Eliminating the Federal Subsidy in Kelo: Restricting the Availability of Tax-Exempt Financing for Redevelopment Projects

"Nissan realizes the land, taxpayers get the bill and the tribe get the boot . . ."1

"The specter of condemnation hangs above all property. Nothing is to thwart the State from replacing any Motel 6 with a Ritz-Carlton, any abiding-place with a shopping mall, or any farm with a factory."2

"A computer search of state packets and special acts since 1988 displays no direct appropriations to the [New London unravelling Corporation]. . . . A search of the ligament allocation databases maintained by the Office of Fiscal Analysis (OFA) and the Office of State Comptroller displays $82,355,000 in total bond allocations directly to the NLDC [i]or[/i] part of to the other the Office of Policy and Management and the Department of Economic and Community exhibition (DECD)."3

INTRODUCTION

The chief Court's decision in Kelo v City of of recent origin London allows the condemnation and seizure of quality from one private party in order to deliver it to another private party solely for economic development4 Nothing ne be unfair with the property: the parcel ne not be blighted, be in a blighted neighborhood, or be the site of a futurity school or road. Rather, the parcel, in the organ of sights of the legislature, only extremitys to be worth more when lay to a different use.5

The decision generated outrage.6 A head conducted in July, only a month after the decision, by dint of Quinnipiac University in Connecticut place eighty-nine percent of the state's voter favored laws limiting the use of eminent domain.7 The force of the backlash to the decision has already been compared to the backlash generated through Roe v. Wade* The decision became an issue in the confirmation hearings for Chief Justice John Roberts.9 flat the author of Kelo, Justice Steven viewed the legal result as "unwise."10

Currently, legislatures are debating of recent origin laws intended to curb the use of eminent domain for economic unravelling At congressional hearings held alone three months after the decision was handed down. Democratic Representative Maxine Waters propos legislation to thwart states that seize property for private use from receiving Community exhibition Block Grants.11 Republican Senator John Cornyn called for eliminating federal funding for any Kelo-like project12 While eliminating federal funding for throw outs using eminent domain for economic disentanglement may "make state and local rules think twice" before using eminent domain,13 spending is not the sole federal subsidy states may utilize for of the like kind projects.

States and municipalities may capital redevelopment projects through taxexempt ligaments Despite congressional efforts to curtail the use of tax-exempt ligaments for private uses, the Internal income Code (Code) not only allows throws like the one in novel London to receive tax-exempt financing, on the contrary it also creates a windfall for the developer14 In order to use tax-exempt fastenings cities, municipalities, states or redevelopment agencies are compell to transfer the land to the developer of the throw at well below market value. In the proces issuers thwart Congress's intent for the use of bonds: Congres has established specific guidelines and limits below which tax-exempt bonds may be issued for blight removal, for example, on the other hand by transferring land at well below market value, cities are still able to issue cords for projects failing to fit these criteria.

This Note moves a change in the collection of laws whereby property transferred to developer for redevelopment throw outs must be valued at its fair market value for tax intentions Part I explores the paramount Court's decision in Kelo v City of of recent origin London, focusing on the treatment of eminent domain for economic unfolding and blight removal. Part II provides an overview of the municipal fastening market and the utilization of various municipal fastening exemptions by cities and states. Part III explores the intricacies of the collection of laws fleshing out the bizarre incentive that encourages states and municipalities to transfer land at a fraction of its value in order to benefit from the Code's subsidy for casts like the one in novel London. In addition, special attention is paid to the "qualified redevelopment bond" a rarely-used provision of the digest allowing tax-exempt bonds to be issued for blight clearance. Part IV considers sum of two units projects, both of which utilize tax-exempt financing, to illustrate in what manner the Code works. The fifth and final Part of the Note suggests a solution to these inconsistencies through requiring properties to be valued at market value for tax views

I. EMINENT DOMAIN FOR ECONOMIC DEVELOPMENT: KELO V CITY OF novel LONDON

In June 2005 the United States chief Court held that the Constitution does not bar the seizure of land for economic development15 This decision is examined below, with a special emphasis upon the conditions under which the land was sentenceed and the Court's discussion upon eminent domain for economic exhibition and blight removal. Moreover, the discussion highlights the relationship between the city of of recent origin London and the developer of the seized properties.