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The case really began in 1990, when the State of Connecticut, having designated New London a “distressed municipality,” provided it and similarly situated cities bond funding and eminent domain powers for economic development. New London suffers from the pathology of many aging manufacturing cities: job and population loss and an eroding tax base, which compromises funding for municipal services. To reverse this downward spiral, the City of New London formed the non-profit New London Development Corporation (NLDC), which focused on Fort Trumbull, an older, down-at-the-heels neighborhood on a peninsula in the Thames River. The NLDC drew up an ambitious plan for a 90-acre area, including a conference hotel, a new urban neighborhood with shops and restaurants, 90,000 square feet of research-and-development-oriented office space for Pfizer, and a number of public amenities, including a Coast Guard museum, a riverwalk, and a renovated marina.

In addition to using federal land from a closed naval facility, the plan encompassed 115 privately owned properties. Most owners willingly negotiated sale terms, but Susette Kelo and eight of her neighbors would not. Working- and middle-class homeowners and small business owners, they were not holding out for more money; they simply did not want to give up their homes and businesses no matter the price. One petitioner had been born in her home in 1918. Kelo herself had recently made improvements to her house and enjoyed her water view. Represented by the Institute for Justice, a conservative Washington, D.C.-based legal foundation that pursues property rights cases across the country, they challenged the proposed takings through the state courts and, eventually, up to the U.S. Supreme Court.

Defining Public Use

The Fifth Amendment to the United States Constitution states, with breathtaking brevity, that private property shall not “be taken for public use without just compensation,” in one phrase authorizing eminent domain but limiting it to public use and requiring compensation. Strict constructionists believe that the framers intended to allow government to take private property only for publicly owned facilities, like schools or highways. But as early as the 19th century, courts allowed takings for railroads and utilities to build facilities available for public use, and to allow mill owners to build dams that would flood upstream property on condition that they compensate the upstream owners.

Eventually, the phrase “public use” came to mean “public purpose,” leading to the Supreme Court’s unanimous 1954 decision in Berman v. Parker, which found that the elimination of blight in a Washington, D.C., urban renewal area was sufficient justification to take property for private redevelopment as part of a comprehensive, government-sponsored plan to improve the city. Following Berman v. Parker, the word “blight” came to have a specific meaning, formed in the crucible of numerous state court cases. But Berman did not address whether economic development—jobs and tax revenue—is alone sufficient to justify seizure of property in the absence of blight.

The majority opinion in Kelo has been widely misread as endorsing the taking: what it really endorses is the democratic process. The decision relies heavily on the takings’ specific authorization by the Connecticut legislature and approval by the City of New London after extensive public involvement. This reasoning follows a long line of precedents giving states wide latitude in regulating land use for two reasons. First, the tension between individual rights and societal needs at the heart of Kelo is best resolved by representative government bodies, not by courts. Second, land-use conflicts turn on details that local governments understand better than reviewing courts, especially federal courts.

Despite these precedents, the Court’s decision surprised many. The case had been skillfully cast as a David-and-Goliath battle pitting ordinary homeowners against an overreaching government. In addition, the Court’s increasing emphases on a literal interpretation of constitutional provisions, on individual property rights, and on limiting the powers of government seemed likely to favor the Davids.

Sandra Day O’Connor and Clarence Thomas wrote impassioned dissents, joined by fellow conservatives William Rehnquist and Antonin Scalia. Justice O’Connor, normally moderate in tone, fumed that there was now “nothing to prevent the state from replacing any Motel 6 with a Ritz Carlton, any home with a shopping mall or any farm with a factory.” Justice Thomas added to the David-and-Goliath storyline by citing studies showing the great majority of residents displaced by urban renewal programs have been non-white—in Washington, D.C., 97 percent were African-American.

The vociferous dissents read as calls to arms, and while the last word on the taking of Susette Kelo’s home has now been written, the last word on eminent domain for economic development clearly has not. The notion that one person’s property—especially one’s home—can be taken by the government and sold to another private owner just to increase jobs and tax revenue strikes a deeply dissonant chord in the American psyche. Our notion of property rights, almost unknown in other societies, views property not just as an economic asset, but more fundamentally as a civil liberty—a protection against the excesses of the sovereign.

