Taxes

At issue is whether a government can condemn and take property, not to build schools or roads but to accommodate other landowners. In other words, should a city government have the power to condemn one owner’s property in order to turn it over to a private business—thus producing a higher amount of tax revenue for that government?

In the case before the court, Kelo vs. City of New London, several homeowners are fighting the action of the Connecticut city in taking their homes so a commercial waterfront project could be built. The project includes commercial and residential space, a marina, hotel, and convention center.

In oral arguments last week, Justice Sandra Day O’Connor asked, “In a city that is suffering from an enormous lack of jobs … is there not a public use benefit?”

Scott Bullock, attorney for the homeowners, replied, “The test should be that the government shouldn’t take private property to give over to another private landowner.”

Bullock argued that encouraging commercial developers is not a public use of property. He also contended that if governments aren’t held to strict limitations on the condemnation power, then residential or small-business owners will always lose because commercial development will always be a “higher use” under the law.

“Every home, church or corner store would produce more jobs and tax revenue if it were a Costco or a … shopping mall,” Bullock said.

Wesley W. Horton, counsel for the city of New London, said, “Purely taking from one person to give to another person is not a public use. … But this development is a part of a long-range plan by the city to be developed in phases with due public processes.”

Horton argued that there should not be a different standard for economic development than for the more traditional uses of the condemnation power.

Justice O’Connor, presiding in the absence of Chief Justice William Rehnquist, asked Horton whether it would be acceptable for a Motel 6 to be replaced by a Ritz-Carlton “if the city felt Ritz-Carlton could pay more tax.” Horton said, “Yes,” which produced a flurry of concerned questions from the members of the court.

“What this lady [homeowner Susette Kelo] wants is not more money,” Justice Antonin Scalia said. “She says, ‘I’ll move if it’s for the public good, but not just so that someone else can pay more taxes.’ This is an objection in principle that ‘public use’ in the Constitution seems to be addressed to.”

Washington, D.C., Mayor Anthony Williams, president of the National League of Cities, said after the court session, “The prudent use of this power to enable cities and towns across America to revitalize communities, create jobs and improve housing must be retained. Clearly it is not a power to be used lightly, but when part of a legislative process involving citizen input and discussion, it is one of the most important tools city officials have to rejuvenate their neighborhoods.”

But critics say unrestricted condemnation powers are by definition imprudent, that local officials can’t resist the lure of campaign contributions from big developers and higher tax revenues. Unrestricted eminent domain would leave governments free, for example, to define useful and productive properties as blighted in order to condemn them.

One of the problems faced by Kelo and her fellow litigants is that there is a considerable body of court decisions on condemnation, and ruling for Kelo would require the court to overturn or revise many of their conclusions. Many of the most influential court decisions on eminent domain were handed down during the 1950s and ’60s, when “progress” was defined very differently than it is now.

In 2003, the City of Las Vegas won a long-running battle with a downtown property-owning family over the city’s condemnation of property for a parking garage to serve a downtown redevelopment project called the Fremont Street Experience.

That same year, the City of Reno engaged in an even stranger maneuver—condemning a downtown casino, then selling its gambling license to lobbyist Harvey Whittemore, who then transferred it to Nevada Casinos, Inc., a.k.a. the Peppermill. Shortly afterward, the Reno Gazette-Journal reported that Nevada Casinos had assumed the debt on property between the Peppermill and Atlantis casinos, on which it could build a casino and use the license without having to meet minimum hotel room and other requirements.