Reforming Eminent Domain in the State of Wisconsin

In this policy memo, Ryan Thiele outlines the issues of Wisconsin’s vague eminent domain law, using the Village of Mt. Pleasant’s deal with the Foxconn corporation as an example of badly needed reform.

Eminent Domain’s Revolution and Effects

Kelo v. City of New London

Eminent domain is the power of the government to take private property for public use. Under the Fifth Amendment of the U.S. Constitution, “just compensation” must be given by the state to property owners to cover the taking of property.  Governments often use eminent domain to build public infrastructure such as roads, bridges, and canals, or government buildings and/or public utilities. 

The definition of public use changed in 2005 with the landmark U.S. Supreme Court case, Kelo v. City of New London. Susette Kelo was a homeowner in New London, Connecticut, who sued the City of New London for attempting to seize her property and transfer it to the New London Development Corporation under the auspices of “economic development”. She argued that the taking of private property and subsequent transfer of it to another private entity was not a proper public use and is an inappropriate use of eminent domain.The City’s plan was to transfer the taken property to the pharmaceutical corporation, Pfizer, who would develop the land and ‘improve’ the local economy. 

The State Supreme Court agreed with New London, reasoning that increasing tax revenues, creating jobs, revitalizing depressed, though not blighted, neighborhoods serves a public purpose and is a justified taking of property. The U.S. Supreme Court, in a 5-4 decision, agreed with New London and Connecticut. The Court held that the communal economic benefits of the taking and transferring of property to another private entity for economic development was a qualified definition of “public use”. To this day, the taken land has not been developed.

Justice Clarence Thomas believed that the Court majority had redefined public use as “public purpose” and stated: “Though citizens are safe from the government in their homes, the homes themselves are not.” Justice Sandra Day O’Connor’s dissent concerned those of lower socio-economic statuses: “The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms.” Following the unfortunate Kelo decision, Wisconsin joined other states in enacting laws to protect property owners from eminent domain abuse. Governor Jim Doyle signed into law Act 208, which required public notice and hearing requirements when property owners’ land is affected by government action. Act 233 followed, outlawing the taking and transferring of non-blighted property to other private entities. While this immediate response to Kelo was a proper reform that protects property owners, it did not go far enough in strengthening property rights from government intrusion.

Foxconn

In 2017, it was announced that Foxconn, a Taiwanese electronics corporation, would be building a $10 billion manufacturing facility in Mount Pleasant, Wisconsin. The corporation’s manufacturing facility was originally planned to bring over 10,000 jobs to Wisconsin by 2022. Governor Scott Walker, supported by then Speaker of the House Paul Ryan and President Donald Trump, signed an agreement to provide billions of dollars in subsidies. Foxconn would also receive special legal privileges and exemptions from environmental regulations, while Racine County and the Village of Mt. Pleasant created a special tax-increment district that would raise hundreds of millions of dollars to be invested into Foxconn.

Many homeowners fell within the boundaries of the proposed plant. Mt. Pleasant began buying properties — sometimes paying far in excess of fair market prices — that would then be transferred over to Foxconn for development. Many homeowners were told by the Village that if they did not sell their homes the Village would use eminent domain to acquire the properties regardless. While eminent domain can be used for road development under Wisconsin law, some homeowners lived too far away from a road for it to be justified. Mt. Pleasant proceeded to blight more than four square miles of farmland and dozens of homes, earmarked for eventual transfer to Foxconn.

The Village believes that the economic benefits of Foxconn outweigh the livelihoods of dozens of families. It has paid over $150 million for properties to make way for the corporation, including almost $8 million in relocation costs. Records now show that properties threatened with eminent domain due to road construction will not see any road infrastructure, with a federal suit claiming that road construction was used as a pretext to accumulate the properties. Even considering the over $4 billion in subsidies, thousands of acres given, and exemptions from regulations, the Legislative Fiscal Bureau holds that the investment into Foxconn will not see a break even for Wisconsin taxpayers until 2043. Foxconn’s plans continue to change, developing a million-square-foot facility instead of the proposed 22 million-square-foot plant; investment plans are said to be $2 billion, rather than the initial $10 billion. Lastly, Governor Evers announced that the plant should begin operation in May 2020 with 1,500 employees composed of engineers and researchers, rather than manufacturers. 

