Economic Development in a Post-Kelo World
State legislatures move to limit eminent domain.

State legislatures have moved quickly to respond to the 2005 U.S. Supreme Court decision Kelo v. New London, which seemingly opened up the use of eminent domain for economic development purposes. The power of governments to employ eminent domain is limited by the United States Constitution’s Fifth Amendment: “…nor shall private property be taken for public use, without just compensation.” Opponents of the Kelo decision believe that the Court expanded the definition of “public use” to include economic development. While the Court did validate this principle, it also highlighted the importance of state legislative action to set parameters for the definition of “public use.” The opinion reads, “We emphasize that nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power. Indeed, many States already impose “public use” requirements that are stricter than the federal baseline.”

The reaction in state legislatures has been swift—all but one of the states with legislative sessions this year have considered legislation (six states do not convene in 2006). Of these, 23 states have enacted eminent domain legislation, while two additional states (Arizona and New Mexico) passed legislation that was vetoed by the governor.

Most of the new laws have established a definition of “public use” to exclude private entity to private entity transfers for economic development. Several have established approval processes and expanded public notice/hearing requirements. Two states have set reimbursement levels for property at 150 percent of fair market value (Indiana) and 200 percent of the average appraised value of the property (Kansas). Utah strengthened its approval process for eminent domain, modifying its definition of public use to include bicycle paths and sidewalks adjacent to paved roads, while limiting the use of eminent domain for certain recreational purposes.

In addition to the enacted legislation, state legislatures also passed ballot initiatives for the consideration of the electorate in November 2006. Watch for the following in your state this fall:

• Florida: Requires 3/5 vote of both state house and state senate to approve the use of eminent domain for a private-to-private transfer.
  
  
• Georgia: Requires approval by the local government’s elected governing body before eminent domain may be used for a redevelopment purpose.
  
  
• Louisiana will consider two initiatives. The first prohibits private-to-private transfers and prohibits economic development or enhancement of tax revenue to be considered in determining whether the action is a “public purpose.” The second prohibits the sale/lease of property that has been taken through eminent domain and held for less than 30 years unless the property is first offered to the original owner or his/her successor at fair market value. Stipulates that within one year after completion of a project for which eminent domain has been used, any surplus property must be offered to the original owner or his or her successor at fair market value.
  
  
• New Hampshire: Prohibits the use of eminent domain for private-to-private transfers for private development.
  
  
• South Carolina: Prohibits the use of eminent domain for any nonpublic use, including economic development. Authorizes the legislature to enact laws allowing eminent domain to be used to remedy blight, with the property put to public or private use provided just compensation is paid.

For more information, contact Government Affairs Director Julia Lent.