Steven P. Lanza

English

Research Papers in Economics

WINTER 2006  THE CONNECTICUT ECONOMY 9
BY STEVEN P. LANZA
The U.S. Supreme Court’s decision in
Kelo v. City of New London did more
than vault Connecticut onto the front
pages of newspapers nationwide.  It
also affirmed earlier decisions recog-
nizing governments’ power to take
property for economic development
purposes.  By the Court’s own admis-
sion, however, nothing in the decision
keeps states from restricting the use
of eminent domain.  And in the con-
troversy surrounding the Court’s deci-
sion, many have done or are doing so.
As Connecticut now wrestles with its
own legislative proposals to limit this
power, it is worth examining the fac-
tors that influence governments’ use
of eminent domain and asking
whether legal restrictions make any
sense.  My analysis suggests that
efforts to curb governments’ power to
condemn property may well not pro-
duce their intended effect.
Under the power of eminent
domain, governments at all levels can
take or authorize the taking of private
property for public use without con-
sent, provided owners are compensat-
ed fairly.  As Miceli and Sergerson
argue (p. 4), the ability to condemn
property helps governments solve the
so-called “holdout” problem, where
owners who know their properties are
crucial to a project strategically refuse
to sell in hopes of eventually pocketing
prices far above fair market value.  The
crux of the Kelo case, however, was
whether taking property from one pri-
vate party and turning it over to
another, on the promise of certain
public benefits, constitutes valid “pub-
lic use.” 
WHO TAKES WHAT?
Nine states formally permit prop-
erty to be taken for development pur-
poses either by constitutional precept
or judicial precedent; Connecticut and
several neighbors (New York, New
Jersey, and Massachusetts) are among
them. At the time of Kelo, six states
expressly prohibited the exercise of
eminent domain for development pur-
poses, including Maine and New
Hampshire, but in reaction to the
decision Alabama and Texas have since
joined this group.
Hard data on the prevalence of
takings aren’t easy to come by.  But a
recent report by the Castle Coalition, a
group that supported the homeowners
in the Kelo case, provides figures on the
number of condemnations by state
between 1998 and 2002 for the 23
states for which records are available.
Florida topped the list with 14,319
condemnations; California was next
with 5,583, followed by Illinois with
4,525.  Connecticut, which placed
ninth with 1,819, is the only state to
distinguish takings for public purposes
(70% of the total) from takings for
private, redevelopment purposes (30%
of the total). 
A better measure of the incidence
of eminent domain use would control
for population, since larger states like
California with more residents are
bound to have more takings.
Adjusting for population, states like
California and Illinois move down the
list, while smaller states like
Connecticut and Arkansas move up.
Florida remains number one with 9
takings per 10,000 people (1998-
2002), while Arkansas climbs from
tenth to second (6.3 takings per
10,000 people).  Connecticut moves
My analysis suggests that
efforts to curb 
governments’ power to
condemn property may
well not produce 
their intended effect.
An Offer You Can’t Refuse
WHY DO CONNECTICUT AND OTHER STATES 
USE EMINENT DOMAIN?10 THE CONNECTICUT ECONOMY WINTER 2006
up to fifth, with 5.3 takings per
10,000—about twice the 23-state
average of 2.6.
THE LIKELY SUSPECTS
What accounts for the variation in
eminent domain use across states?  The
status of the law is one likely candidate.
It is possible, for example, that at least
some of Connecticut’s 543 “redevelop-
ment” condemnations during 1998-
2002 would not have gone ahead if the
state’s constitution had not expressly
permitted takings for economic devel-
opment purposes.  
And if a significant share of gov-
ernment takings is devoted to econom-
ic development, the number of con-
demnations might depend on the
health of the economy. The direction of
the likely effect is, however, ambigu-
ous, since eminent domain could just
as easily fuel an already-expanding
economy as jumpstart one that is
moribund.
The financial fitness of government
and the prices of area properties are also
possibilities. Invoking eminent
domain could be a substitute for the
free-market purchase of private prop-
erty.  And the market demand for
