Daily Development for
Friday, May 12, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

Here's another defeat of a "public/private" project handed down by the Mississippi Supreme Court. Is there a chance that state courts are going to get more skeptical and inquisitive about efforts by public agencies to commit public resources to lure private development?

The South was a leader in "Industrial Development Bond" activity in the 70's and early 80's - generously conferring the interest tax exemption, and often many other public benefits, to attract new employers to job poor areas.

The IRS has tightend up the interest exemption, but the notion of intense public/private cooperation in carrying out all manner of desired private investment is still very popular. Will courts get tougher? Have DIRT readers noticed any such activity in their own states?

EMINENT DOMAIN; CONDEMNATION POWER; PUBLIC PURPOSE: Eminent domain lacks a proper public purpose where city intends to convey property to gaming corporation and retain 30-year reversionary interest. Vicksburg v. Thomas, 645 So.2d 940 (Miss. 1994). For the second time in recent months, the Mississippi Supreme Court thwarts a city's urban renewal plan because it improperly commits the land acquired renewal property to a private developer. The court states that the question of whether an eminent domain acquisition is "necessary" for a given purpose is a matter of legislative discretion, but the question of whether the purpose itself is a valid public purpose is an issue of law on which the condemnor has the burden of proof.

The court cites its recent decision of Morley v. Jackson Redevelopment Authority, 632 So.2d 1284 (Miss. 1994), in which the court also struck down a redevelopment plan taking. There, the court held that the City had not demonstrated that turning the historic King Edward Hotel over to a private developer for conversion to an office building satisfied a public purpose. It remanded for additional evidentiary hearings, but the real issue seemed to be that the private office use was not sufficiently related to a public benefit in the eyes of the court.

In the case at hand, the court seems a little more inclined to find the overall intended purpose - the development of a public casino, to be a public purpose. Perhaps the availability of the casino to the general public as a recreational facility makes the difference. But the court, nevertheless, strikes down the condemnation because the City had not shown that it had contracts with the developer that required that the property be used for the argued public purpose. Although, admittedly, the property would be cleared of existing "blight" in connection with the working out of the plan, the court noted that the state urban renewal laws required that redevelopment land acquired solely for purposes of clearing blight must be resold through competitive bidding. There was no competitive bidding here, so the City had to show that an additional public purpose would be realized by the sale of the property to the casino developer.

The background given by the court shows what was really going on. The City had sold a substantial amount of its own property to the casino developer for over $4 million. The City agreed to use a portion of the sale proceeds to acquire additional addjacent land that was in private ownership and transfer that land to the casino developer as well. The court indicates that the original sale to the casino developer was "for casino gaming development," but it indicates here that the city had no contract with the developer that the land acquired by condemnation would be use for that purpose.

It is unclear whether the court is requiring that there had to be a specific requirement that the land acquired by condemnation be used directly for the casino project, or whether it would be satisfied if the overall deal would lead to the casino development. Its reference to the fact that the original acquisition was "for casino gaming purposes" suggests that the City did have some kind of legal expectation that a casino would be developed. It may be that Court was unwilling for the City to agree to acquire private property to be turned over to the casino developer essentially as "boot," even if that property was not critical to the casino development.

Comment: More litigation is likely here. But the combination of the two cases suggests that Mississippi, at least, will be looking harder at "public/private" development plans in the future.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Shawn Kaminsky at the ABA. (312) 988 5260. Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items reported in the Daily Development and in the ABA publications are for general informatinon purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Items in the Daily Development are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.