By C. Robert Ferguson Posted June 29, 2005

On June 23, 2005, in Kelo v. City of New London ("Kelo"), the United States Supreme Court held that the government can use eminent domain to take one person's home or small business so that a bigger business can make money in a new development and pay more taxes to the condemning authority. In other words, recycling real property, regardless of its condition, is now a public use under the Fifth Amendment.

The Facts:

Susette Kelo dreamed of owning a home in the Fort Trumbull area of New London, Connecticut. In 1997 she purchased and restored a little house that overlooks Thames River where it meets Long Island Sound. She has enjoyed her home and its great view ever since.

But, because it wants more money, the City of New London has turned that dream into a nightmare.

In 1998, the pharmaceutical giant Pfizer built a plant next to Fort Trumbull. Next, the City determined that a private developer could make better use of Fort Trumbull than its residents. To do this, the City gave its power of eminent domain/condemnation (the ability to take private property for public use) to the New London Development Corporation so that it could condemn the entire neighborhood and sell it to a private developer for the development of a business park. This would ostensibly be a greater benefit to the community by creating jobs and more tax revenue.

When the Development Corporation sought to condemn Fort Trumbull, Ms. Kelo, and other homes and business owners, said "No." The Connecticut Supreme Court, in a 4 to 3 decision, said "Yes." On September 28, 2004, the United States Supreme Court agreed to hear Ms. Kelo's case. It was argued on February 22, 2005. The Court's decision was published on June 23, 2003.

Had the Court decided in favor of Ms. Kelo, much of the redevelopment abuse that frequently occurs in California would have ended. But, with the Court's decision in favor of the City of New London, the continuation and expansion of such abuse, not only in California but throughout the United States, is a certainty.

Note: there was no blight in Fort Trumbull. And, even though "blight" has been required in California, history demonstrates that abuse will become the rule.


Redevelopment and Blight in California:

Prior to Kelo, evidence of blight was required before a city could condemn private property for private development.

A statutory scheme known as "redevelopment" was created in California to cure blight and remove slums. It provides a redevelopment agency with the power of eminent domain, and property tax revenue to fund the agency's activities. When redevelopment was originally on the California ballot in 1952 the voters were told:

This constitutional amendment is a good provision and has been carefully drafted. . . .


If adopted, this [California state] constitutional amendment will readily facilitate the redevelopment of blighted areas in cities and counties as now authorized by the Community Redevelopment Act of the State of California. Blighted areas are an economic and social drag upon the community and it is good public business to eliminate them. By the adoption of this constitutional amendment it will be made possible for the property to pay its own way and finance the cost of redevelopment without an additional levy upon already overburdened taxpayers.

Under Health & Safety Code § 33030, a blighted area is one which is 80% urbanized, and a physical and economical liability which cannot be reversed or alleviated without redevelopment. The problems arise because Health & Safety Code ß 33368 provides that the finding of blight applies to all property in the project area for the life of the redevelopment plan.

To insure that the funds are used to upgrade blighted housing, Health & Safety Code § 33334.2 provides that not less than 20% of an agency's property tax revenue (20% set aside) must be used for increasing, improving, or preserving low- and moderate-income housing.

Also, Health & Safety Code § 33334.5 requires that if low- and moderate-income residences are destroyed or removed, replacement housing, on a one-to-one basis, must be provided within four years. Further, such dwelling units cannot be removed or destroyed prior to the adoption of a replacement housing plan. (Health & Safety Code § 3334.5, 33413 and 33413.5.)

Unfortunately, even with a statutory scheme to prevent abuse, and protect property owners, the promise to the voters has not been kept, and the safeguards are primarily honored by their breach. Cities continue to find up-scale areas blighted, use much of the 20% set aside to cover administrative costs, and have not constructed the required replacement housing. This being the case, it is not surprising that redevelopment agencies condemn well-kept housing and small businesses so that large businesses can relocate and expand into a redevelopment project area.

What follows are situations under redevelopment that have occurred, and with the result in Kelo v. City of New London, will be frequently repeated.

The Replacement of Low- and Moderate-Income Units With Upscale Housing:

In her dissent, Justice O'Connor stated that:

Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more.

Justice O'Connor's prediction is already a fact in California.

The acquisition of the power to conduct wholesale condemnation is illustrated by the recently adopted La Sierra/Arlanza Redevelopment Plan by the City of Riverside. The Project Area contains 12,576 separate parcels, 8,066 acres or 12.6 square miles, and five separate neighborhoods. The area is not blighted. From the City's point of view, the problem is that the area largely consists of large lot, rural, and horse properties, and also a low tax base. But, it also consists of the new Riverwalk development and the Tyler Mall with its Nordstrom's high-end department store. The City's objective is to replace the very low density housing with medium to high density, higher income housing, and new businesses and commercial centers that will generate substantially higher tax revenue.

This same goal was sought by the County of Riverside in 1998 with the Lake Ellsinore Redevelopment Project. That project consisted of 1,485 acres of residential property which contained 4,409 dwelling units, or an average of 1/3 acre per residence. The residents were mostly low- and moderate-income people who lived in small, permanent houses and mobile homes. There was also vast acreage of vacant property along Lake Ellsinore. The County's Environmental Impact Report stated that the area had "a distinct resort character". The Agency's goal was to replace the residents, who were primarily blue-collar workers and moderate-fixed-income retirees, with young executives living next to an up-scale resort. A lawsuit was brought challenging the finding of blight and the matter was settled. The County gave up and waved its right of eminent domain as to improved property, and the residents are no longer threatened.

