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"California Voters Pass Eminent Domain Reform Initiative - But Is There Any Real Reform?"

California Real Estate Journal
By: Rick E. Rayl, Bradford B. Kuhn

In June 2005, the United States Supreme Court announced in Kelo v. City of New London that economic revitalization, by itself, qualifies as a "public use" sufficient to justify the government's use of its broad condemnation power to acquire private property upon payment of just compensation to the owner. In Kelo, the city had embarked on a major redevelopment project involving 115 parcels, including Susette Kelo's house, planning to sell the property to private developers in conjunction with a new research facility Pfizer was constructing. The city claimed that the large-scale redevelopment project would generate many jobs - and lots of tax revenue - and that those goals alone qualified as a public use. In other words, the city did not even offer as a pretext the idea that it was acting, for example, to eliminate blight. And in the now (in)famous decision, the Supreme Court upheld the taking as a proper public use.

What followed in California and around the country can only be characterized as a firestorm. Eminent domain became, overnight, a topic of water cooler conversations at the office, late night talk show bits and intense political debate. Reform efforts occurred within state legislatures and at the polls. Of course, what few people talked about was the fact that many existing state laws, including laws in California, already prohibited the situation that occurred in Kelo. Under California law, for example, condemnation for redevelopment purposes already required a finding of "blight." In other words, pure economic goals would not have justified condemnation in California, even before Kelo.

Nonetheless, in November 2006 California voters decided on a major eminent domain reform effort, Proposition 90, which had held a comfortable lead in most polling data until just weeks before the election. In the end, however, voters turned down Proposition 90, likely reacting to the proposition's broad sweep, much of which extended well beyond the "problem" identified in the Kelo decision. In the meantime, the California Legislature enacted several more modest eminent domain reform bills, which, among other things, narrowed the definition of what constitutes blight, making it more difficult to condemn property for the purpose of turning it over to other private owners.

Public Awareness

But eminent domain reform remained in the public eye, and on June 2, 2008, California voters had another chance to adopt eminent domain reform. This time, they faced two competing ballot measures: Proposition 98, known as the California Property Owners and Farmland Protection Act, and Proposition 99, known as the Homeowners and Private Property Protection Act.

Proposition 98 was intended to restrict the government from using eminent domain to acquire residences, churches, farmland and businesses for the purpose of turning the property over to private developers. But, much like the failed Proposition 90, Proposition 98 advocated radical changes both to eminent domain law and beyond. It sought to narrow what constitutes a "public use" and expand the definition of "just compensation." Perhaps more significantly - and the issue that became the battle cry for the opposition - was that Proposition 98 would have eliminated rent control. Indeed, some of Proposition 98's major supporters were the landlord groups that would have benefited most from its implementation.

Proposition 99 was crafted as a counterproposal to Proposition 98. It was promoted as eliminating the government's ability to condemn residential property for the purpose of turning the property over to a private developer. Its goals were far more modest than those of Proposition 98; its substantive provisions focused solely on protecting owner-occupied homes. The measure contained a provision which stated that if both Propositions 98 and 99 passed, Proposition 99 would trump Proposition 98 as long as it received more votes. This "kill" provision provides some insight into the purpose behind Proposition 99. Indeed, some have opined that if it accomplished nothing more than helping to defeat Proposition 98, its proponents would view it as a success.

Proposition 99 certainly succeeded in its charge of thwarting Proposition 98, and its "kill" provision was not even necessary. With the presidential primary taking place back in February, the June ballot received little attention and near historic low voter turnout. And, apparently, the more dramatic changes in Proposition 98 and, especially, its focus on rent control did not resonate, while Proposition 99's narrower goal did. Proposition 98 failed miserably, with only 39 percent approval, while Proposition 99 passed comfortably with more than 62 percent approval.

