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RECENT DEVELOPMENTS IN TAKINGS LAW

 

Economic Development is a Valid Public Use


The Supreme Court's decision inKelo v City of New London, 125 S Ct 2655; 162 L Ed 2d 439 (2005) (hereinafter Kelo) elicited much media coverage and legislative response. This article briefly reviews the Kelo case and summarizes the legislative responses to that case in Illinois, Indiana, and Wisconsin.


Because the city of New London was in a state of economic decline, the New London Development Corporation (NLDC) was called upon to develop some strategies to revitalize the area. In time, Pfizer, Inc., announced that it was willing to build a $300 million research facility in the area. As such, the NLDC created a plan that capitalized on Pfizer's arrival by creating jobs, generating tax revenue and revitalizing downtown New London. After receiving state approval, the NLDC finalized an integrated development plan that focused on 90 acres of property within New London.


To successfully implement the development plan, the New London city council authorized the NLDC to either purchase property or to acquire property through the power of eminent domain in the city's name. When Susette Kelo and eight other property owners refused to sell their land, the NLDC initiated condemnation proceedings on their property. There were no allegations that any of these properties were blighted or in otherwise poor condition; they were condemned only because they were located in the area slated for economic development. As such, Kelo and the other property owners brought suit, claiming that the taking offended the public use restriction of the Fifth Amendment.


After it held that the city could not take the petitioners' land simply to confer a private benefit on another private party, the U.S. Supreme Court moved on to consider whether the city's decision to take property for economic development satisfied the public use requirement of the Constitution. The Court held that the "use by the public" test was hard to define and impractical given the evolving needs of society.Id.at 2662. When applying the Fifth Amendment, it is perfectly acceptable to define "public use as public purpose." In effect, the Court defined public use broadly, which reflected its longstanding policy of giving legislatures deference in determining which public needs justify a taking. "It is within the power of the legislature to determine that the community should be beautiful as well as healthy, spacious as well as clean, well-balanced as well as carefully patrolled."Id.at 2663. The Court further held that promoting economic development was a traditional function of government, and as such, could be justified as a public purpose.Id.at 2665.


The Court ultimately found that the city's rejuvenation plan was entitled to deference, even though the subject area was not blighted. The Court also found that the city's "carefully formulated" plan would provide many benefits to the community, including new jobs and increased tax revenue. Thus, because the economic development plan served a public interest, the takings satisfied the Fifth Amendment.


In rendering its decision, the Court emphasized that its opinion and authority were restricted to the definition of public use within the meaning of the Fifth Amendment. "We emphasize that nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power. Indeed many States impose "public use" requirement that are stricter than the federal baseline."Id.at 2668. In essence, it appears thatKeloprovides a basic framework for determining when a taking satisfies a public use, which states are free to expand upon.

Types of Government Takings


The first branch of taking law is that of regulatory taking and is an example of how the scope of eminent domain is expanding. Governments are permitted to regulate private property for public purposes such as the widening of subdivision streets, creating bike paths, and installing storm-detention ponds. Although a government may control property to a certain extent, "if regulation goes too far it will be recognized as a taking."Pennsylvania Coal Company v Mahon, 260 U.S. 393, 415 (1922). In a regulatory taking, the effect of regulation is the same as if the government had formally condemned the property. Government actions will be deemed per se takings in two instances. "First, where government requires an owner to suffer a permanent physical invasion of her property."Lingle v Chevron U.S.A. Inc., 544 U.S. 528, 538; 125 S.Ct. 2074; 161 L.Ed. 2d 876 (2005). The second instance applies to "regulations that completely deprive an owner of "all economically beneficial use" of her property."Id.In their suits, property owners have the burden of proving their assertion of a regulatory taking to the satisfaction of a court before they are eligible for compensation.


The second branch of taking law is that of a physical taking or eminent domain, the type of taking at issue in Kelo. Eminent domain is the power of a sovereign state to physically take private property for public use as long as just compensation is provided. Historically, physical takings were exercised for projects such as parks, hospitals, schools, highways, and common carrier transportation, such as railroads and airports.United States v Chicago, 48 U.S. 185, 194 (1849). However, over the years courts have given legislatures significant deference in defining what constitutes a public use.Kelo, 125 S. Ct. at 2663. Indeed, much of the backlash surroundingKelois because many believe that the Supreme Court has sanctioned property to be seized under eminent domain for what is essentially a private purpose, by validating economic development as a public use.

