of New London. It cited the redevelopment plan's "comprehensive character" and the politicians' "thorough deliberation."
According to Justice John Paul Stevens, "The city has carefully formulated a development plan that it believes will provide appreciable benefits to the community, including, but not limited to, new jobs and increased tax revenue."
Conservative justices dissented. Justice Sandra Day O'Connor wrote the principal dissent, suggesting that the use of this taking power in a reverse Robin Hood fashion - take from the poor give to the rich - would become the norm, not the exception. According to Day O'Connor, "Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms."
Justice Clarence Thomas called New London's plan "a costly urban-renewal project whose stated purpose is a vague promise of new jobs and increased tax revenue, but which is also suspiciously agreeable to the Pfizer Corporation." According to Thomas, "Allowing the government to take property solely for public purposes is bad enough, but extending the concept of public purpose to encompass any economically beneficial goal guarantees that these losses will fall disproportionately on poor communities. Those communities are not only systematically less likely to put their lands to the highest and best social use, but are also the least politically powerful."
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.
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.
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
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
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.