Supreme Court to Decide Whether Higher Tax Receipts Should Trump Property Rights

Supreme Court to Decide Whether Higher Tax Receipts Should Trump Property Rights
November 1, 2004

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

The practice of local governments seizing middle-income citizens' homes and small businesses and turning them over to others to generate more tax revenue could soon end--or receive the backing of the most powerful court in the land.

The U.S. Supreme Court announced on September 28 it would hear arguments in Kelo v. City of New London, Conn., where 15 homes are being threatened with eminent domain to make way for a private development that promises to bring in more jobs and taxes for the city.

"This is corporate welfare at its worst. America's founders would be shocked to see this awesome power of government abused in this way," said Scott Bullock, senior attorney at the Institute for Justice (IJ), a Washington, DC law firm that is representing the New London homeowners for free.

"If jobs and taxes can be a justification for taking someone's home or business, then no property in America is safe, because anyone's home can create more jobs if it is replaced by a business, and any small business can create greater taxes if replaced by a bigger one," Bullock said. "We have to restore the meaning of public use to what everyone once understood the term to mean--something the public would own and use, such as a road. Economic development is not a public use."



Condemning Homes, Businesses to Attract Tourists

The proposed New London development includes a luxury hotel, high-end condominiums, and private office space as enhancements to the Pfizer pharmaceutical company's adjoining $270 million research facility. In 1978, the city had city created a private development agency, New London Development Corp., and gave it eminent domain powers. Those powers now are being used to condemn most of the Fort Trumbull neighborhood for the development.

Fort Trumbull is a middle-income neighborhood along the Thames River, with Victorian-era houses and small businesses, some of which have been owned by multiple generations of the same family.

New London officials directed questions to Thomas Londregan, the city's director of law, who did not respond.

However, in its legal filing, New London argued the condemnations will serve a public purpose by attracting tourists and higher-income residents, creating jobs, and generating more tax revenue.

"The record is clear that New London was a city desperate for economic rejuvenation," the city said in its legal filing, which asks the high court to allow local government officials to decide what is a public purpose or use.

"The goal of the MDP [Municipal Development Plan]--to rejuvenate New London's dying economy--clearly constitutes a public use and justifies the taking of the petitioners' properties through eminent domain," the city's legal brief claimed. To bolster its case, the town's brief cites New London's declining population, higher-than-average unemployment rate, and an old building stock. The filing also points out that the Connecticut Office of Planning and Management has designated New London a "distressed municipality."



Neighborhood Residents Stand Firm

IJ attorneys say the New London Development Corp. (NLDC) began harassing Fort Trumbull neighborhood homeowners the day before Thanksgiving 2000, when it had the local sheriff post eviction notices on the homeowners' doors. This summer the NLDC issued "back rent" notices to remaining homeowners--some of whom have owned their homes outright since 1958--claiming they owed the NLDC between $47,000 and more than $300,000 on their small properties.

Many Fort Trumbull neighborhood property owners have moved away under the city's pressure, but Susette Kelo and several other property owners decided to stand and fight by suing the city.

"It is going to mean everything in the world if the U.S. Supreme Court saves my home," Kelo said. "I'm so happy for myself and my elderly neighbors who just want to stay in their homes."

Another lifelong resident, Matthew Dery, whose family has lived in New London for more than 100 years, told the Associated Press, "I'm not willing to give up what I have just because someone else can generate more taxes here."



State Supreme Court Supported City

In March 2004, the Connecticut Supreme Court issued a 4-3 ruling upholding the city's use of eminent domain in this instance. The court cited "the severe economic distress faced by the city, with its rising unemployment and stagnant tax revenues," and ruled that even if there is nothing wrong with a home, business, or neighborhood, the government may use eminent domain to take land and give it to a real estate developer with the expectation of more tax receipts and other benefits to the city.

The Institute for Justice, however, says that is a clear abuse of eminent domain powers. Nationwide, according to IJ, more than 10,000 examples of threatened or actual eminent domain abuse were documented in 41 states in a five-year period from 1998 to 2002.

IJ lawyers say this is the first case to examine whether government's eminent domain power may be used not for a public use (such as for a road) or even for a public "purpose" (such as for blight clearance), but to take one person's home or small business so a bigger business can make more money off that land, generating more tax revenue for government in the process.

The case has drawn the attention of municipal leaders, real estate developers, property rights advocates, and others across the nation.

Political columnist George Will wrote about the case on September 19. "The question is: Does the Constitution empower governments to seize a person's most precious property--a home, a business--and give it to more wealthy interests so that the government can reap, in taxes, ancillary benefits of that wealth?" Will wrote.

"Connecticut's court says yes," Will continued, "which turns the Fifth Amendment from a protection of the individual against overbearing government into a license for government to coerce individuals on behalf of society's strongest interests. Henceforth, what home or business will be safe from grasping governments pursuing their own convenience?"

Will pointed out that the Fifth Amendment says private property shall not be taken for public use without just compensation. Every state constitution also stipulates such takings shall be done only for "public use."

"The framers of the Bill of Rights used language carefully; clearly they intended the adjective 'public' to restrict government takings to uses that are directly owned or primarily used by the general public, such as roads, bridges, or public buildings," Will wrote.



Courts Divided on the Question

State supreme courts are divided on the issue of eminent domain abuse, according to IJ researchers.

In July 2004, the Michigan Supreme Court unanimously reversed a 23-year-old precedent known as Poletown, which had allowed local governments to take people's homes and small businesses to hand over to General Motors.

The Connecticut Supreme Court's ruling in the New London case four months earlier had been based in part on the Poletown precedent.

In 2003 the Kansas Supreme Court had approved the taking of private property for a Target Stores distribution center. Of the 15 state supreme courts that have ruled on the issue of private-to-private eminent domain, eight have ruled against the practice and seven have ruled such takings are permitted.



Chaos in the Law

"There is chaos at the state level when it comes to eminent domain law," said Dana Berliner, an IJ senior attorney who litigates this issue and wrote the first national study on eminent domain abuse. "What rights you enjoy to your property depend entirely on the state in which you live. Arizonans are safe in their property, but Connecticut residents are virtually powerless against politically powerful developers, and in states like New Hampshire, there is no consistent interpretation of the law. In the confusion, people are losing their most precious possession--their homes."

IJ President Chip Mellor said, "You can look at nearly every building ever constructed in this country, and it wasn't built because of eminent domain. It was built because of private negotiation.

"The Court should restore some meaningful check on the abuses of eminent domain authority and provide some guidance to government officials, property owners, and lower courts in reviewing condemnations for private economic development," Mellor said.


Steve Stanek (stanek@heartland.org) is managing editor of Budget & Tax News.


For more information ...

Dana Berliner's March 2002 report, Government Theft: The Top Ten Abuses of Eminent Domain, is available through The Heartland Institute's free PolicyBot™ research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #8756.

Ten additional documents on eminent domain are available through PolicyBot™. Select the Law topic, Eminent Domain subtopic.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)