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Property grabs and the Gulf
Local governments will likely use eminent domain to rebuild; who will that help?
October 5, 2005: 2:25 PM EDT
By Shaheen Pasha, CNN/Money staff writer

NEW YORK (CNN/Money) - As Hurricane Katrina-ravaged cities begin the laborious process of rebuilding, there is increasing speculation that government officials may turn to the controversial – and often disparaged – use of eminent domain to revitalize the destroyed region.

It's a prospect that's raising eyebrows among critics who fear that land developers will take advantage of the desperation in the region and push devastated homeowners out of their homes in the name of redevelopment.

"We're not talking about using it to build new roads or dams or power lines," said Adrian Moore, vice president of research at Reason Public Policy Institute. "We're talking about giving it to businessmen who promise to build something that they'll profit from and leaders that are so desperate to rebuild that they are willing to do it."

The concern is that developers will seize property and put up housing developments that may not be affordable to the disadvantaged public or build large department stores, such as a Wal-Mart or Target on land that was taken.

Eminent domain is a legal principle that allows the government to take private property for a "public use," such as a school or roads and bridges, in exchange for just compensation based on fair market value.

In June, the Supreme Court's ruling in Kelo v. New London maintained that a city has the right to transfer property from homeowners to private developers to build properties such as residences or businesses. Advocates of the ruling say that these developments will ultimately translate into public benefit by raising the city's tax base, creating jobs and generating revenue that enables cities to provide essential services.

And that is exactly what is needed in the ravaged Gulf Coast, said Bart Peterson, mayor of Indianapolis and an officer of the National League of Cities, which supports the ruling.

"I would expect eminent domain to play a significant role in the rebuilding of New Orleans," Peterson said. "My guess is that it will be used carefully and prudently to make sure that the primary beneficiaries will be the people of New Orleans and not the land speculators."

Brenda Hodge, Senate communication officer at the Louisiana State Senate said both the senate and the state House of Representatives have created committees in recent days to address the post-Katrina use of eminent domain and will be meeting in the next few weeks to discuss the issue.

"Before all hell broke loose, there were those that proposed a change in the state constitution to prohibit using eminent domain for private development," she said. "I don't know if that's changed now."

According to a CNN report, New Orleans Mayor Ray Nagin tried to quash rumors that the city would bulldoze entire neighborhoods without consulting owners. He told reporters on Sept. 30 that the Lower Ninth Ward, a historic but largely poor neighborhood, would be treated respectfully and if the city was forced to do any mass demolitions, he planned to "figure out a proper compensation formula for those homeowners and they move either back in those areas or in an area that is comparable." (For more on that story, click here.)

Ed Gilliland, vice president of advisory services and research at International Economic Development Council said it's unlikely that every property owner in the region will take the government buyout despite potential health and safety concerns, making eminent domain a viable and unavoidable tool for revitalization.

An unpopular prospect

Still public opinion for the Kelo ruling has been decidedly negative. The ruling also sparked a bipartisan bill to deny federal funds to any city or state project that uses eminent domain for private gain. The bill is now before the Senate Judiciary Committee.

There are also concerns that, despite promises, developers are less likely to create truly affordable housing that will benefit lower income residents in the region.

"There is a great opportunity after planning here to create low cost rentals aimed at low and moderate income households," said Bill Hudnut, senior resident fellow at Urban Land Institute, a non-profit research and educational organization. "Eminent domain can be used for legitimate economic and cultural growth in a community."

He added that a developer can't just come in and seize property. Developers must work with the local government and prove that the project will have public benefits before eminent domain can be applied.

But critics fear that government officials can be swayed by promises, especially when developers have political clout.

Reason Public Policy Institute's Moore added that Louisiana may be particularly vulnerable to partner on projects that may not be necessarily in the long-term best interest of the disadvantaged in the state because of the pressure to rebuild. He said before the disaster, the state of Louisiana had actually contemplated restricting eminent domain for private purchase.

"Now there's a desperation down there for highly visible signs of progress which could spur high risk, bolder projects," he said. "But what drives economic development and recovery are entrepreneurial small businesses."

Moore added that if Louisiana implements eminent domain for bigger land development projects in hopes that the private development will create jobs, it may in fact push out the very citizens it hopes to help.

"These projects won't develop jobs for a couple of years and the people with the least opportunities will leave the area," he said. "They aren't going to benefit from the economic development but in the long run, the people that proposed the projects will make a lot of money once the economy recovers."

National League of Cities' Peterson said that while there may be a minor risk that some residents may miss out on the potential economic gains from new jobs in the area by leaving, overwhelmingly there's more potential for jobs by revitalizing a community, introducing new businesses and relocating old businesses to the area from low lying land.

He added that a homeowner would be better off taking a government buyout at market value than falling into the hands of land exploiters looking to buy land cheap and sell high.

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To find out more about the aftermath of the Kelo v. New London ruling, click here.

How does the prospect of eminent domain benefit retailers? Click here to find out.  Top of page

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