If You Ever Build It, Maybe Some Economic Development Will Come - The New London Development Project Since Kelo:

When the Supreme Court upheld the condemnation of private property for transfer to other private parties in Kelo v. City of New London, it was in large part on the theory that courts should defer to local governments' judgments about when the use of eminent domain is needed to promote "economic development." However, two and one half years after the Supreme Court ruled in favor of the city and some seven years after the condemnation proceedings were first initiated, little or no economic development has occurred on the condemned land. As the New London Day documents in this recent article and this editorial, the New London Development Corporation (the city agency responsible for the condemnations) and its designated private developer Corcoran Jennison have missed repeated deadlines to begin construction of the new housing that they were supposed to build in the area. Indeed, as The Day points out, no construction at all has taken place on the site since the Supreme Court's decision was issued in June 2005.

Yesterday, the NLDC and Corcoran reached an agreement under which the developer must meet a May 29, 2008 deadline to secure financing for the construction of 66 luxury apartments and 14 townhouses in the area. If it fails to do so, it will forfeit its right to develop the property and the NLDC will be free to pick a new firm to develop the area.

Even if Corcoran Jennison and the NLDC finally get their act together, it is unlikely that their project will produce enough economic development to offset the more than $80 million public funds that have already been spent on the project (see my article on Kelo for the source for this figure). And that estimate does not include the economic damage inflicted on New London by the destruction of the precondemnation uses of the property, including a significant number of homes and businesses. It also does not include the economic costs of letting the area lie unused for a period of several years while the NLDC and Corcoran tried to find a way to finance their planned development project.

If the Kelo condemnation ultimately ends up creating more economic costs than benefits, that would not be a surprising development. For reasons I have explained in great detail in several articles (e.g. here and here), economic development takings often harm local economies more than they benefit them. Local governments and the private interest groups that seek to acquire condemned land have strong incentives to overstate the benefits of such condemnations, while understating the costs. And it is extremely difficult - often impossible - for voters to assess their self-serving claims accurately.

What is striking about the Kelo takings is that this pattern held true even in a case where intense nationwide media scrutiny was focused on the local government and its chosen developer. The Day also deserves credit for providing some excellent local coverage of the controversy. In more typical cases, where there is much less media attention, local governments have even less incentive to actually produce the "economic development" that supposedly justified condemnation in the first place.