Homes and Commercial Development:

Examples of abuse are numerous. New London sought to condemn Ms. Kelo's home for a business park. Many comparable examples exist in California. A few of them are:

1. In Fresno homes were condemned to provide land for a turkey processing plant. Ironically, a few years later the company went bankrupt and the plant closed.



2. Six years ago the City of Garden Grove condemned a whole area of well kept low- and moderate-income housing units in order to develop and build a new Hampton Inn hotel.



3. Three years later the City of Garden Grove acquired eleven homes for land so that a developer could build additional hotels.



4. Recently the City of San Bernardino acquired a number of homes to provide the land for a new Sam's Club.

 Small Businesses Lost to Large Scale Development:

In 2004, the City of Lynwood's Redevelopment Agency proposed to acquire a portion of what is known as Project Area 26 for large hotel chain. Most of the existing merchants left had when this property became a redevelopment project area when the adjacent freeway was opened. Over time the area's high vacancy rate disappeared. The City then landscaped and upgraded the area into an attractive commercial area. It is no longer blighted. Yet, the City of Lynwood still possesses the power to condemn the profitable businesses. This would include removing a small, but profitable, hotel, and then selling the land to a developer for the development of a major hotel.

A comparable situation is planned for the corner of Hollywood and Vine where property owned by the Metropolitan Transit Authority is being sold to a developer for a large scale, luxury hotel and commercial development. The City of Los Angeles is now seeking to reacquire the right of eminent domain so that it can acquire the privately owned property along Vine which consists of small merchants and a small office building. Though two years ago the property was apparently not "needed" by the developer, the City has now expressly stated that it will use eminent domain to put the existing merchants out of business.

A travesty occurred in Redevelopment Project Area No. 1 in the picturesque, City of South Lake Tahoe I the High Sierra Mountains. There the Redevelopment Agency acquired and demolished 526 family oriented motel rooms so that Embassy Suites could construct a 400-room hotel. More such motel rooms are being demolished to be replaced by the Embassy Vacation Resort, a 210-unit upscale timeshare development. Now there is only one small 28-unit apartment of affordable family housing that remains.

Situations comparable to the above examples are frequent. Problems exist because redevelopment agencies can, and frequently do, redevelop and upgrade an area and then come back and condemn it again for a project that will generate even more tax revenue. Also, redevelopment agencies refuse to follow and abide by the statutory definition of blight. Once blight is established, the entire project area is conclusively presumed to be blighted for the duration of the redevelopment plan, regardless of what happens in the future. (Health & Safety Code § 33368.) State Courts, for the most part, have followed this presumption while, up until Kelo, Federal Courts in California have not.

The Federal/State—Rich/Poor Dichotomies:

The impact of the conclusive presumption is found in an early redevelopment case In Re Redevelopment Plan for Bunker Hill, 61 Cal.2d 21, 71 (1964). In this case the California Supreme Court states that after blight is found to exist, and when the redevelopment agency "seeks to condemn [a parcel of private] property, the matter of public use will have been removed from the issues" at a hearing on a resolution of necessity; i.e., the hearing on the right to acquire the land.

In other words, unless the owner has a certificate of conformity or has a participation or development agreement with the agency, any property in the project area can be condemned at any time during the life of a redevelopment plan. Unfortunate examples of this are found in the cases of Redevelopment Agency of Chula Vista v. Rados Bros., 95 Cal. App.4th 309 (2001) and Huntington Park Redevelopment Agency v. Duncan, 142 Cal. App.3d 17 (1983). In both cases, the property of a smaller, but profitable business was taken by the redevelopment agency to allow the neighboring business to expand.

To avoid this, real property owners in California have sought relief in Federal Court. When the owner's property is clearly not blighted, Federal Courts have held that taking their property is not a Constitutionally permissible public use.

For example, in 99 Cents Only Stores v. Lancaster Redevelopment Agency, 237 F. Supp. 2d 1123 (C.D. Cal. 2001) the City of Lancaster's Redevelopment Agency attempted to acquire the 99 Cents Only store by eminent domain so that Costco could expand its existing big box store into a superstore. 99 Cents Only Stores sued to block the taking and prevailed. The Federal District Court found that 99 Cents Only Stores was not blighted and that the City of Lancaster could not establish the constitutional requirement of permissible public use.

Ironically, both Redevelopment Agency of Chula Vista v. Rados Bros., and 99 Cents Only Stores v. Lancaster Redevelopment Agency are cited by the Supreme Court in Kelo with approval, but for differing and conflicting reasons.

The dichotomy is not simply between Federal and State Court. It is, as stated by Justice O'Connor, between a property owner with substantial resources to pay a highly specialized attorney to challenge the Agency's right to condemn, and the average—or low—income homeowner whose home is the primary, and often the only, family asset. In the latter case the property owner is often afraid to go against the Agency, and is willing to settle for the often inadequate amount the Agency is offering.

Eminent Domain Without Redevelopment:

The Kelo case did not involve redevelopment or blight, only a development plan. Now, after Kelo, without violating the rights of an American citizen, a city or county can use the power of eminent domain simply by creating a "Development Plan" (to ostensibly upgrade an area or neighborhood), and an agency or a development corporation to implement the Development Plan. The new agency or entity will not be funded by property tax revenue, but it can be vested with the power of eminent domain. Development begins when an alternative source of funding is available.

Conclusion:

Cities and Redevelopment Agencies should be required to concentrate on revitalizing areas that have become a physical and economic liability, and not be permitted to redevelop viable areas simply for the gain of tax revenue. There is no reason to assume that California or any other states will have more restrictive standards than the federal one. Unfortunately, the United States Supreme Court has decided that cities can use their power simply as a convenient revenue source. Kelo will unleash local governments to abuse their powers to unimaginable heights.

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