Eminent Domain in Minnesota Presentation to [insert] During 2005 and into 2006 there has been and will be a lot of discussion about eminent domain and the U.S. Supreme Court case of Kelo v. New London Connecticut. For local government officials this may be the most discussed ruling in decades. If we didn’t know it before, we have all learned as a result of the public response to the Kelo decision, that private property rights are something we all hold near and dear. And that any government action that affects those rights ought to be undertaken both thoughtfully and carefully. The goal of tonight’s presentation is to update you on proposed legislation that could dramatically alter the way eminent domain is used here in Minnesota. We also want to answer any questions you might have and get your direction on how we should respond to this proposed legislation. The League of Minnesota Cities, the Economic Development Association of Minnesota and NAHRO are coordinating efforts to research this issue on behalf of cities statewide, and we have worked with them to put together this presentation.

What’s the Issue? In a 5-4 split decision, the U.S. Supreme Court held that economic development is a valid “public use” under the Takings Clause of the Fifth Amendment. Critics have implied that this decision expanded eminent domain powers and that no one’s home or business is safe. What’s the issue? In a 5-4 split decision, the U.S. Supreme Court held that economic development is a valid “public use” under the Takings Clause of the Fifth Amendment. Critics have implied that this decision expanded eminent domain powers and that no one’s home or business is safe. This concern is what is driving the proposed legislation.

What’s the Reality? The Kelo decision did not expand local government eminent domain powers. This decision did not empower cities to indiscriminately seize residential and business properties. According to analysis by the League of Minnesota Cities and many other legal folks, the most remarkable thing about the Kelo decision is really just how unremarkable it is. This decision did not create new law either at the federal level or here in Minnesota. Decisions of the both the United State Supreme Court and the Minnesota Supreme Court have long supported the use of eminent domain to further municipal development and redevelopment efforts.

What Kelo Did Do The Kelo decision reaffirmed cities’ authority to use eminent domain to acquire property for economic development. The court found that the acquisition was part of a well-conceived development plan. The court also affirmed that local officials are best suited to determine what local needs justify the use of eminent domain. The Kelo decision affirmed three important principals that have generally been the law of the land for many years. It affirmed that municipal efforts to redevelop property to revitalize a community, provide jobs and enhance the tax base are valid public purpose. It stressed that property acquisition for these purposes must be part of well-conceived development plan. It affirmed that local elected officials are in the best position to determine what local needs justify the use of this power. In Minnesota, this is how the law has been applied.

Eminent Domain in Minnesota Cities may acquire private property through eminent domain for a public purpose, as long as the landowner is paid just compensation. An acquiring authority must establish that the property is needed for a particular, identified public purpose within a reasonable time period. Courts defer to local officials to determine whether an acquisition is for a public purpose. In Minnesota, the law has required that: Cities may acquire private property for public purposes, upon payment of just compensation Cities must establish that the acquisition is necessary to accomplish a particular public purpose Courts have been deferential to the decision making of local government officials.

Public Purposes Authorized in Minnesota Law Minnesota law explicitly authorizes the use of eminent domain to: Eliminate substandard, slum or blighted areas Create affordable housing opportunities Promote jobs Clean-up contaminated areas [This law does not arise as some suggest from an activist court.] In Minnesota, legislative policy has long supported public/private partnerships that have attempted to: rejuvenate distressed neighborhoods, create affordable housing, promote new job opportunities. And support environmental cleanup If we agree these goals are important to the future growth and health of cities, then we should make sure cities have the right tools. Instead the debate is focusing only on one tool which everyone agrees needs some tuning up.

Minnesota Statutory Law Minn. Stat. 469.012 gives HRAs the power to acquire property to eliminate “substandard, slum or blighted areas” or to provide affordable housing. Minn. Stat. 469.012 explicitly give HRAs the authority to acquire property through condemnation to eliminate: Substandard, slum or blighted areas, or to Provide affordable housing

Minnesota Statutory Law Minn. Stat. 469.101 gives economic development authorities the power of eminent domain to acquire property needed to create “economic development districts.” Minn. Stat 469.101 gives communities the authority to condemn property to create “economic development districts”

Minnesota Statutory Law Minn. Stat. 469.124 states that the legislature believes that providing “employment opportunities” and improving the “tax base” are important and that the “execution and financing” of programs to accomplish these purposes are a “public purpose.” Similarly, the Legislature in 469.124 has specifically stated that: Providing employment opportunities; and Improving the tax base are a “public purpose.” The point is that we as a state have long thought that these are worthy public goals that occasionally may necessitate the use of eminent domain.