Illinois' Takings Law

In General

Although Illinois has the power to acquire private property, this power is limited by various sources. There are three prerequisites to exercising the power of eminent domain. First, the condemning authority must have the statutory authority to acquire private property.Dep't. of Transp. v First Galesburg Nat'l Bank & Trust Co., 141 Ill 2d 462, 468; 566 NE2d 254; 152 Ill Dec 567 (Ill 1990) (hereinafter Galesburg). Second, the taking must basically be for a public use.Chicago v Barnes, 30 Ill 2d 255, 257; 195 NE2d 696 (Ill 1964). Third, the taking must be necessary.People ex. Dir. of Fin. v Young Women's Christian Ass'n of Springfield, 86 Ill 2d 219, 233; 427 NE2d 70; 55 Ill Dec 950 (Ill 1981).

Illinois Constitution and Statutes

The Illinois Constitution provides that "[p]rivate property shall not be taken or damaged for public use without just compensation as provided by law." Ill. Const. Art. I § 15. Likewise, the Illinois Code of Civil Procedure details that private property should be taken only for a public use and with just compensation. 735 ILCS 5/7-101 through 5/7-102. However, some entities have the power to acquire property through a "quick-take" procedure. 735 ILCS 5/7-103. Currently, more than one hundred entities have the right to quick-take. 735 ILCS 5/7-103.1 through 5/7-103.148. Quick-take is a remedy used when land is immediately needed. However, even the powers available under quick-take are limited to public projects.


In addition, the Tax Increment Allocation Redevelopment Act (TIAR Act) provides Illinois municipalities with the power to take property only if the area meets the definition of a "Blighted area" and/or a "Conservation area." 65 ILCS 5/11-74.4-1,et seq. The TIAR Act sets out specific requirements to qualify as a Blighted area or a Conservation Area, such as building dilapidation or deterioration. The TIAR Act also requires that due process be met through public notices and public hearings. Further, the municipality must adopt a carefully considered redevelopment plan, which demonstrates that the area subject to redevelopment has not grown and is not expected to develop through private investment alone, such that it is necessary for the municipality to intervene.


Although the state legislature has conferred the power of eminent domain to many of its municipalities, any law delegating the right of eminent domain is strictly construed and the court will strike down any improper use of this power.Galesburg, 141 Ill 2d at 469. Therefore, before a municipality can exercise the power of eminent domain, it has to ensure that the taking is for an appropriate public use.

Illinois Case Law: A Valid Public Use Is Needed

Two and a half years beforeKelowas decided, the Illinois Supreme Court considered the power of eminent domain inSouthwest Illinois Dev. Auth. v Nat'l City Env't, 199 Ill 2d 225; 768 NE2d 1; 263 Ill Dec 241 (Ill 2002) (hereinafterSWIDA). The Illinois General Assembly createdSWIDAto curb unemployment and to enhance public health, safety, and happiness. It is a political entity empowered to issue bonds for various development projects. In this case, a developer wished to acquire National City Environment's (NCE) land to expand parking for a racetrack and askedSWIDAto exercise its quick-take eminent domain powers to transfer the land in its name. After performing all the necessary procedural steps,SWIDAconveyed title to the property by way of a quitclaim deed to the developer and NCE appealed.


The court held that that the taking inSWIDAwas unconstitutional because the land was not put to a public use. In fact, the court stated thatSWIDAwas merely acting as a default broker of land for a private developer. The court held that a purely private taking would not be allowed under the public use requirement of the Illinois constitution. In contrast to Kelo, the court also held that there is a distinction between "public use" and "public purpose." In effect, any taking in Illinois must have a valid public use behind it, such that "the public must be to some extent entitled to use or enjoy the property, not as a mere favor or by permission of the owner, but by right."Id.at 237.

