Economic Development is a “Public Use” justifying a Taking

August 2005

In one of Justice O’Connor’s last cases, a narrowly divided U.S. Supreme Court held in Kelo et al. v. City of New London that promoting economic development is a traditional function of government even where it may benefit private parties. The Court afforded the legislatures “broad latitude” in determining the “public purpose” that justifies the takings power, showing deference to political decision makers.

The question presented was whether the City of New London, Connecticut’s (the “City”) proposed disposition of private property qualifies as a “public use” within the Takings Clause of the Fifth Amendment to the Constitution. The City, at the time of the implementation of the economic development plan in question, was suffering an unemployment rate nearly twice that of the state’s average. The Federal Government had closed the Naval Undersea Warfare Center at Fort Trumbull, costing 1500 jobs, and the state declared the City a “distressed municipality.” As a result the City targeted its Fort Trumbull area for economic revitalization.

In order to jump start economic development of the Fort Trumbull neighborhood, in 1999 the City reactivated the New London Development Corporation (“NLDC”), a private non-profit entity established to assist the City in planning economic development activities. As part of a comprehensive plan funded by a state authorized bond issue, the NLDC, following a process that included neighborhood meetings, intended to develop 90 acres of the Fort Trumball area into parks, office buildings and mixed use developments. The area comprised approximately 115 privately owned properties, as well as the 32 acres of land formerly occupied by the closed naval facility. The NLDC plan sought to capitalize on the arrival of a new $300 million private medical research facility on a site immediately adjacent to Fort Trumbull. Local planners hoped that the facility would draw new business to the area, thereby serving as a catalyst to the area's rejuvenation. In addition to creating jobs, the NLDC hoped to generate tax revenues and help build momentum for the revitalization of downtown New London. The plan included designation of one parcel for a waterfront hotel located at the heart of a small urban village that would include restaurants and shops as well as a marina for recreational and commercial uses. A pedestrian river walk would originate at the village and include 80 units of residential development linked to the rest of the neighborhood. Several other parcels included space reserved for a U.S. Coast Guard Museum, private research and development facilities, a redeveloped marina, areas supporting a park and land for privately operated office and commercial retail space, as well as and water-dependent commercial uses.

The City approved a development plan and designated NLDC as its development agent in charge of implementation. The City also authorized NLDC to purchase property or acquire property by exercising eminent domain in the City’s name. Starting in 2000, the NLDC successfully negotiated the purchase of most of the real estate in the 90 acre area, but its negotiations with several landowners including Susette Kelo and others failed. In this case, the petitioners owned 15 properties in the Fort Trumbull neighborhood. Ten of the parcels were occupied by the owner or a family member, the other five were held as investment properties. One homeowner had occupied her home since she was born in the house in 1918.

There was no allegation that any of these properties were blighted or otherwise in poor condition; rather they were condemned only because they happened to be located in the development area. The state statue relied upon an expresses 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”.

The petitioners claimed that the NLDC’s proposed use for their confiscated property was not a “public use” for purposes of the Fifth Amendment. They claimed that while the government may take their homes to build a road or a railroad or to eliminate a property use that harms the public it cannot take their property for the private use of other owners simply because the new owners may make more productive use of the property.

The Court determined that the disposition of the case turned on the question whether the City’s development plan did indeed serve a "public purpose" within the meaning of the Takings Clause. The Court ruled that such a public purpose existed in the case where there was an integrated development plan (focused on future use), economic development being its primary public purpose, and when there was an orderly implementation of a comprehensive redevelopment plan. The Court concluded that taking into consideration the likelihood of success of the plan was not required. The Court reviewed the judicial precedent concerning takings and relied on a progression of cases that rejected a narrow and literal definition of “public use” as use by the general public, and stretched from upholding a plan targeting a blighted area of Washington D.C., in which most of the housing for the area’s 5,000 inhabitants was beyond repair, to a Hawaii case that upheld the break up of landownership to eliminate the “social and economic evils of a land oligopoly”. In these and similar cases, the Court rejected the notion that the government was primarily taking the property to benefit a particular class of identifiable individuals.

Intertwined with a review of the facts and previous rulings on the scope and nature of public use, the Court determined that the disposition of the case turned on the question of whether the City’s plan served a public purpose.

The Court concluded that promoting economic development is a traditional function of government even when it may benefit individual, private parties.

Justice O’Connor, in what we now know to be one of her final opinions, issued a scathing rebuke of the majority’s position, stating the new definition of the words “for public use” do not realistically exclude any takings, and thus do not place any constraint on the eminent domain power.

In reaching it’s conclusion, the Court reasoned that in this instance, when faced with what they determined to be a carefully crafted economic redevelopment plan implemented under a statue specifically authorizing the use of eminent domain to promote economic development, combined with a comprehensive and thorough deliberation process that proceeded its adoption, it was appropriate to resolve the challenges of the owners not on a piece meal basis but instead in light of the entire plan while limiting the Court’s role in the review of the potential success of the plan. There was no attempt to deny that exercise of this power will at times benefit individual private parties.

Echoing the thoughts of many Americans concerned that there is a never ending creep of government intrusion into private life, Justice O’Connor’s dissent summarizes the fears of many. “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. As for the victims, the government now has license to transfer property from those with fewer resources to those with more. The Founders cannot have intended this perverse result.”

The battleground has now shifted to the voters and their legislatures to further refine and implement this enhanced definition of public use for the purpose of takings under the Fifth Amendment to the United States Constitution. Colorado in fact adopted House Bill 04-1203 which has the effect of making it more difficult for condemning authorities to exercise their powers of eminent domain. Much of the statute ties requirements to physically blighted or slum areas and requires a public hearing process by local government prior to transfer of land to private persons as well as other safeguards intended to protect individual property ownership rights.

This legal update is for informational purposes only as a service to clients and other friends, is not a complete summary of the rules relating to the subject matter discussed above, and is neither to be construed as legal advice nor intended as basis for decisions in specific situations. For more information about this subject matter or other recent developments, please contact the attorneys in our Real Estate practice group or any other attorney in our firm with whom you normally consult by calling (303) 825-4200.