Eminent Domain Process in Minnesota Condemning authorities must follow the general eminent domain process in Minn. Stat. Chapter 117. Minnesota’s eminent domain process provides several protections for property owners. Let’s talk about the process that acquiring authorities must use when invoking the eminent domain power. Condemning authorities--state agencies, cities, counties, schools, HRAs, EDAs, Port Authorities, utilities, and other entities--must comply with the eminent domain process found in Chapter 117. The law provides several protections for property owners.

Protections for Property Owners In general, the acquiring authority must: Get an appraisal of the property Negotiate in good faith with the property owner Notify the property owner of his/her right to payment of relocation expenses Reimburse up to $1,500 for appraisals for property owner’s own appraisal The rules to protect property owners have minor differences between projects for transportation and other purposes. But in general one can expect the following: The acquiring authority must obtain an appraisal of the property and negotiate in good faith with the property owner to purchase the property before initiating condemnation. It must also notify the property owner of his or her right to receive relocation expenses. It must provide the property owner with up to $1,500 so they can get their own appraisal. This provides an independent second opinion on the value of the property.

Protections for Property Owners Once condemnation has been initiated: The acquiring authority must notify the property owner in writing at least 20 days prior to the initial court hearing An independent commission determines compensation The property owner may appeal the commissioners’ award to district court If an agreement cannot be reached with the property owner(s), the acquiring authority may file a condemnation petition with the court in order to move the project forward. The city must notify the property owner in writing at least 20 days prior to the initial court hearing. The owner may appear in court to object to the condemnation. If the property owner objects to the public purpose and necessity for the acquisition, a separate hearing will be scheduled. If the parties cannot reach a settlement, the court appoints 3 condemnation commissioners to review the evidence and determine the amount of the damage award. If either party disagrees with the commissioners’ determination of just compensation, the decision can be appealed to district court.

Use of Eminent Domain in Minnesota Eminent domain is used sparingly, and as a tool of last resort. 535 cities (84% of respondents) did not use eminent domain for any purpose from January 1999 through June 2005. So how often do cities actually use eminent domain? The League of Minnesota Cities surveyed their members to better understand how cities have used eminent domain authority. League staff also reviewed court case files from Hennepin County and conducted 15 case studies. The survey and case review analyzed eminent domain activity in Minnesota cities over the last 6½ years (since 1999). They received 635 responses from their 824 member cities (77%). The League found that: Eminent domain has been used judiciously and as a tool of last resort. 535 cities (84%) have not used eminent domain at all.

Use of Eminent Domain in Minnesota Only 100 cities (16%) have used eminent domain, for any reason, since January 1999. Only 34 of these cities (5%) have used eminent domain to acquire property that is turned over to another private owner during that 6½ year time period. Only 100 cities (16%) had used eminent domain for any reason during the last 6½ years. 66 cities used it exclusively for uses in which the city would retain control of the property. 34 cities (5%) used it for redevelopment, removal of hazardous buildings, or economic development in which the property was turned over to a private owner. 27 of these cities were in the metropolitan area, mostly in the core cities and older suburbs.

Use of Eminent Domain in Minnesota Throughout Minnesota, eminent domain was used an average of 78 times a year since 1999--only 27 times a year for uses in which the land would be turned over to another private owner. Over the same period there was an average of more than 81,000 real estate sales each year in Minnesota. Now let’s now look at the frequency of eminent domain use. Eminent domain has been used an average of 78 times a year since 1999. Of these 51 times a year on average are for uses in which the city would retain control of the property (such as roads). 27 times a year on average are for redevelopment, removal of hazardous buildings, or economic development. To put this volume of eminent domain usage in perspective, over that same time period there were an average of 81,000 real estate sales each year in Minnesota. Again that’s 27 condemnations for development purposes vs. 81,000 real estate transactions. While local governments have used eminent domain authority judiciously for a host of authorized public purposes, property rights groups have been pushing proposals in the last few years to limit the use of eminent domain.