property, like most other goods, will
tend to vary positively with wealth or
income and negatively with price.
Thus, a government is apt to rely more
on the market and less on takings if its
fiscal health is better and property
prices are lower.  
Takings, of course, are formal legal
processes and consequently may
depend on the litigiousness of society.
On the one hand, litigation raises the
expected cost of a condemnation and
hence should discourage the use of
eminent domain.  On the other hand,
a state with a predisposition for litiga-
tion may be more inclined to use legal
rather than market processes to resolve
disputes.
Finally, to the extent eminent
domain helps solve the “holdout”
problem, the incidence of takings
should depend on population density.
As an area becomes more densely set-
tled and ownership patterns more frac-
tured, bargaining is likely to grow
more complex.  If takings reduce trans-
action costs, they ought to vary posi-
tively with population density.
WHAT MATTERS MOST?
Using least-squares, multivariate
regression techniques, I tested the rela-
tionship between measures of each of
the above factors and the number of
government takings per capita by state
for the 1998-2002 period.  The results
appear in the table on the next page;
asterisks denote statistically significant
coefficients.
As expected, the incidence of tak-
ings depends on wealth and income
factors.  Wealthier states are likely to
have higher levels of state and local
spending per capita.  And according to
my model, a one-percent increase in
per capita spending leads to a 4.3 per-
cent decrease in government takings,
as the greater fiscal resources allow
governments to pursue market pur-
chases of property more easily.  
Federal grants, some of which are
earmarked for housing and urban
development, are another source of
public funding.  In my model, the
incidence of takings varies inversely
with the level of such funding.  A one-
percent increase in federal urban devel-
opment grants per housing unit is
associated with a 5.3 percent decrease
in the incidence of takings.
Takings depend on property val-
ues as well.  A one-percent rise in
home prices is accompanied by a 2.2
percent increase in takings, as higher
prices encourage governments to turn
to the non-market acquisition of prop-
erty.
As expected, litigiousness seems to
matter too.  A one-percent increase in
the number of legal workers per capi-
ta—somebody has to bring all those
suits—is associated with a 3.4 percent
rise in the incidence of takings.
Presumably, a larger share of employ-
ment in the law reflects a local predis-
position toward legal, rather than mar-
ket, resolution of conflict.
Several factors that were expected
to influence governments’ use of emi-
nent domain appear to have no effect.
The coefficients on the variables for
the status of takings law, economic
performance, and population density
are all statistically insignificant (denot-
ed by the absence of an asterisk).  
Particularly noteworthy is the lack
of a significant relationship between
the incidence of takings and the status
of takings law.  The frequency of emi-
nent domain use doesn’t seem to
depend on whether the law expressly
permits the condemnation of property
for development purposes.  Why
might that be?  
One possibility is that govern-
ments can use other grounds to take
property.  It is common, for example,
for governments to justify condemn-
ing property to eliminate “blight,” and
then allow new private development to
take its place.  As is often the case, con-
straining behavior along one margin of
TAKINGS PER 
10,000 RESIDENTS,
1998-2002WINTER 2006  THE CONNECTICUT ECONOMY 11
activity simply shifts it to another, less
regulated margin.
WHAT IT MEANS
Combined, the seven variables in
my model account for about 44% of
the total variation in the data.
(Dropping the insignificant variables
boosts the explanatory power to about
48%.)  That means that this simple
model explains nearly half the varia-
tion in the number of takings per capi-
ta across the 23 states for which we
have data.
Applying the model’s coefficients
predicts that Connecticut would have
about 3.0 takings per 10,000 residents,
compared with the actual value of 5.3.
For most states in the sample, the pre-
dicted value is within 1.0 taking of the
actual value.  Despite the relatively
large error for Connecticut, the model
still predicts that the Nutmeg State
