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U.S. Supreme Court to Decide Whether Redevelopment for Economic Revitalization Justifies Condemnation of Property

Article

In-Sites

February 22, 2005

Redevelopment has become a tool to achieve economic revitalization through the replacement of older structures with new projects that provide jobs, increase tax ratables and stimulate the local economy. Typically, such redevelopment involves a public-private partnership, or at a minimum, public involvement in defining the nature of the project, designating the redeveloper, or both. When the property owner, the developer, government and the community all are on the same page, the process should proceed smoothly. But what happens when the property owner wants nothing to do with redevelopment, preferring to maintain its existing improvements in their current condition?

“Blight” or “Area in Need of Redevelopment” Designations

Historically, redevelopment laws in many jurisdictions required a finding that the property to be redeveloped was “blighted” in order to exercise the power of eminent domain. Recognizing that the word “blight” can have a negative impact on property values, laws changed over time to redefine the conditions that warranted a redevelopment designation. With those changes arose the terms “area in need of redevelopment” and “redevelopment area,” which are commonly used today.

Some jurisdictions, however, have laws that allow acquisition of private property by eminent domain solely on the basis that redevelopment will promote economic development, without any finding of “blight” or that the land in question comprises an “area in need of redevelopment.” Michigan and Connecticut are two such jurisdictions.

Michigan’s Poletown Decision

About 24 years ago, the Michigan Supreme Court, in the well-known decision Poletown Neighborhood Council v. Detroit, held that acquisition of an entire neighborhood so that the property could be conveyed to an auto manufacturer for construction of an assembly plant, even though the neighborhood had not been found to suffer from blight, constituted a legitimate “public use” which justified the exercise of eminent domain. This decision marked the first time that a generalized economic benefit was recognized by a state supreme court as a valid basis upon which to use the power of eminent domain to transfer the condemned property to a private entity.

Last summer, the Michigan Supreme Court, in a decision entitled County of Wayne v. Hatchcock, acknowledged that it had been mistaken in its 1981 Poletown ruling. Although the Hatchcock Court found that eminent domain had been exercised in accordance with Poletown and applicable statutes, it held that the statutes themselves violated the Michigan constitution because generalized economic benefits did not constitute a legitimate public purpose which justified the exercise of eminent domain.

Connecticut’s Kelo Decision

The Connecticut Supreme Court arrived at an opposite interpretation of a similar statute last year, finding that the exercise of eminent domain for generalized economic benefits was valid. The case, Kelo v. City of New London, is now before the U.S. Supreme Court, which held oral argument on February 22.

U.S. Supreme Court to Decide Kelo

The specific issue to be taken up by the U.S. Supreme Court is the following: “What protection does the Fifth Amendment’s public use requirement provide for individuals whose property is being condemned, not to eliminate slums or blight, but for the sole purpose of ‘economic development’ that will perhaps increase tax revenues and improve the local economy?” Commentators have suggested that this could be the most important land use and property rights case to be decided by the Court in years.

Although the Supreme Court’s decision may have no direct impact on statutes that authorize the exercise of eminent domain only following a “blight” or an “area in need of redevelopment” designation, the decision could have peripheral impacts, particularly in jurisdictions that have fairly loose criteria for redevelopment designations. For example, if the decision in Kelo is favorable to the property owners, condemning authorities may think twice before exercising the power of eminent domain based on a “blight” or “area in need of redevelopment” designation unsupported by evidence or not clearly in accord with the criteria. Indirectly, this could reduce the number of such designations, or lead to designations only when the evidence supporting them is fairly strong.

On the other hand, a decision in Kelo that is favorable to the condemning authority may encourage other similarly situated authorities, whether or not acting pursuant to statutes that require a “blight” or “area in need of redevelopment” designation, to assert their power more freely and forcefully. This could encourage redevelopment determinations based on dubious supporting evidence.

Whatever the court decides, one can be sure that redevelopment will continue, although the procedures for acquiring private property needed for redevelopment projects may change.