Greater Baton Rouge Business Report: Taking property: what effect will the Supreme Court's decision

On June 23, the U.S. Supreme Court ruled that government can seize private property in the name of economic development--even if the property is not blighted, and even if it ends up in private hands.

The five-to-four decision elicited an uncharacteristically acid dissent from Sandra Day O'Connor, who labeled it "perverse." Many from across the political spectrum agreed.

Here's the story: New London is a depressed Connecticut town with little open land, ringed by affluent suburbs of New York City. In 1998, its population hit an 80-year low. Unemployment was double the state average. So New London put together a downtown redevelopment plan and lured a $300 million Pfizer lab to anchor it.

Next door, developers would build a hotel, retail, office, residences and a museum. The city obtained most of the 90 acres it wanted through negotiation, but Susette Kelo and 14 of her neighbors held out. New London resorted to eminent domain--the forced sale of private property. The residents resisted, but the Supreme Court ruling ends their options.

The U.S. House of Representatives voted 365 to 33 expressing its "grave disapproval." Soon after, it blocked the use of federal transportation funds in economic development projects that involve seized property. The Senate has yet to act on the bill, but senators and other politicians have proposed an array of legislation to challenge the court's decision.

On the ground in Baton Rouge, new rules on funding would not currently have any effect because redevelopment efforts here have not used eminent domain, which is known as expropriation under civil law. (The state has used expropriation for public buildings, but that power is uncontested.)

[ILLUSTRATION OMITTED]

Gwen Hamilton, the senior director at Plan Baton Rouge, says many projects in neighborhoods near downtown use federal grants such as Community Development Block Grants and HOPE VI. But none of them have used expropriation.

Adjudicated properties--those seized by the government when owners fail to pay taxes--already belong to the city, Hamilton notes, so there is land available for economic development without resorting to expropriation. The problem would arise, she says, if a planned project needed land that was up-to-date on its taxes--like in Kelo v. The City of New London, the recent Supreme Court case.

"That's something we've never dealt with here," she says. "We have breathing room that they don't have in Connecticut."

Hampton Grunewald, Mayor Kip Holden's spokesman, says, "We have no immediate plans to use eminent domain on any economic development project."

But Mid-City Redevelopment Alliance urban planner Jeremy Hendricks thinks that if redevelopment efforts here continue, eventually the need to force the occasional land sale may arise. "If we want to see urban areas getting redeveloped," he says, "it may be coming."

Redevelopment efforts in which government uses expropriation on behalf of private developers might run afoul of the proposed federal funding changes. If Republican state Sen. Jay Dardenne has his way, the option might not be there at all. He has proposed amending Louisiana's Constitution in response to Kelo.

That would be required because the issue the court addressed in Kelo--public use versus public purpose--is already resolved in the state Constitution.

The framers of the U.S. Constitution understood eminent domain to be a natural power of sovereign government. But they limited it. The Fifth Amendment says, "nor shall private property be taken for public use without just compensation." Kelo was a fight about what constitutes public use.

"To most people, the meaning of 'publicuse' is fairly obvious," notes the Institute for Justice, a property-rights group. It means "things like highways, bridges, prisons and courts. No one--at least no one besides lawyers and bureaucrats--would think 'public use' means a casino, condominiums or a private office building."

But federal courts have long read "public use" more generously. John Costonis, chancellor of the LSU law center and an eminent-domain expert, says those arguing that Kelo extended government's power are "flatly wrong."

Eminent-domain powers began expanding around the turn of the century, pushed by big business' desire to eliminate the problem of hold-out property owners who can gouge a buyer simply because everyone else sold first. Condemnation powers were extended, for example, to mining companies who took neighbors' land for getting ore out and flour millers who flooded adjacent property to generate power.

"The 'physical use by the public' test hasn't been respected for more than 75 years," Costonis says. "It is too restrictive." The public-use clause has also been expanded to allow other activities that trade one private owner for another, like blight elimination.

Federal courts have repeatedly affirmed the government's broad powers, but states are free to set tighter standards, and 10 now strictly interpret public use to prohibit property condemnation for economic development by private concerns. Another two dozen states are considering new restrictions.

Louisiana's rules have long been generous to governments. "Kelo all turned on public use," says Rob Dille, a partner at Kean Miller who works in expropriation law. "That is already resolved here. Section 1.4 of the Louisiana Constitution says public purpose."

The state Constitution also explicitly allows expropriation by private ventures, including not only railways and public utilities, but also telecoms and companies needing pipelines. And the builders of a pipeline, to take one example, can use eminent domain even if it does not deliver to the Louisiana public.

Critics of using eminent domain for private use tend to concentrate on urban redevelopment, but Costonis questions that distinction. "This is a state where eminent domain powers have been broadly used for economic development," he notes.

In fact, instances of expropriation purely for redevelopment-type projects here are rare. A nationwide survey by the Institute for Justice covering 1999 through 2002 found only a handful of properties seized in Louisiana for such private use. By comparison, New Jersey had about 650, and California had 850.

But Louisiana courts have upheld expropriation for redevelopment projects. In 1994, the Town of Vidalia planned a riverfront redevelopment like New London's. A group of heirs who owned a quarter-acre refused to sell and fought the expropriation. In finding for Vidalia, the state 3rd Circuit cited the state Supreme Court: any project with public "use," "benefit," "utility" or "advantage" meets the state's test and can authorize seizure.

A challenge to Shreveport's expropriation for its convention district met the same fate in 2001.

Dardenne says he has no specific amendment proposal yet. The aim, he says, will be "to narrow use of eminent domain when the end result is the enrichment of another private property owner." But he knows that drawing a bright line will not be easy.

Things get messy when a public purpose is served and a private entity benefits--which is what the 3rd Circuit concluded about Vidalia and what New London said about its own project. In such cases, Dardenne says, the law must balance the government's legitimate interest in genuine economic development against property owner rights.

Dardenne says he will reach out to others, like Democrat Joe McPherson, who are working on parallel tracks, and he will seek a "reasoned approach." The amendment could hit the ballot as early as fall 2006.

HAL COHEN covers real estate and legal issues. Reach him at hcohen@businessreport.com.