Taking Away Eminent Domain

The conception of eminent domain as an affront to private property rights helps to explain the virulent reaction to Kelo occurring on a number of fronts. The Court’s majority opinion almost invites state legislatures to restrict eminent domain powers as they see fit. According to the Institute for Justice, approximately 25 states have reacted by considering some form of legislation limiting the powers of eminent domain. In Massachusetts, for instance, one state legislator has announced plans for legislation that clearly states that the use of eminent domain for economic development requires a finding that the area is blighted. Bills in other states go even further, preventing the exercise of eminent domain for economic development whether or not the area is blighted. In Congress, bills have been introduced that would deny federal funds to state programs that allow eminent domain to be used for economic development. Some of these bills likely represent reflexive efforts by elected officials wanting to appear responsive to their constituents—for example, very little federal funding any longer exists for urban economic development—but others seem more serious.

The reaction to Kelo may also embolden state courts to interpret their own constitutional provisions on eminent domain more narrowly. Some, like Michigan and Arizona, had already done so before Kelo was decided. In 2002, the Arizona Court of Appeals found that the City of Mesa’s seizure of a brake-service shop, as part of a commercial redevelopment intended to provide a revitalized gateway to the downtown area, violated the Arizona Constitution’s “public use” clause, which protects private rights more strongly than the U.S. Constitution. The decision established a new standard in which, for a taking to be valid, the public benefits of the intended use must “substantially predominate” over the private nature of the use.

Last year, the Michigan Supreme Court reversed its decision in the 1981 case of Poletown v. City of Detroit, which had upheld the seizure of a working-class ethnic neighborhood in Detroit. The taking, combined with a tax deal and city-subsidized infrastructure, was intended to lure a General Motors assembly plant, providing jobs to a desperate city. GM built the sprawling plant—an incongruous sight in its urban setting—and promptly automated it, eliminating most of the jobs, to the outrage of many. In the 2004 Hathcock decision, a more strictly constructionist court decided that economic development alone does not constitute a sufficient public purpose or benefit to justify takings.

Finally, the specificity of the holdings in the Kelo decision—it could be read to rest on a variety of issues particular to the case such as the strong authorizing language from state legislation—means that conservative legal foundations will continue to look for cases with favorable fact patterns which present opportunities to carve away at Kelo on the Supreme Court level. They are no doubt mindful that Justice Stevens, who wrote the majority opinion, is 85 years old; a strict constructionist may hold his seat when the next case arrives. And next time, with slightly different facts, the centrist Justice Kennedy could vote the other way.

The Danger to Urban Redevelopment

From the perspective of the economic health of cities, much of the reaction to Kelo is misplaced. Most municipalities depend heavily on property tax revenue to provide basic services to their residents, and many older manufacturing cities continue to lose jobs and thus tax revenue. State-chartered redevelopment programs attempt to address this deterioration. Although the early urban renewal era took some striking missteps, such as those cited by Justice Thomas in his dissent, these programs have become much more successful in stimulating large-scale private investment which catalyzes further job and tax growth. Such investment often requires sites that accommodate larger office floor plates and retail footprints than historically possible in cities, at costs low enough for weak real estate markets. Eminent domain power—or the threat of it—is often key to assembling these sites.

At least as of this writing, the aftermath of Kelo is one-sided, playing into the hands of the anti-urban bias of conservatives. As the demographic center of gravity in most states shifts to the suburban voter, concern for central cities diminishes. Market solutions not involving the heavy hand of government are favored (even if impractical), and individual property rights are increasingly cast as being on a par with other basic individual rights such as freedom of speech and equal protection. On a positive note, planners and local public officials will likely be even more careful how they exercise eminent domain powers in Kelo’s wake; however, they will need to mount an effective defense of eminent domain as an important tool for economic development to avoid losing it altogether.

State legislatures considering reducing eminent domain powers should be mindful of the fact that they could create another problem as serious as the one they are trying to solve: if denied the tools necessary to stimulate economic development, distressed municipalities will turn to the state for other forms of assistance. Instead, legislatures could consider requiring strict additional findings before private homes be taken but otherwise allowing eminent domain for economic development to continue. Better yet, they could reform the archaic system of basing municipal finance on property taxes that leads cash-starved cities to consider such drastic measures in the first place.

This article appeared in the November 2005 issue of Next American City magazine. SUBSCRIBE NOW!