Brooklyn Park Examples The City utilized eminent domain seven (7) times for public road easements. Brooklyn Park exercised eminent domain six (6) times since 1999 to implement the Village Creek Master Plan/Shingle Creek Corridor Plan. It is helpful to look at some local examples from Brooklyn Park. The city used condemnation for road easements seven times during the period of 1999-2005. In most of these instances eminent domain was used to secure right of way on multiple parcels in a timely manner where the majority of parcels voluntarily agreed to the road improvements. Brooklyn Park has a number of important examples where eminent domain was the essential tool for stopping blight and encouraging job and housing creation. The city spent years planning for the redevelopment of the mostly vacant, run down Village North Shopping Center and surrounding area. The owner, Kraus Anderson, refused to either reinvest in their property or sell it. Despite significant efforts by the EDA to purchase the property, the citizens of Brooklyn Park and their elected officials were ultimately faced with either allowing further crime and decay or taking action.

What was acquired? This photo may remind people of the conditions that existed here. Many remember the rotting roof, empty store fronts, cracked parking lot, and violence. Other photos would show boarded windows on buildings in the area and graffitti. To acquire this site for redevelopment, the city negotiated with all the property owners in the project area. In the end, 14 of the needed properties were acquired voluntarily and 5 through the use of eminent domain. Instead of blight, today there is a family entertainment center and almost 300 units of new housing being built. New retail stores should start coming in later this year. The use of eminent domain allowed this project to go forward. The results provided dramatic benefits for the entire community: Job creation Nearly 300 units of new housing The project will provide 10 times more taxable value (helping to reduce the property tax burden on everyone else in the community) Environmental clean-up (the project eliminates polluted storm water runoff into a nearby creek) A New park & walking trail is being built.

Examples of Current Local Problem Properties There are other examples where the city is working to encourage redevelopment but property owners are absent and neglectful. Councilmembers and staff frequently receive complaints about the vacant gas station at our border with Brooklyn Center on Brooklyn Blvd. The property owner is behind on taxes and has not responded to requests from potential buyers. It is possible that the site is contaminated and poses a public health risk, but a the city is unable to take action short of condemnation through eminent domain in order to ensure public health is protected. If the city acquired the site it would be to ultimately return it to a productive business site. To suggest that this qualifies as taking property from one business to give to another business just does not make sense.

Other Cities’ Examples See attached case studies Need to insert 2 examples from other cites where eminent domain led to great redevelopment. Photo ideal, but not necessary. Best to use a local example of where has been used. Can also use examples of blighted contaminated property the community complains about as to why eminent domain might be important. Brooklyn Park examples are included.

2006 Legislative Session Auto Dealers and Institute for Justice will introduce a new bill in 2006. The League is working with local government groups and other stakeholders, including EDAM, to preserve the responsible use of eminent domain. What can we expect in this year’s legislature? A bill has been introduced that will virtually eliminate the use of eminent domain for redevelopment and economic development. It also contains several provisions that would affect all acquisitions (e.g. compensation for loss of going concern and payment of attorney fees). The bill is supported by the Minnesota Auto Dealers Assoc. and a newly formed property rights coalition—Minnesotans for Eminent Domain Reform—which includes the Institute for Justice, MN Farm Bureau, the Hispanic Commerce, and others.

MADA/IJ Legislation Hampers public-private partnerships that create jobs, alleviate blighted neighborhoods, promote affordable housing, clean-up polluted land, and revitalize distressed areas. As drafted the MADA/IJ bill to limit the use of eminent domain would have three significant impacts. It hampers public-private partnerships that create jobs, alleviate blighted neighborhoods, promote affordable housing, clean-up polluted land, and revitalize distressed areas. The Automobile Dealers’ proposal prohibits the use of eminent domain for economic development and restricts the use of eminent domain to assemble parcels needed for redevelopment. Cities could no longer use this tool to facilitate public-private partnerships that create jobs and spur growth in economically distressed areas. The restrictions in their bill also establish unworkable standards that would adversely affect the ability of cities to partner with businesses and residents to revitalize aging neighborhoods, promote affordable housing, and clean-up polluted land. By severely limiting this tool, their bill would essentially give a single property owner the ability to block a development project supported by the entire community.

