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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
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."

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