We now know Proposition 99 passed, but what will it mean? Unfortunately, press reports of Proposition 99's purported elimination of what is perceived as the most insidious use of eminent domain may have been premature. Again, of course, the actual "problem" identified in Kelo never had been allowed in California. Moreover, while apparently everyone reads Proposition 99's restrictions with little difficulty, they seem to miss the very next provision, which says, in some critics' view, "unless there is blight." In other words, the touted prohibition falls short of actually being a prohibition.

How is this possible? Proposition 99's main provision (the provision the press has touted), reads, quite clearly: "The State and local governments are prohibited from acquiring by eminent domain an owner-occupied residence for the purpose of conveying it to a private person." Before the adoption of Proposition 99, with the appropriate finding of "blight," the government had the specific authority to do exactly what this provision appears to preclude. The reason this "prohibition" may not really prohibit much lies in Proposition 99's immediately following provision, which states that the preclusion does not apply "when State or local government exercises the power of eminent domain for the purpose of protecting public health and safety; preventing serious, repeated criminal activity; responding to an emergency; or remedying environmental contamination that poses a threat to public health and safety." One interpretation of this second provision is that as long as the government is acting in the interests of "public health and safety" (among other reasons), it still can condemn owner-occupied residential property and convey it to a private person. In other words, even though the word "blight" does not appear anywhere within the text of Proposition 99, the concept remains similar. And, since the pre-Proposition 99 definition of blight started by explaining that condemnation to remediate blight should be rooted in redevelopment "in the interest of the heath, safety and general welfare of the people," one cannot help wonder how much "reform" Proposition 99 really entails.

Moreover, Proposition 99's protections are limited to a fairly narrow category: owner-occupiers of single-family homes who have lived in the home for at least one year. In other words, Proposition 99 will not help you if (1) you are a renter, (2) the home is not your principal place of residence, (3) you have not lived in the residence for at least one year, (4) the property is not a single-family dwelling or (5) the condemning agency does not intend to transfer the property to another private owner. Of course, even for owners who fall outside Proposition 99's protection, the government still must make proper blight findings before condemning property for redevelopment purposes (i.e., to convey it to another private party), just as it had to do before Proposition 99.

Even with its narrow scope and potential exceptions, Proposition 99 undoubtedly narrows even further the government's ability to condemn residential property for redevelopment purposes. The "exceptions" listed in Proposition 99 that could still justify such condemnations are narrower than the circumstances that qualify for a blight finding. Perhaps more importantly, especially in the current political climate, one can probably safely assume both (1) that redevelopment agencies will think long and hard before instituting a condemnation action falling within Proposition 99's scope, even if they believe the acquisition will qualify under one of Proposition 99's exemptions, and (2) when one ultimately does go down that path, the courts will not hesitate to scrutinize the justifications offered to support such condemnation.

Next Steps

In the end, we probably should view Proposition 99 as taking the next step in the push to narrow the definition of blight. That push started with the Legislature's 2006 passage of Senate Bill 1206 following the Supreme Court's 2005 Kelo decision. Proposition 99 takes Senate Bill 1206 a step further - but make no mistake, it is a step, not a leap. Fortunately, the issues raised by Kelo never qualified as the serious threat to California homeowners that reform-advocates proclaimed, given already existing California law and the fact that the government simply has not sought to condemn residential property for redevelopment purposes with any frequency. That reality did not, of course, prevent the issue from becoming a political maelstrom following Kelo. Now that the scope of permitted takings has been narrowed through legislative changes and, more recently, through the passage of Proposition 99, perhaps the issue will finally be put to rest.

On the other hand, though Proposition 98's supporters suffered their second setback, they may not retreat quietly into the night. Instead, they may now turn their attention back to the Legislature to seek further protections from eminent domain abuse. In fact, prior to the election, some California legislators were working on several compromise measures that might have resolved the issue, but those efforts stalled when the propositions were placed on the ballot. Whether those compromise measures - or something like them - will come back to life now that the election is over remains to be seen.

Rick Rayl is a partner in Nossaman Guthner Knox & Elliott LLP's Orange County office. Bradford Kuhn is an associate in the same office.
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