MADA/IJ Legislation Takes decision-making out of the hands of the elected officials most familiar with local needs. Undermines the negotiation process and significantly increases the cost to taxpayers for public projects. Second, it takes decision-making out of the hands of the elected officials most familiar with local needs. The Automobile Dealers’ proposal requires the courts to review eminent domain challenges with a higher level of scrutiny, instead of the usual deference given to legislative actions. Their proposal would apply this higher standard of review to all acquisitions, not just those that involve property that is acquired for redevelopment and economic development. Giving the courts a much more active role would create uncertainty in the process since no one knows what a particular judge might deem a public purpose. The legislation could basically prohibit creation of new public improvements such as parks or bridges or fire stations. Third, the Auto Dealers bill undermines the negotiation process and significantly increase the cost to taxpayers for public projects. The law currently requires cities to pay “just compensation” and provide relocation benefits to displaced property owners. The Automobile Dealers’ bill creates an imbalance in the process that would keep property owners from coming to the table to negotiate with government entities. Requiring an acquiring authority to pay property owners’ attorney fees and costs and additional compensation to businesses, as determined by a condemnation commission or court, would significantly increase the cost to taxpayers for all property acquisitions, including acquisitions for roads, utilities, and public facilities. Property owners should be made whole, but the Automobile Dealers’ proposal would provide incentives to always fight public improvements.

Local Government Bill Procedural changes to provide a more transparent and predictable process Tighter definition of “blight” with a possible exception for economic development and affordable housing development projects that involve state financial assistance Provisions requiring increased compensation The League of Cities is preparing a proposal to improve eminent domain processes and clarify which public purposes authorized in law justify the use of eminent domain. These include: Procedural changes to provide a more transparent and predictable process for all acquisitions under Minn. Stat. 117. A list of specific purposes for which an acquiring authority may exercise eminent domain under Minn. Stat. 469, such as: remedying an environmentally contaminated area; removing a public nuisance; mitigating a blighted area; or developing affordable housing that is eligible for state or local financial assistance. Clearer, more objective criteria for determining "blight" for the purposes of using eminent domain. Prohibiting the use of eminent domain for economic development, unless the development involves state financial assistance. Possible compensation provisions that acknowledge property owners costs, but don't remove incentives to negotiate.

What’s Next? The legislature is poised to act. First public hearing was in the House Civil Law Committee on January 11. The League and other stakeholders, including EDAM, are working to defend and preserve the responsible use of eminent domain. Eminent domain is an emotional and politically-charged issue. Given this reality, the legislature is poised to act on a bill that will restrict the use of eminent domain. The first public hearing on this issue will be in the House Civil Law Committee. That committee will meet on January 11th in Blaine to take-up a bill that removes authority of local communities to use eminent domain. The chair of the committee, Rep. Jeff Johnson, will be the chief author of the bill. The League and other stakeholders are working to defend and preserve the responsible use of eminent domain. The League is preparing testimony to discuss redevelopment and economic development projects and demonstrate the many public benefits that have been achieved under this statutory authority: Development of affordable housing Redevelopment of blighted areas Contamination clean-up Economic development that grows jobs and the state’s economy

Conclusion The power of eminent domain has been used as a last resort and very rarely. It remains a critical tool for achieving the citizens goals for a healthy, financially strong community. As the research demonstrates the power of eminent domain has been used as a last resort and very rarely. It remains a critical tool for achieving the citizens goals for a healthy, financially strong community. Redevelopment is in the public’s interest, just like a road or bridge, and is a tool for combating sprawl and reducing tax payer costs for infrastructure. As identified there are important improvements to be made to increase transparency and simplify the process. Clearly community leaders are committed to balancing the rights of property owners with the changing needs of citizens. With this information we are open to receive questions and receive any direction from the EDA as to next steps.

Additional Information Re: Case Law [The following slides are just extra info for those who want case law if you have a group that’s lawyer heavy.]

Minnesota Case Law St. Paul HRA v. Schapiro (1973) MN Supreme Court upheld the acquisition of private property that would be cleared and turned over to a private developer. Specific property acquired was not substandard, but was located on a block with many substandard buildings. In 1973, our Minnesota Supreme Court upheld the city of St. Paul’s use of eminent domain to acquire property that would be cleared and turned over to a private developer In this case, the acquisition was part of an “urban renewal development project.” While Schapiro’s furniture store was not designated as substandard, 9 of the 14 other properties on the block were substandard. The Courts stated: “The acquisition and clearing of blighted areas itself serves a public purpose, and subsequent transfer of such lands to private parties is incidental to the main public purpose.” The Court further said: “The problem of eliminating blighted parts of a community may be attacked on an area basis rather than a structure by structure basis.”