The Definition Of Blight Has Flaws

Echoing Clarence Thomas, it is hard to imagine how a residential neighborhood in Mt. Pleasant could be on the same level as a high crime, overcrowded slum. Governments have a legitimate interest in protecting and improving their communities, but where is the line drawn for a government to seize private property for “economic development” in a post-Kelo Wisconsin? The extremely broad definition of blight statutes in Wisconsin allows municipalities to blight any property it wishes, use eminent domain to acquire said property, and use or transfer it to a private entity. By giving governments blanket power to redefine property and its proper use, we run into situations such as Foxconn, where families’ lives were uprooted by a municipality benefitting a private corporation. 

Act 233 amended 32.03(6)(b) within Chapter 32, Wisconsin’s eminent domain statutes, to read: “Property that is not blighted property may not be acquired by condemnation by an entity authorized to condemn property… if the condemnor intends to convey or lease the acquired property to a private entity.” The key component is “not blighted”; blight is generally considered land or buildings featuring high crime, deteriorated housing, and overcrowding. Yet Mt. Pleasant defined neighborhoods that had previously featured none of these characteristics. 

Mt. Pleasant used a definition of blight provided in Chapter 66 of the Wisconsin State Statutes, General Municipality Law. Within 66.1333(2m)(b), the definition of blight, there are vague statements such as: “detrimental to…morals or welfare….faulty lot layout in relation to size, adequacy, accessibility or usefulness…property which is predominantly open…or otherwise, substantially impairs or arrests the sound growth of the community.” It was the last two clauses that were used to define and justify the Village’s takings for Foxconn. Substantially impairing sound growth of a community is a vague clause when compared to other clauses within the statute that create examples such as juvenile delinquency or provide unsanitary conditions that spread disease. It is hard to imagine that homes in northern or western Wisconsin would be safe from the openness clause, or any business that features a layout not deemed accessible would be safe from eminent domain. It is further difficult to imagine that residential neighborhoods with little communal issues would fall under the same term that is applied to slums.

The eminent domain abuse found in Foxconn is not the only abuse that has occurred under the vague blight law. In 2009, a resident of the City of Milwaukee, Rafael Cetina, had his land that he had planned to build a restaurant and club on blighted by the city’s redevelopment authority. The land acquisition was approved by the Zoning, Neighborhoods, and Development committee, whose chairman received campaign contributions from a local business that would have taken over and “redeveloped” the property. This is a clear example of eminent domain abuse; the blighting of property that would have been developed for one business given to another.

Under Chapter 66.1333(2m)(b) local governments have near unlimited power to define any property as blight and seize it. The blight loophole compromises the integrity of property rights within the state of Wisconsin when there is no longer a general standard for what blight is, especially how it looks or affects the community as a whole. Vague statutes designed to handle slums and broken/vacated structures allow municipalities to force individuals and families from their businesses and homes to be transferred to another private entity, subverting Chapter 32’s prohibition of the practice.

Following Other States and Removing Ambiguity

Eminent domain reforms should be adopted that balances property rights with legitimate government interests to protect and improve their constituencies. Numerous states have enacted substantial eminent domain reforms that Wisconsin should consider, short of a constitutional amendment. Removing ambiguity within the blight statute should accompany other reforms adopted so as to fully strengthen property rights and remove opportunities for abuse.

