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F I S C A L I M P A C T R E P O R T

SPONSOR Cheney

ORIGINAL DATE

LAST UPDATED

2-4-06

2-9-06 HB 746/aHJC

SHORT TITLE

USE OF EMINENT DOMAIN IN ECONOMIC

DEVELOPMENT

SB

ANALYST Hadwiger

Original bill duplicated SB702 and duplicated SB231 and HB27 except for appropriation.

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

New Mexico Department of Environment (NMED)

Economic Development Department (EDD)

SUMMARY

Synopsis of HJC Amendment

The House Judiciary Committee amendment to House Bill 746 narrows the prohibition in the bill

to instances when condemnation is solely to promote private or commercial development. The

amendment also deletes the appropriation.

Synopsis of Original Bill

House Bill 746 would prohibit state or local governments from condemning private property if

the taking is to promote private or commercial development and title to the property is trans-

ferred to another private entity.

The bill also appropriates $20 thousand from the general fund to the Local Government Division

(LGD) of the Department of Finance and Administration (DFA) in FY07 to hold a series of

meetings across the state to educate local public bodies on the proper use of eminent domain

powers.

FISCAL IMPLICATIONS

Additionally, according to DFA, the fiscal implications to municipalities who seek to redevelop

blighted properties in a designated metropolitan redevelopment area are potentially significant.

Not having the ability to exercise eminent domain as a last resort, in order to acquire all property

deemed necessary to redevelop a redevelopment area, may cause a municipality to forego tax

revenues that it would otherwise accrue. The bill also may cause a municipality to not seek

House Bill 746/aHJC – Page

2

funding from sources now opening up for redevelopment purposes, such as tax increment financ-

ing.

SIGNIFICANT ISSUES

The Economic Development Department (EDD) expressed the following concerns about this

bill:

1.

A blanket prohibition of the use of eminent domain would affect the use of the MRA tool

in blighted areas including rail yards, abandoned industrial and manufacturing sites,

Brownfield areas as well as deteriorating and cleared lots operating as commercial areas

in town centers.

2.

The bill presupposes the abuse of eminent domain by municipalities in the state of New

Mexico and dedicates funding to the Local Government Division for an activity and pur-

pose that remains un-clarified as to its necessity.

3.

The bill may also have adverse impact on EDD initiatives such as the Certified Commu-

nities Initiative and the Local Economic Development Act which seeks to prepare com-

munities to partner in infrastructure and capital investments to assist redevelopment of

under-utilized and non performing properties which could be local economic generators

if put back into commercial and other uses.

4.

The bill disrupts the balance between minimizing the burdens on individuals and maxi-

mizing the benefits to the community.

DFA expressed several concerns with regard to this bill. According to DFA, the promotion of

economic development, even if it means allowing public purpose to be advanced through trans-

ferring title of private property to another private entity, which HB746 prohibits, is a long stand-

ing though unused power of New Mexico municipalities. Eminent domain has been a long

standing tool in the economic development toolbox. While it may be a last resort, its presence

enables marketplace-set levels of just compensation to rule, not exorbitant or unreasonable rates

that can prevent community-desired development or redevelopment from occurring.

DFA added that the three laws that allow economic development tools to combat blight – Com-

munity Development Act, Metropolitan Redevelopment Act, and the Urban Development Act –

only allow private gain for a public purpose after a rigorous, open and fair public planning proc-

ess. As noted by certified planners Mark Pellegrini and Donald Poland, “the process should ar-

ticulate the goals for development and the purposes to be served, and consider alternatives both

for the development itself and the mechanisms by which to accomplish it.” Done well, such an

open and participatory process can ensure that a community’s direction is decided by local citi-

zens through their local elected officials, not by state or federal mandates.

According to DFA, HB746, one of 13 bills introduced in the 2006 Legislature in reaction to the

U.S. Supreme Court decision in Kelo vs. New London CT in June 2005 (see below), seeks an-

swers for a problem that does not exist in New Mexico. Nationally, the public's concerns about

the use of eminent domain have involved both issues of condemnation process and just compen-

sation; HB746 addresses neither of these concerns. There have been no reported abuses or prob-

lems in New Mexico with eminent domain. Local governments usually bend over backwards to

accommodate private property owners; for instance, Rio Rancho, when exercising its power on a

1000-acre parcel, only condemned raw land, and it gave vouchers to land owners to obtain lands

plumbed with infrastructure in other parts of the city.