would place near the top of the list in
takings per capita—8th of 23, com-
pared with our actual 5th place posi-
tion.
Why does Connecticut rank so
high?  Connecticut is about average in
its level of housing and urban develop-
ment grant money, about $270 per
housing unit, so that does not play
much of a role.  And Connecticut’s
state and local public spending per
capita is actually 10% above the aver-
age, $6,289 versus $5,730, which by
itself would imply that condemnations
should be below average by about one-
half a taking per 10,000 residents.  
But the Nutmeg State has proper-
ty values and a concentration of legal
personnel that exceed the averages of
the other states in the sample by 25
percent.  Connecticut’s higher proper-
ty values—median home prices here
were $166,900 versus $133,200 in the
other states, according to the 2000
Census—translate into more than 1
additional taking per 10,000 residents.
And our relatively large number of
legal workers—4.4 per 1,000 residents
versus 3.5 in the other states, according
to Bureau of Labor Statistics data for
2000—adds another 2 takings to our
predicted number.
That my model underpredicts the
incidence of government takings in
Connecticut likely traces to unique
characteristics of the state that can’t be
captured easily in a one-size-fits-all
model.  Consider just one possibility.
Two colleagues at the University of
Connecticut, Thomas Miceli and C.F.
Sirmans, have suggested that eminent
domain may be an effective weapon of
“last resort” against sprawl, because it
encourages redevelopment of existing
urban space rather than new develop-
ment at the metropolitan fringe.
(http://ideas.repec.org/p/uct/ucon-
np/2004-38.html.)  And Connecticut
holds the dubious distinction of rank-
ing first in sprawl among the 50 states
(see page 3) as measured by the ratio of
non-urban to urban population densi-
ty. (For related data on the degree of
development, see our centerfold.)
There is no evidence of a system-
atic use of eminent domain by states to
combat sprawl: in one formulation of
my model not discussed above, the
sprawl variable was statistically
insignificant in explaining takings.
But that doesn’t mean it’s not used
aggressively in Connecticut for that
purpose, which could account for the
higher incidence of takings here.
The Kelo decision has generated a
storm of controversy, and created some
strange bedfellows along the way.
Neither side in the debate argues in
favor of eminent domain abuse, but
the decision does raise legitimate ques-
tions over the proper limits on govern-
ment’s power to condemn property. 
My analysis suggests, however, that
the current effort to rein in the exercise
of eminent domain will likely disap-
point its proponents.  States that
expressly permit the use of eminent
domain for development purposes
have no higher incidence of takings
than those that do not.  And those fac-
tors that seem to influence the use of
eminent domain are not amenable to
simple policy responses.  
Perhaps the most effective con-
straints will be found not in legislative
initiatives, but in a careful, case-by-
case application of the principles of
“public use” and “just compensation”
that underlie government’s power to
invoke eminent domain.
Variable Description
State and Local Spending 
Capita
-4.3* A one-percent increase in state and local spending per 
capita reduces government takings by 4.3 percent
Federal Urban Development 
Grants per Housing Unit  
-5.3* A one-percent increase in federal urban development 
grants per housing unit reduces government takings by 
5.3 percent
Median Home Price 2.2* A one-percent increase in median home prices 
increases government takings by 2.2 percent
Legal Workers per Capita 3.4* A one-percent increase in legal personnel per capita   
increases government takings by 3.4 percent
Eminent Domain Law 0.5 Not statistically significant at the 10% level or better
Economic Performance -4.0 Not statistically significant at the 10% level or better
Population Density -0.3 Not statistically significant at the 10% level or better
Elasticity
FACTORS THAT MAY INFLUENCE 
GOVERNMENTS’ USE OF EMINENT DOMAIN

An Offer You Can't Refuse: Why Do Connecticut and Other States Use Eminent Domain?

http://cteconomy.uconn.edu/articles/SL_W2006.pdf

An Offer You Can't Refuse: Why Do Connecticut and Other States Use Eminent Domain?

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