A number of states have attempted to create a higher burden for the government in eminent domain proceedings. Article X, § 6(c) of the Florida Constitution states that transferring of property to another private individual must have approval of two-thirds of each house of the legislature. This places the burden on legislators to only approve justified takings and transfers, or else face personal scrutiny on their vote. Out west in Nevada, governments must pay the highest value that the property would have been sold on the private market as well as return the property within five years if it has not been utilized under the state purpose of the taking. This additional requirement would create an obstacle for the government, incentivizing only takings that would benefit the local public while giving greater protections of property rights.

Yet it is neighboring Minnesota’s statute 117.025 Subd.11(b) that provides the best entrance to reform. The statute forces municipalities to provide an example of public use outside of economic development. It reads: “The public benefits of economic development, including an increase in tax base, tax revenues, employment, or general economic health, do not by themselves constitute a public use or public purpose.” Within that same statute, blighted area is defined as abandoned, environmentally contaminated, or structurally substandard, with specific definitions and examples for each category. For reference, a definition provided for ‘structurally substandard’ states: “[any building] that was inspected by the appropriate local government and cited for one or more enforceable housing, maintenance, or building code violations.”

Eminent domain reform in Wisconsin should emulate Minnesota’s statute. A reworked definition of blight to be concise and limited like Minnesota’s protects property owners from unreasonable takings while still allowing room for governments to take genuine property that is blighted and/or beneficial for the public. Minnesota’s statute provides the best foundation for reform because it continues to give municipalities and the state the opportunity to use eminent domain — even for economic development, though that cannot be the primary reason — to take property that can then be used for public use; at the same time, it narrowly defines what precisely falls under a qualified property for taking. Removing ambiguity should be the first step in reforming eminent domain within the state to close loopholes, such as those found in the Foxconn dealings.

In summary, Wisconsin has an opportunity to reform its eminent domain and blight statutes in the aftermath of Foxconn. Eliminating the possibility to transfer taken property from one party to another was a correct step; it is not the role of any government to take property from one to benefit another. However, by expanding the definition of blight to encompass any kind of property allows for serious abuse. By adopting a statute similar to our neighbor to the west, we can create a balance between a government’s interest in removing blighted property with greater protections for property owners. Otherwise, abuses found in Mt. Pleasant will continue to happen throughout the state until ambiguity is removed.

References

Kelo v. City of New London (2005) https://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

Wisconsin 2005 Act 208 https://docs.legis.wisconsin.gov/2005/related/acts/208

Wisconsin 2005 Act 233 https://docs.legis.wisconsin.gov/2005/related/acts/233

Minnesota Chapter 117
https://www.revisor.mn.gov/statutes/cite/117.025

Foxconn and the 2018 Gubernatorial Race
https://www.newyorker.com/news/dispatch/did-scott-walker-and-donald-trump-deal-away-the-governors-race-to-foxconn

Wisconsin Statute regarding blight elimination
https://docs.legis.wisconsin.gov/statutes/statutes/66/XIII/1333

Misleading of Property Owners
https://www.wisconsinwatch.org/2019/09/owners-near-foxconn-say-they-were-misled-now-their-homes-are-gone/

Zach Weissmueller on Foxconn and Eminent Domain
https://reason.com/video/foxconn-mt-pleasant-eminent-domain/

Paul Ryan on Foxconn and Eminent Domain
https://www.jsonline.com/story/money/business/2018/03/26/paul-ryan-decries-eminent-domain-seizing-private-property-economic-development-not-foxconn-homeowner/454233002/

Mount Pleasant blights property
https://www.jsonline.com/story/money/business/2018/06/05/village-says-foxconn-area-blighted-may-use-eminent-domain/671976002/

Wisconsin Statute 32.62 regarding transfer of title
https://docs.legis.wisconsin.gov/statutes/statutes/32/II/62

Wisconsin 2005 Act 233 amending Chapter 32
https://docs.legis.wisconsin.gov/2005/related/acts/233

Wisconsin Eminent Domain Rights
https://doa.wi.gov/Legal/The%20Rights%20of%20Landowners%20Under%20WI%20Eminent%20Domain%20Law%2c%20Procedures%20Under%2032.05_read.pdf