Fighting City Hall: Business Week, Spring 2005

The Supreme Court will soon rule in a landmark battle over eminent domain

By Susan Garland

Edward Hathcock, owner of Gem Products & Supply in Romulus, Mich., was resigned to moving his six-person cabinet-making business. The county government wanted to build an airport extension on his property, and it was using eminent domain — which lets governments acquire private land for public use, as long as the former owners receive "just compensation" — to claim Hathcock's land.

Then Hathcock discovered that some of the land would be used not for an airport but for a private development. Hathcock and his neighbors sued. "I did not consider [the development] to be public use," he says.

Is it? The Supreme Court heard oral argument on that question on Feb. 22. A group of New London (Conn.) landowners came before the Court to prevent their property from becoming part of a riverfront revitalization project, after losing their case in state court in March, 2004. The Supreme Court's ruling, expected this spring, will probably dictate how eminent domain can be used. A ruling for New London would be "devastating" for small businesses, says Scott Bullock, attorney for the Institute of Justice in Washington, which represents the New London property owners.

Traditionally, municipalities have used eminent domain to make way for roads, schools, and hospitals, and to clear blighted areas. Now, cash-strapped cities are more broadly defining "public use" to include private economic development projects expected to generate higher tax receipts and more jobs. "Eminent domain is a critical tool," says David Parkhurst, principal legislative counsel for the National League of Cities.

In theory, any big business will produce more tax revenue than a small one, so a ruling for New London would mean "any small business could be taken for any development," says Bullock. He says six states have upheld the use of eminent domain for private business development, while nine forbid it. The Institute estimates eminent domain was used to try to seize 10,000 properties for private projects from 1998 to 2002.

Hathcock and his neighbors won their case in July. Now it's up to the Supreme Court to decide if other property owners can hold back the forces of big-time development.

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