Courts Challenge Economic Development Actions

The use of tax incentives to lure business and industry and the power of eminent domain – tools long used by states, counties and localities to spur economic development and job growth – are under attack in two separate cases in the federal courts.

The outcome of the cases could have significant and far-reaching impact on state and local economic development programs around the country.

On Sept. 28, the U. S. Supreme Court agreed to hear the case of Kelo v. City of New London. The court will consider the Constitution’s Fifth Amendment limits on the power of eminent domain, the legal process used by governments to acquire private property for various purposes after paying the property owner. The "public use" clause of the amendment states "…nor shall private property be taken for public use without just compensation."

The City of New London, Conn. exercised its eminent domain power to condemn several residential properties in order to allow a mixture of office, recreational facilities and hotels to be built.

At issue in the case is whether the eminent domain power can be used as a means of increasing the tax base to improve the local economy. State courts are divided on the issue. Some have limited the power solely for the purpose of building public infrastructure – roads, courthouses and parks, for example. Others have interpreted the "public use" clause more broadly, allowing the eminent domain power to be used for private redevelopment intended to have long-term economic development benefit.

More here.