House Bill 746/aHJC – Page

3

DFA noted that New Mexico’s history of the use of eminent domain for economic development

purposes goes back to the 19th century. Each railroad town in New Mexico – including Raton,

Las Vegas, Albuquerque, Belen, Grants, Gallup, Encino, Vaughn, Socorro, Deming, Lordsburg,

Mountainair, Alamogordo, Santa Rosa, Tucumcari, Fort Sumner, Artesia, Bernalillo, Clovis, and

Portales – owes its existence to the outright gift of public lands to private railroads to spur eco-

nomic development. Ironically, rail yard redevelopment efforts at the heart of many of these

communities, if they invoke existing authority such as under the Metropolitan Redevelopment

Act and future funding to be available through tax increment financing, may be made much

harder should legislation pass to prohibit promoting economic development through transferring

title of private property to another private entity as a public purpose. Passage of the bill may re-

sult in putting public entities in the business of redevelopment, a task best left up to the private

sector and inappropriate for the public sector.

DFA indicated the Kelo Supreme Court decision, which acknowledges that there is no “princi-

pled way of distinguishing economic development from the other public purposes that we have

recognized,” reached the following conclusions:

•

Reaffirmed fifty years of takings jurisprudence, rather than broadening the power of emi-

nent domain;

•

Stated that the 5th amendment does not require more than just compensation;

•

Stated that economic development is a public purpose, even when it is not a public use;

•

Equated public use with public purpose as long as just compensation is made;

•

Declared that creation of new jobs and elimination of blight and economic development

are public purposes;

•

Gave deference to local decision makers;

•

Reaffirmed no rigid formulas for determining what public needs such as economic devel-

opment justify the use of eminent domain;

•

Reaffirmed economic development as a traditional local government function;

•

Allowed states to further define eminent domain; and

•

Emphasized a local government plan’s comprehensiveness and the value of coordinating

uses as a whole.

DFA explained that many states now exercising the last of these findings have yet to ground their

redevelopment laws in a clear definition of “blight,” as is done in New Mexico's Community

Development, Metropolitan Redevelopment, and Urban Development Acts. In sum, the bill dis-

rupts the delicate balance between minimizing the burdens on individuals and maximizing the

benefits to the community.

DFA also noted that this is one of many bills, including SJR1, SJR4, SM3, SB370, SB231,HJR7,

HM6, HB746 and HB27, that attempt to restrict the use of economic development as a clear ra-

tionale for use of eminent domain. Each proposal seeks to limit the power of eminent domain in

response to the Kelo v. City of New London decision by the U.S. Supreme Court (125 S.Ct.

2655) so that private property is not taken for a private commercial enterprise or economic de-

velopment or any other private use. Six want to bring the issue to the voters for a constitutional

amendment. SB 231, HB746, HB 27 and this bill seek to prohibit state and local governments

from condemning private property to promote private or commercial development by transfer-

ring the title of the property to another private entity. SB 370 repeals the Community Develop-

ment Act, and amends the Metropolitan Redevelopment Act and Urban Development Act to ex-

clude improper planning or multiple ownership from the legal definition of blight. It removes

House Bill 746/aHJC – Page

4

economic development as a reason to address slum and blighted conditions, along with many

other substantive changes. DFA indicated each of these bills conveys a misconception that, un-

der present rules, a municipality has unlimited powers of condemnation. In the absence of any

discussion about eminent domain abuse in New Mexico, these legislative over-reactions to Kelo

may preclude the implementation of a number of beneficial projects that could create jobs, hous-

ing opportunities and economic growth on lands currently labeled brownfield, blighted, or worse.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

This bill duplicates SB702; duplicates SB231 and HB27 except for appropriation. It also relates

to HJR7, HM6 SB370, SJR1, SJR4.

TECHNICAL ISSUES

DFA and EDD noted that the bill intends to amend the Eminent Domain Code, but there are doz-

ens of laws that authorize the use of condemnation. Three laws (Community Development Act,

Metropolitan Redevelopment Act, and the Urban Development Act) that explicitly include emi-

nent domain as one of the economic development tools used to combat blight, only allow private

gain for a public purpose after a rigorous review, and only after an open and fair public planning

process.

OTHER SUBSTANTIVE ISSUES

EDD noted that this legislation may be in conflict with State Law related to the State Economic

Development Act and the Metropolitan Redevelopment Code. Passage of the bill could lead to

competitive disadvantages with neighboring states doing redevelopment and competing for new

business, creating new jobs. The City of Albuquerque’s Attorney, upon recent review of similar

legislation before the Albuquerque City Council, was that the existing legislation provided ade-

quate protection and legal redress for home owners being removed from their property for eco-

nomic development purposes.

ALTERNATIVES

EDD and DFA noted that HB746 prohibits any use of eminent domain for any case where land

will be conveyed to a private party. However, the issue is too complex, and the potential impacts

too great, to simply enact categorical exclusions. A Legislative task force or interim committee

should study the use of eminent domain and its impact on the state; how the Kelo decision af-

fects state law governing the use of eminent domain in the state; and the overall impact of state

laws governing the use of eminent domain on economic development, residents and local gov-

ernments in New Mexico.

DH/nt:yr