By Larry Jones
December 12, 2005

Under a new law signed by President George Bush on November 30, local governments will have to operate under more stringent restrictions when using eminent domain to take private property for economic development. Tucked away in the 2006 Transportation, Treasury, Housing and Urban Development Appropriations bill is a provision that prohibits the use of federal funds in connection with local projects that use eminent domain to take private property for economic development “that primarily benefits private entities.” While this provision leaves the door open for projects that do not primarily benefit private entities, it is unclear how this will be determined. Federal guidance and regulations will be needed to clarify what is permissible.

Under the new law, federal funds may continue to be used in connection with state and local use of eminent domain in obtaining private property needed to support infrastructure projects that serve the general public and are subject to government regulation and oversight. These include mass transit projects, railroads, airports, seaports, highway projects, utility projects, and projects for the removal of an immediate threat to public health and safety or brownfields.

The new legislation also calls for a study on the nationwide use of eminent domain to be conducted by the Government Accountability Office in consultation with the National Academy of Public Administration, as well as organizations like the Conference that represents state and local governments, and property rights organizations. The study, which must be submitted to Congress within twelve months, will focus on the procedures used and the results accomplished on a state-by'state basis as well as the impact on individual property owners and affected communities.

Local government groups successfully lobbied for the study and believe it is necessary amid claims that local governments are abusing the power of eminent domain at the expense of private property owners. Members of Congress agreed to include language requiring a study after state and local government groups argued convincingly that members of Congress should first look objectively at how state and local governments are using eminent domain before deciding to make any long-term changes in this area.

In light of widespread public opposition to the Supreme Court’s decision last June in Kelo v. City of New London, which affirmed the city’s use of eminent domain in taking private property for economic development, the House and Senate moved quickly to adopt separate proposal in response to numerous claims that the decision expanded local governments’ ability to abuse eminent domain. At issue in the case was whether or not economic development serves a “public use,” as required under the Fifth Amendment Takings Clause. The Court agreed that the city’s use of economic development, which produces more jobs and tax revenues for the city and it residents serves a public use.

The Senate adopted a temporary fix since the restriction was included in an appropriations measure that will remain in effect only through fiscal year 2006. It restricts local use of federal funds in connection with projects that use eminent domain to take private for economic development that primarily benefits private entities. The House adopted a permanent, much more restrictive measure that goes beyond restricting local use of federal funds. It prohibits local governments from using eminent domain to take private property for economic development if they receive any federal economic development assistance. The prohibition applies regardless of whether such assistance is used in connection with projects that use eminent domain. If a city violates this prohibition, it will be ineligible for economic development assistance for two years.

The final compromise followed the Senate version of the bill. It is unclear if congressional leaders will attempt to pass a permanent, more restrictive measure like the House version of the bill next year. A companion bill, S. 611, has been introduced in the Senate but not action was taken. Local groups have urged members to delay further action until the study is completed and Congress is provided the information it needs to make an informed decision on whether any changes are necessary.