Godfrey & Kahn Updates
Kelo v. City of New London: Has It Lived Up to the Hype?November 10, 2005
Almost six years ago, a small Connecticut city off of Long Island Sound condemned 15 non-blighted homes in a middle-class neighborhood as part of an economic development plan that included a state-of-the-art 90,000-square-foot research and office facility that would be occupied by pharmaceutical giant Pfizer, Inc. According to city officials, the economic development plan and corresponding condemnations were necessary to spur economic development and stimulate a sagging economy. Needless to say, affected homeowners and many within the community were less than enthusiastic about the condemnations. Nonetheless, last summer the United States Supreme Court in Kelo v. City of New London gave the city its seal of approval and held that the Fifth Amendment of the United States Constitution permits municipalities to condemn non-blighted private property for the valid public purpose of economic development.
In the wake of Kelo, Wisconsin developers and municipalities had high hopes for new development possibilities arising from the perceived enhancement of condemnation powers due to the broadening of the "public purpose" concept to include economic development. It was believed that the decision would now permit municipalities to embark on large scale economic redevelopment plans where significant portions of property would be condemned, whether blighted or not, and turned over to private developers who would reshape the urban landscape with higher and better uses, thereby increasing jobs, tax revenues and the overall vitality of Wisconsin’s towns. Six months have elapsed since the Kelo decision and now is a good time to take measure of its impact on Wisconsin municipalities and developers and ask, "has Kelo lived up to the hype?"
What Impact Did Kelo Have in Wisconsin?
Aside from the significant adverse reaction of politicians, pundits and property owners, the Kelo decision did very little, if anything, to alter the contours of Wisconsin condemnation law. The Kelo decision undoubtedly prompted a newfound and significant interest amongst municipalities and developers in the possibility of condemning land for the purpose of economic development. Developers and municipalities wondered how they might take advantage of this revitalized condemnation authority. In reality, Wisconsin law never prohibited the condemnation of non-blighted private property for the purpose of economic development.
The Wisconsin Constitution permits municipalities to take private property for public use in exchange for just compensation. One section of the Wisconsin Statutes embodies the general eminent domain power and permits municipalities to condemn private property upon just compensation for "any lawful purpose." Another provision of the Wisconsin Statutes specifically extends municipal condemnation authority to "blighted areas," which are defined broadly to include any area which "by reason of dilapidation, deterioration, age or obsolescence, inadequate provision for ventilation, light, air, sanitation, or open spaces, high density of population and overcrowding, or the existence of conditions which endanger life or property by fire and other causes, or any combination of these factors, is conducive to ill health, transmission of disease, infant mortality, juvenile delinquency and crime, and is detrimental to the public health, safety, morals or welfare." Even a cursory reading and appreciation of the broad scope of the language of these provisions suggests that Wisconsin law may already permit Kelo condemnations. Further, Wisconsin courts have traditionally construed the constitutional "public use" limitation very broadly and have validated numerous condemnations for public purposes ranging from roads and airports to more intangible public purposes like easements for the enjoyment of "scenic beauty." Moreover, the Wisconsin courts in connection with bodies of law similar to condemnation, like the public purpose doctrine, have held that "encouraging economic development and tourism, by reducing unemployment and by bringing needed capital into the state for the benefit and welfare of the people throughout the state" constitutes a valid public purpose.
Wisconsin Statutes define "blighted areas" so broadly that it is difficult to conceive of an area of potential development that could not be considered blighted. Finally, Wisconsin courts traditionally grant broad discretion and deference to condemning authorities to determine what constitutes a public purpose, what properties must be condemned to accomplish that public purpose, and what areas are blighted. In short, the Wisconsin Statutes and neutral, if not favorable case law, that indicate that Kelo condemnations are, and have always been, permissible in Wisconsin, even before the Kelo decision.
In light of the Kelo decision and Wisconsin law, one might expect a proliferation of condemnations pursuant to economic development plans. To be sure, there have been some, but not many. So why? The reluctance of municipalities to embark on economic development projects requiring condemnation is likely a product of several factors. First, municipal decision makers almost always face the threat of political pressures and popular perception. It is also possible that the lack of Kelo condemnations is due to perceived ambiguities in the law. As discussed above, these ambiguities are less pronounced than one might expect, but they might nonetheless deter some condemnations. Maybe municipalities have failed to grasp the potential of Wisconsin’s condemnation law. Finally, there may simply be a time lag following Kelo during which municipalities and developers assess the viability of condemnations for economic development and identify appropriate pockets of real estate for such projects. Whatever the reason, it is safe to say that Kelo has not proved to be the significant spark for condemnations that we once expected.
After Kelo, the excitement of developers and municipalities anxious to stimulate economic activity in Wisconsin’s urban areas was matched only by the disdain of certain politicians and property owners who clamored for the Wisconsin legislature to act. The court, in Kelo, reminded readers that nothing prevented states from disagreeing with its interpretation of federal takings law and imposing stricter condemnation laws at the state level. To this end, Wisconsin legislators wasted no time proposing legislation that limits the reasons for which a municipality may condemn private property. Although no legislation has yet been signed into law, the proposed legislation would likely prohibit municipalities from condemning non-blighted property for the public purpose of economic development. Similar legislation has been proposed at the federal level.
Practical Suggestions for Developers and Municipalities
In the event developers and municipalities decide to embark on development projects that entail the acquisition of private property for the stated public purpose of economic development, the following is a list of practical suggestions to help make the development plan successful:
- Characterization—Consider whether your anticipated development plan might better be characterized as the redevelopment of a blighted area under Section 66.1331 of the Wisconsin Statutes. It is important to remember that the definition of blighted area is very broad and Wisconsin courts have clearly stated that non-blighted properties may be condemned so long as they are part of the overall redevelopment of a blighted area.
- Planning—Whether you are a developer preparing to pitch a project to a municipality that entails condemnation or a municipality wishing to condemn property for economic development, it will be crucial to base the condemnation on a comprehensive development plan that is the product of a careful and deliberative process of research and evaluation. In Kelo, for example, the city of New London engaged in a deliberative process whereby "various state agencies studied the proposed project’s economic, environmental, and social ramifications." In a more local example, the Community Development Authority of the City of West Allis, prior to condemning non-blighted property for a redevelopment effort under Section 66.1331, conducted several reviews of the development plan, hired urban planning consultants, conducted a feasibility study, and carefully considered several development options. The deliberative planning process helps defeat any challenges to proposed condemnations on grounds that the municipality’s claimed purpose of economic development is pretextual, arbitrary or an abuse of discretion.
- Direct economic impact—Developers and municipalities should also be able to produce documentation showing that the Kelo condemnation will actually result in economic development. Developers and municipalities should be able to produce economic impact statements, feasibility studies and proforma calculations supporting the claim that the condemnation will result in economic development. Such studies will have the practical effect of ensuring a successful project. Thorough economic analysis and documentation will also help insulate a municipality from challenges to Kelo condemnations.
- Consider your options—This means that municipal planning officials must consider various types of uses, various private developers, and various end-users of the condemned property. By evaluating numerous options, municipalities can show that the condemnation project is not designed to take private property from one person and confer a private benefit on anther person.
- Comply with the law—Once a municipality makes the decision to more forward with a project which includes condemnation for the purpose of economic development, it must be careful to comply with the numerous requirements of Wisconsin law. Generally, these requirements are embodied in Wisconsin Statute Chapter 32.
These suggestions should provide some practical guidance for developers and municipalities seeking to implement development plans that require the condemnation of private property for the purpose of economic development. In all cases, each condemnation project should be carefully considered based upon its unique facts