Minnesota Case Law Minneapolis v. Wurtele (1980) MN Supreme Court affirmed state law that allows municipalities to designate areas that are not blighted—but that show a trend toward blight—as development districts, and to acquire property in these districts through eminent domain. In a 1980 case, the Minnesota Supreme Court affirmed the authority of Minneapolis to condemn properties that showed a “trend towards blight.” In this case, the court sustained Minneapolis’ City Center project finding that while the property was not yet blighted, the property did show a “trend toward decreasing economic utility and tax base.” The Court sustained the city’s findings that: “Revitalization of the area was essential to maintain downtown Minneapolis as a viable business district, and this revitalization could not be achieved by private developers without public action.”

Minnesota Case Law Duluth v. Paulucci (1986) MN Supreme Court upheld the city’s use of eminent domain to acquire industrial property to construct a paper mill. The acquisition was not based on a claim of blight. In this 1986 decision, the Minnesota Supreme Court upheld the City of Duluth’s condemnation of a food processing plant in order to assemble property for a paper mill operation. The city wanted to revitalize the land because of “undeveloped, abandoned and tax-forfeited property, including a ‘toxic waste dump’.” The Court supported the acquisition of the property based on the city’s findings that the area was otherwise unsuitable for development.

Minnesota Case Law Minneapolis Community Development Agency v. Opus (1998) MN Court of Appeals upheld the acquisition of property in downtown Minneapolis for a mixed-use development. The court rejected the argument that it should apply a heightened scrutiny test to acquisitions that benefit a private interest. In this 1998 case, the Minnesota Court of Appeals sustained the City of Minneapolis Community Development Agency’s effort to condemn property for a mixed use development along Nicollet Mall. The Court, citing 469.124 that we looked at earlier, stated: “action taken to foster new development, including financing thereof, in order to provide employment opportunities, to improve the tax base, and to improve the general economy of the state” are examples of a public purpose. The Court pointed to the city’s testimony about the following “public benefit”: Mid-priced retail store Increased parking Increased employment Increased tax base Extension of the skyway system Unification of multiple ownership parcelization of the area Modernization of outdated and incompatible buildings.

Minnesota Case Law Lino Lakes Economic Development Authority v. Reiling (2000) MN Court of Appeals upheld the condemnation of land to create an “economic development district.” The city had found that many of the parcels were “small, oddly shaped, and encumbered by rights of way and access restrictions.” And in 2000, the Minnesota Court of Appeals upheld the City of Lino Lakes EDA’s condemnation of four undeveloped parcels in order to create an economic development district. The Courts sustained the EDA’s finding that the acquisition of “small, oddly shaped” parcels “encumbered by rights of way and access restrictions” was necessary to “make feasible the economic development of the property.” The Court said “actions required to assist in implementing economic development programs are a public purpose.”

Minnesota Case Law Richfield HRA v. Walser Auto Sales (2002) In 2001, the MN Court of Appeals affirmed state law when it found that Richfield’s condemnation of property in order to facilitate redevelopment and to make way for the new Best Buy headquarters constituted a legitimate public purpose. In 2002, the MN Supreme Court, in a 3-3 split decision, let the Court of Appeals’ decision stand. Then finally in 2002, we have the Walser decision in which the Courts sustained the Richfield HRA’s decision to condemn the Wasler Auto Dealership in order to assemble parcels to redevelop the Northwest quadrant of I-35 and I-494 in Richfield, to make way for the Best Buy Corporate Headquarters. There are four interesting aspects of this decision that you might not know about: This was a redevelopment project in which the city was eliminating many “blighted parcels” Almost all of the property owners, except Walser, ended up voluntarily selling to the HRA MnDOT plans for the expansion of 494 would have run the highway directly through Walser’s property Walser received millions of dollars as fair compensation and was in fact relocated to another location Again, the purpose of this discussion is not to suggest that the law in this area can not be changed, but simply to reaffirm that the Kelo decision did nothing to change existing law in Minnesota. In the name of private property rights, it may sound appealing to give individual property owners the right to effectively thwart these goals, but I’m not so sure that one court case should necessarily trigger a wholesale reversal of what has been public policy in this state for many years.