The November elections shook Washington, D.C. because they caused the first power shift in more than a decade. Less noticed but equally seismic was the fact that voters in state after state rejected laissez-faire federal rules on the use of government power to seize private property for development.

The result is that developers and state and local governments must now adjust to more restrictive state rules on eminent domain. In addition, experts predict the next several years will bring increased litigation — perhaps even landing back in the U.S. Supreme Court — testing the boundaries of the new laws.

“Developers need to take a fresh look at ballot initiatives and laws in their area,” says David B. Snyder, an attorney at Fox Rothschild LLP in Philadelphia who represents both government entities and private property owners in eminent domain proceedings. “Most [voters] felt very strongly the need to restrict the government's power of eminent domain.”

Start of a firestorm

The case that triggered the public outcry was Kelo v. City of New London, a 2005 decision by the U.S. Supreme Court. The Kelo court held that the U.S. Constitution didn't bar the City of New London, Conn. from using eminent domain to seize homes to make way for a private development project the city hoped would increase jobs and tax revenue. The court, however, blunted its opinion by stressing that states were free to enact laws that were stricter than allowed in Kelo.

State lawmakers and voters have done just that. In November, voters in eight states passed ballot initiatives rejecting Kelo, bringing the number of states that have restricted the use of eminent domain to 35. The limitations have come in various forms. Here are a few:

  • In South Carolina, voters approved an amendment to the state's constitution prohibiting municipalities from using eminent domain for economic development.

  • Georgia voters approved a constitutional amendment requiring a vote by elected officials any time eminent domain is used.

  • Florida voters prohibited government entities from transferring land from one private owner to another through eminent domain for 10 years.

Congress has sought unsuccessfully to limit the effect of Kelo. In 2005, the U.S. House of Representatives passed a bill that would withhold federal economic development money for two years from states and municipalities using eminent domain for economic development. Its companion bill in the U.S. Senate was never sent to the floor for a vote.

The death of eminent domain?

How do developers do their jobs in this incendiary climate? “For those who say, ‘The power of eminent domain is being entirely scrapped,’ that's not at all true,” says Roger Platt, senior vice president and counsel of The Real Estate Roundtable in Washington, D.C. “Infrastructure uses are still allowed, but voters have limited the use of eminent domain to help assemble land for large real estate projects.”

Meanwhile, property rights advocate Dana Berliner, a senior attorney at the Institute for Justice in Arlington, Va., says the overall message is that developers need to work much harder at development without the threat of eminent domain. “That means designing projects with property they either own or can buy, working with existing owners to incorporate them or figure out what they need to sell or move, and understanding that if they rely on cities to acquire property by eminent domain, that's going to make the process much slower and more difficult,” says Berliner.

Experts expect more litigation. “None of these statutes has been tested in court,” says Berliner. “Any attempt to use eminent domain in states that have passed restrictions will generate litigation,” she adds.

“Government entities may think twice or three times before they use eminent domain even if it's legal because they're afraid of the political ramifications,” says Snyder. “The question is whether a year from now this will still be the hot topic or whether the status quo could return.”

Jeffrey Finkle, president and CEO of the International Economic Development Council in Washington, D.C., predicts voter remorse. “In places where there've been ballot initiatives, people are going to say, ‘What did we do? We didn't realize eminent domain was so important.’ I don't know how long that'll take, but I guarantee it.”

G.M. Filisko is a reporter and attorney based in Chicago who writes regularly on legal and real estate issues. She can be contacted at gabifil@rcn.com.

OUTCOME OF BALLOT ISSUES IN NOVEMBER

Florida voters prohibited government entities from transferring land from one private owner to another through eminent domain for 10 years.

Georgia voters approved a constitutional amendment requiring a vote by elected officials any time eminent domain is used.

Louisiana voters approved a constitutional amendment prohibiting local governments from condemning private property to generate taxes or jobs.

Michigan voters approved a constitutional amendment prohibiting eminent domain for economic development or enhancement of tax revenue.

Nevada voters approved a constitutional amendment limiting eminent domain for private development. A final vote will be on the 2008 ballot.

New Hampshire approved a constitutional amendment limiting local government's power of eminent domain to projects with a public use.

Oregon voters passed an initiative requiring that government compensate owners for government actions that decrease property values.

South Carolina voters amended the state's constitution to prohibit municipalities from using eminent domain except for public use.