State Responses to Kelo

Illinois

The Illinois legislature's response toKelocan be found at 735 ILCS 30,et seq., called the "Eminent Domain Act" (hereinafter "the Act"), which took effect on January 1, 2007. The Act rewrites Illinois' eminent domain law. In particular, the Act dictates that a condemning authority may not take property unless it is for a qualified public use. 735 ILCS 30/5-5-5(a). Further, there is a rebuttable presumption that the elimination of blight is a valid pubic purpose. 735 ILCS 30/5-5-5. The Act then goes on to provide that if the use of eminent domain is to acquire property for both public ownership and control, the condemning authority is required to prove that the acquisition of the property is for a valid public purpose and that the property will be owned or controlled by the condemning body or another governmental entity.Id.at 5-5-5(b).


If the taking is for a private ownership or control, the condemning authority must prove, under a standard of clear and convincing evidence, that the property will be used for the benefit and enjoyment of the public and the taking is necessary for a public purpose. 735 ILCS 30/5-5-5(c). Further, the legislation also prohibits all takings under the power of eminent domain unless the property is within an area that is blighted, the acquisition of the land by a private person is necessary for a public purpose, and the condemning authority has entered into a written agreement with a private person or entity that agrees to undertake a development project and details the reasons for which the specific property is needed for the success of the development project. 735 ILCS 30/5-5-5(d).


Although proponents of the Act say that the legislation is a response to Kelo, many contend that it is unnecessary becauseSWIDAheld that a taking for a public purpose does not equate to the constitutional requirement of public use. Helen W. Gunnarsson,The General Assembly rewrites eminent domain law, 94 Ill BJ 280 (2006). Further, the seminal question remains as to whether economic development alone would be upheld under Illinois law as a valid public purpose. Ronald S. Cope,Kelo v. City of New London-How Safe Is Your Castle?, 94 Ill BJ 186, 191 (2006). Although Illinois' eminent domain practice is not as expansive as that allowed in Kelo, it is unclear how the Illinois Supreme Court will react to a situation similar to Kelo. In effect, it is yet to be seen whether Illinois will go over the "federal baseline" when determining which public uses justify a taking. Kelo, 125 S Ct at 2668. Only time will tell if solely economic development will satisfy the public use requirement in Illinois.

Indiana

Effective March 24, 2006, the Indiana legislature passed their response to Kelo, found in IC 32-24-4.5. Entitled "Procedures for Transferring Ownership or Control of Real Property between Private Persons," this new chapter of Indiana's Eminent Domain legislation provides a definition of public use, which constitutes the "possession, occupation, and enjoyment of a parcel of real estate by the general public or a public agency for the purpose of providing the general public with fundamental services…" IC 32-24-4.5-1(a)(1).


Further, the statute provides that public use does not encompass the public benefit of economic development, including an increase in the tax base, tax revenues, employment, or overall economic health. The statute also provides that eminent domain may be exercised only when one of the following conditions are met, where the parcel is: a public nuisance; unfit for human habitation; a fire hazard or otherwise dangerous; not equipped with utilities, sewerage or other like facilities; neglected or without maintenance; environmentally contaminated and a resulting threat to public safety; or abandoned. IC 32-24-4.5-7(1)(A)-(H).

Wisconsin

Wisconsin's response toKelocan be found in Wis. Stat. § 32.03, which became effective on or about April 13, 2006. Pursuant to Section 32.02, a municipality was able to condemn property for "any lawful purpose," so Section 32.03 articulates the instances when condemnation may not be exercised. In specific, part (b) of Section 32.03 states that non-blighted property may not be acquired by an entity authorized to condemn property if the condemnor intends to transfer, convey or lease the property to a private entity. Wis. Stat. § 32.03(6)(b).


Also, before condemning the property that is intended to be conveyed or leased to a private party, the condemnor is required to make the following findings and provide a written copy of the findings to the current owners: (1) the scope of the redevelopment project containing the owner's property; (2) a legal description of the redevelopment area; (3) the purpose of the condemnation; and (4) a finding that the property is blighted, accompanied by reasons for this finding.Id.at (6)(c)(1)-(4). Further, the statute the provides that "blighted property" means property that has been abandoned, deteriorated, aged or obsolete, as well as property that has been inadequately provided with light, air, ventilation or sanitation, property that is unsafe or unsanitary or is a general detriment to the public health, safety and welfare, among others.Id.at (6)(a).


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