The Kelo Decision Gave Governments the Power to Seize Private Property and Use it for Economic Development: Eminent Domain in a Nutshell

When your topic is big box stores and their baleful effects on urban neighborhoods, and that is my topic at Big Cities Big Boxes, the threat of the government's exercise of the power of eminent domain is always in the background. Governments and big developers love the suggestion that big box stores will produce economic development in the form of jobs and sales tax receipts.

The "takings clause" of the U.S. Constitution limits the power of eminent domain:

[N]or shall private property be taken for public use without just compensation.

U.S. Constitution, amend. V.

The United States Supreme Court’s decision in the case Kelo v. New London, decided just this summer, on June 23, 2005, however, allows both the federal and local governments to condemn and seize private property and give it to another private party, where the justification is "economic development." This is a radical new expansion of the ancient government power of eminent domain. For a city government that wants to build a big box store in an already-developed urban neighborhood, Kelo can be a powerful tool.

PUBLIC USE. The U.S. Constitution and every state constitution limits government’s use of eminent domain to "public use." Originally, "public use" was understood by everyone, courts, local governments and the general citizenry, to have its ordinary meaning. "Public use" meant a road or a public building, not mere private economic gain. Eminent domain was used only for projects that would be owned by and open to the public. Courts held that government was limited to taking only that property "necessary" for the public use. It could not simply grab additional land to increase its holdings.

PUBLIC USE BECOMES PUBLIC PURPOSE. In 1954, the U.S. Supreme Court expanded the Constitution’s permission for eminent domain to include transfer of private property to another private person, so long as there was a "public purpose," in that case, urban renewal. Berman v. Parker marked a fundamental change in the U.S. Supreme Court’s interpretation of the "public use" restriction in the takings clause of the U.S. Constitution. Urban renewal was a government effort to revitalize urban areas by removing slums and eliminating so-called blight. The Berman case arose in Southwest Washington, D.C., in a poor area populated largely by minorities. Congress granted the District of Columbia government the power to acquire tracts of land through eminent domain for redevelopment and to resell the land to a private developer. A department store owner objected that his property was not blighted and that it should therefore not be seized and turned over to another private party. Reasoning that the taking was for a "public purpose," however, namely, the larger urban renewal plan, the United States Supreme Court upheld the actions of the government.

PUBLIC PURPOSE COMES TO INCLUDE ECONOMIC DEVELOPMENT. In Kelo v. New London, decided June 23, 2005, the United States Supreme Court extended eminent domain yet again. The Court held that the Constitution allows the government to take property from one private party in order to give it to another private party where the new owner might produce more profit and more taxes for the government, i.e., for "economic development." The Court transformed the words "public use" to mean "public purpose" as embracing "economic development."

According to the Institute for Justice, the Washington, D.C., public interest law firm that represented petitioners in Kelo, the use of eminent domain for the creation of tax revenue is the broadest and most dangerous expansion of eminent domain yet.

HOW COURTS GOT FROM BERMAN (1954) TO KELO (2005). The neighborhood in Berman was in decay. It lacked plumbing and had the highest infant mortality rate in the District of Columbia. Because of the availability of federal funds for urban renewal at that time, however, the decision had broad implications. Many state courts wanted to follow the U.S. Supreme Court's lead, and they started to uphold virtually any use of eminent domain, including those where it benefited private parties. Eminent domain became a widespread way for government to take property from one private owner and give it to another private owner. In New York City and elsewhere, local governments used eminent domain to destroy many vital and functioning old neighborhoods in the name of urban renewal.

With a tip of the hat to Castle Coalition for a helpful outline, the history is this. There were two legal consequences of Berman. First, the definition of blight became elastic. Governments started to designate areas as blighted because they were merely "functionally obsolete" or "economically obsolete." Lakewood, Ohio, and other cities declared neighborhoods blighted because they lacked a two-car attached garage, had no central air conditioning, or had fewer than two full bathrooms.

Second, paving the way for Kelo, some local governments pushed even further to seize private property in perfectly well-kept areas, justifying the seizures in the name of "economic development." The Michigan Supreme Court’s 1981 opinion in Poletown Neighborhood Council v. City of Detroit, was the first. There, the City of Detroit seized an old, established, ethnic, neighborhood everyone admitted was not blighted, merely because General Motors wished to expand a nearby automobile plant. That expanded plant, the government argued, would create "public benefits" in the form of higher tax revenue and more jobs. The Michigan Supreme Court held that eminent domain could be used for this public benefit. The closely-knit Poletown community, with churches, homes and schools, can never be replaced. In the end, however, the General Motors plant did not bring economic prosperity to the city, and it finally closed.

HATHCOCK. In a remarkable reversal of one of its own cases, in July 2004, the Michigan Supreme Court unanimously overturned Poletown. In County of Wayne v. Hathcock, the Court decisively rejected the notion that "a private entity’s pursuit of profit was a ‘public use’ for constitutional takings purposes simply because one entity’s profit maximization contributed to the health of the general economy." In Hathcock, the court called Poletown a "radical departure from fundamental constitutional principles." The court said, "We overrule Poletown, in order to vindicate our constitution, protect the people’s property rights and preserve the legitimacy of the judicial branch as the expositor, not creator, of fundamental law."

KELO v. NEW LONDON. The Kelo v. New London case put the Poletown question to the U.S. Supreme Court in the clearest possible terms: Does the U.S. Constitution allow the government to take property from one private party in order to give it to another private party because the new owner might produce more profit and yield greater tax revenues for the local government?

In June, 2005, the Supreme Court answered that question Yes.

THE AFTERMATH OF KELO. The public has responded to the Court’s holding in Kelo with outrage. Since June, many jurisdictions have adopted legislation designed to prevent the use of local taxpayers’ funds to support the use of eminent domain for economic development purposes.

According to the Institute for Justice website, Castle Coalition:

In a relatively short period of time, legislators in more than two dozen states and the U.S. Congress have either proposed or promised to propose legislation that would significantly protect property owners from unauthorized government land grabs. Alabama recently passed a reform bill, which was signed by Governor Bob Riley. Given the amount of outrage on the issue, from across the political spectrum, we expect other states to follow suit.

We’ve also seen changes at the local level, where cities and counties have declared that they won’t use eminent domain for private gain. Bowling Green, Kentucky, Patrick County, Virginia, and Porterville, California, have all passed reform measures, which shows that change at any level of government can further protect private property rights.

This story is still being written.

At Big Cities Big Boxes we will continue to update it.