Five Years After Kelo
Today marks the five-year anniversary of the U.S. Supreme Court’s notorious Kelo v. New London decision. In a 5-4 ruling, the Court held that seizing private property in order to lease it to a private developer met the Fifth Amendment’s Takings Clause—“nor shall private property be taken for public use, without just compensation”—“public use” requirement. Huh?
The majority’s reasoning was as absurd as their ruling. Rather than expand the public use doctrine, Justice Sandra Day O’Connor wrote in her dissent, the Court decided “to wash out any distinction between private and public use of property—and thereby to effectively delete the words “for public use” from the Takings Clause.”
This terrible story began in 1998, the year pharmaceutical giant Pfizer started construction of a $300 million research campus in New London, Connecticut. The city had been in decline for decades, and was particularly hurt when the Navy closed its Naval Underwater Sound Laboratory in 1990. Desperate for jobs and tax revenue, the city came up with a redevelopment plan focusing on 90 acres in the Fort Trumbull area, adjacent to the new Pfizer facility. The plan called for a mixed-use development, including dining, shopping, and even a hotel near the Thames River waterfront.
The city’s New London Development Corporation was able to purchase all but 15 of the properties required to complete the plan. The city moved to condemn the properties through eminent domain, and nine of the affected property owners filed suit. While the suit was pending, the city began negotiating a 99-year lease with developer Corcoran Jennison. In exchange for developing the land in accordance with the city’s development plan, Corcoran Jennison would pay an annual rent of $1.
The majority opinion, authored by Justice John Paul Stevens, cited three primary cases that bore no resemblance to the facts surrounding Kelo. All were extreme—one regarded a blight condemnation in a Washington, D.C. slum in the 1950s, another involved redistributing private property in Hawaii when 47 percent of land in the state was still controlled by 72 owners, and the last involved an intellectual property case in the chemical industry.
Kelo involved a sleepy, non-blighted residential neighborhood threatened by an unholy alliance of Big Business and Big Government. What the Court sought to establish was that past precedent had broadened the interpretation of “public use” sufficiently to justify the New London takings. Unfortunately, as Justice O’Connor noted, the Court’s interpretation had rendered the protections granted by the Fifth Amendment meaningless.
The outcry following the Court’s opinion was deafening. From across the political spectrum, the public was outraged that homeownership had taken a backseat to corporate welfare. According to polls, nearly 90 percent of Americans opposed the decision. The rest were presumably government officials and rent-seeking private developers.
Municipal planners wrongly believe that they have some sort of predictive power regarding future economic conditions—and that they are able to better plan for the future than actual market participants. This is completely ridiculous. How can a career bureaucrat in local government be in a better position to evaluate economic investment decisions than actual investors who put their own money on the line?
The poorly reasoned Kelo decision did do some good in galvanizing a nation-wide property rights movement, which resulted in the majority of states enacting additional property protections. These efforts are ongoing, with officials facing growing public scrutiny over their land condemnations.
As one might expect, municipal bureaucrats and politicians do not possess economic crystal balls. In November of last year, Pfizer announced it was closing its New London research facility. The increased tax revenue and revitalized mixed-use river district promoted by city officials have yet to materialize, and the area formerly occupied by the Kelo petitioners’ houses is now a bleak landscape home only to feral cats.