Last year in East St. Louis, Ill., a public redevelopment authority seized land from an active metals recycling firm and sold it to an out-of-state company that now uses it as a parking lot. For good measure, the buyer even paid the authority's legal expenses. In the meantime, the recycler has asked a state appeals court to overturn the taking of its property.
State and local governments increasingly are using their condemnation power to snatch property from one private business and hand it over to another. The device, which has been used for hundreds of years to acquire public spaces for parks, schools, roads and urban renewal, has become a mechanism to undertake or attract business projects.
The U.S. Constitution and state constitutions allow government to take private property for "public use" so long as the property owner receives "fair" or "just" compensation for the loss. Bent on creating new jobs and swelling their tax base, local governments have expanded the "public use" definition to include projects that offer a chance for economic and social revitalization.
Opponents argue that when local governments sacrifice small, viable businesses, they destroy property owners' rights. "Everybody is making money except the ... inhabitants of the redeveloped area," says Gideon Kanner, a professor at Loyola Law School, Los Angeles. He calls the trend "profoundly immoral." It's a case of the politically powerful vs. the less well-connected, critics say.
Proponents say that condemnations, for the most part, provide communities significant benefits and court-approved compensation for landowners. In fact, some business owners have taken advantage of the process to extract payments from communities that exceed the reasonable value of their properties.
Even prosperous jurisdictions need more tax revenue. "A suburb cannot survive economically based on residential property taxes alone," says Jeffrey Finkle, head of the Council for Urban Economic Development, Washington, D.C. Communities continue to search for significant commercial taxpayers.
An owner whose property is targeted for seizure and redevelopment can either agree on terms with the incoming developer or let a court determine the fair market value. Fighting the takeover is a losing cause.
The power of government to take private land for public benefit is a centuries-old tradition. Moreover, twice within the past 50 years, the U.S. Supreme Court has upheld the right of public officials to decide freely what constitutes a public use.
About 40 years ago, the high court allowed the District of Columbia to take for commercial development a viable department store in a blighted area. And, in a unanimous decision 15 years ago, the court upheld a land-redistribution program under which a housing agency in Hawaii could force large landowners to sell property to people who were leasing from them. In the latter case, the court noted that eminent domain traditionally was permitted for any "conceivable public purpose." The broad ruling upset some constitutional scholars, but local governments seem ready to take full advantage of the opportunities.
Sometimes, a court will halt a condemnation if it finds that the public use is marginal or insignificant when compared to the private gain. Last September, an Indiana state judge blocked the city of Indianapolis from taking a warehouse and allowing an insurance company to establish its new office. The judge later relented after the city's redevelopment agency agreed to pay more money to the owner of the warehouse - six times what the agency appraisal said it was worth.