Redevelopment condemnations: a blight or a blessing upon the land?

• Author: Lowenstein, Harold L.

1. INTRODUCTION

   Eminent domain has been a hot topic in legal circles since the U.S. Supreme Court's opinion in Kelo v. City of New London. (1) Issues such as fair compensation, public use, and the role of government in economic development have been discussed widely. The focus of this article, however, is somewhat different.

   This article seeks to provide a practical analysis for the sensitive issue of eminent domain, specifically for situations in which the government seeks to acquire real property via eminent domain in order to foster private redevelopment.

   The power to take private property, conferred by the Constitution and reiterated in state constitutions, is nothing short of awesome. Most states provide that property deemed blighted under that state's statutory definition may be taken for redevelopment regardless of whether the proposed use would qualify as a public use. Of course, eminent domain for redevelopment--the taking of unsanitary or dilapidated property to develop that property for the benefit of the common weal--provides a significant benefit to the community. However, the potential for abuse of this power in the name of an enhanced tax base or other economic goals must be weighed against this benefit.

   Despite the efforts of legislatures to reform eminent domain, the exercise of eminent domain for private redevelopment still confers a concentrated benefit on a few while imposing the costs of such redevelopment on a discrete set of property owners. To remedy this imbalance, and to prevent developers and development agencies from abusing this power, this article proposes that property owners be accorded remedies at the beginning as well as at the end of the eminent domain process. Part II examines the role of blight in eminent domain and suggests redefining blight in concrete terms and providing meaningful judicial review of blight determinations. In Part III, this article discusses the concept of condemnation blight and examines whether a condemnor may be required to pay for the diminution in the property's fair market value--the standard for just compensation, occurring after the declaration of blight and prior to the actual day of taking. This Part suggests that the property owner should be afforded the remedy of seeking damages for condemnation blight to avoid imposing the costs of procedural delay upon the landowner. In discussing these remedies, this article will attempt to suggest practical changes to current Missouri law that will not unduly inhibit redevelopment, nor short-change the property owner.

2. THE BROAD BRUSH OF BLIGHT

   1. Blight Defined and Reviewed

      Since the 2005 Kelo decision, more than thirty states have considered legislation amending or, in some cases, completely redrafting eminent domain statutes. (2) The first wave of reform, primarily during the 2005 legislative sessions, sought to ban condemnation based solely on an economic development rationale. (3) For instance, Missouri Senate Bill 1944, enacted in August 2006, banned the use of eminent domain for purely economic purposes and limited the initiation of eminent domain proceedings to government agencies. (4)

      Most of the eminent domain reform in response to Kelo, including that in Missouri, has not hit the mark. The legislative response, while on its face sufficient to limit the effect of Kelo, is ineffective in addressing eminent domain abuse. Despite widespread eminent domain reform legislation, redevelopment statutes in almost every state retain a loophole--indeed, a legislative back door--to condemnation for economic development in permitting condemnation to eradicate blight. Given that most states define blight in vague and general terms, a finding of blight with regard to a redevelopment area is little more than a procedural hurdle for the developer to overcome.

      More importantly, most economic development incentives in Missouri are focused on blight eradication and require a blight declaration. (5) One of the most popular economic development incentives, Tax Increment Financing ("TIF") (6)--an outgrowth of land clearance for redevelopment policies that permitted cities "to acquire, clear and sell blighted urban property using tax funds to remove blight" (7)--was initially designed to "eradicate blight or, in the alternative, halt the advance of blight." (8) TIF permits a municipality to abate certain property taxes by freezing the property tax value of the subject redevelopment area at a predevelopment level. (9) Thus, redevelopment can be undertaken without raising the general tax burdens. (10) In Missouri, the Real Property Tax Increment Allocation Redevelopment Act (11) requires a finding that "'the redevelopment area on the whole is a blighted area, a conservation area, or an economic development area.'" (12)

      Developers have increasingly viewed economic development incentives, such as TIF, as de rigueur for certain kinds of large scale redevelopment. (13) Securing these incentives has become an integral part of most development projects, and in Kansas City, Missouri, the rate at which they are approved has increased exponentially since the TIF Commission was established in 1982. Only "seven TIF plans were approved between 1982 and 1991[;] eighteen plans were approved between 1992 and 1997." (14) By 2008, the TIF Commission of Kansas City reported more than fifty active TIF redevelopment projects. (15) Because developers are reluctant to undertake large scale or even small scale redevelopment without the benefit of TIF or other like incentives, a finding of blight has become almost ubiquitous where redevelopment occurs. For this reason, very little economic redevelopment occurs without the application of some kind of economic development incentive--incentives that require a finding that the redevelopment area is blighted or in danger of becoming blighted. (16) By extension, therefore, most redevelopment in Missouri is predicated upon a finding of blight. (17)

      Legislation that bans the use of eminent domain for purely economic development without addressing head-on the issue of blight provides property owners little effective protection from condemnation. Defining blight presents a difficult balancing problem for legislators--the definition should be objective and specific enough that it can be applied consistently but not so stringent that it would strangle redevelopment in economically disadvantaged areas. Indeed, one commentator has noted that defining blight is more an art than a science. (18) The problem of statutorily defining blight, however, cannot be ignored. To effectively address eminent domain abuse and afford some meaningful protections to the property owner in a process that historically favors the developer, legislators must take a hard look not only at how blight is defined and applied, but also at the mechanism by which a targeted property owner can challenge a blight declaration.

      To that end, this section presents two approaches to eminent domain reform in Missouri. First, the legislature must redefine blight, balancing the need for flexibility with a more objective and concrete application of the standard. Second, legislation must provide for some form of meaningful judicial review of a blight declaration when challenged by the property owner. Under the current deferential standard, judicial review of a blight declaration is rarely more than a rubber stamp of the finding. By providing a more objective blight standard under which a court can apply the law to the facts, potential abuse of the awesome power of eminent domain can be stopped early in the process, thereby affording meaningful recourse to property owners faced with potential condemnation of their property.

      The tremendous power of the government to take private property is limited by two clauses in the Fifth Amendment--reiterated in state constitutions--requiring that such acquisitions must be for a public purpose and that the property owner must receive just compensation. These limitations have been the subject of intense debate, both within and without the judicial process.

      Traditionally, most states, in interpreting their own constitutions, defined public use as requiring public ownership or public access. (19) Under this approach, eminent domain may only be utilized to appropriate land for a post office, highway, or airport, for example. (20) Over time, however, the traditional approach to public use has been dramatically relaxed.

      The most dramatic relaxation occurred with the advent of urban renewal programs in the first half of the twentieth century. (21) This relaxation was an offshoot of the changing legal definition of public use and the corresponding expansion of what activities could support an eminent domain action. (22) Public use became synonymous with public purpose. (23) To constitute a public benefit, property need not be available to the general public, nor the community, or even any considerable portion of the public, for direct use or enjoyment. (24) Rather, any private use that will ostensibly provide a public benefit, such as an enhanced tax revenue base, is encompassed by the relaxed definition of public use. (25) The expanded public use approach permitted developers to use eminent domain to accumulate real property to build a stadium, a factory, or in some places, even a casino. (26) Thus, the Public Use Clause of the Fifth Amendment no longer places meaningful limitations on the use of eminent domain for private development.

      As the limits of the public use requirement were increasingly expanded, states enacted redevelopment statutes that provided for the condemnation of real property for private development. In light of the burgeoning urban renewal pressures, all but three of the seventeen states that examined the constitutionality of redevelopment statutes upheld the use of eminent domain to condemn private property for private redevelopment. (27) Thus the stage was set for an expanded use of...