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7. EDSR 09-11-2006ITEM # 7. MEMORANDUM TO: Economic Development Authority Mayor & City Council Housing & Redevelopment Authority FROM: Catherine Mehelich, Director of Economic DATE: September I I, 2006 DevelopmentC /~ SUBJECT: JOINT MEETING WITH HRA AND COUNCIL for Presentation on Eminent Domain and Redevelopment Attachments • "Focus on New Laws: Eminent Domain", League of MN Cities article, August 9, 2006. • "The Shoe Falls: What the Legislature Did to Redevelopment Takings", by Attorney Stephen Bubul, I{ennedy & Graven, June 12, 2006. • "Eminent Domain & Redevelopment", PowexPoint, September 11, 2006. Background Over the past year staff periodically provided the EDA, HRA and City Council information and updates on proposed legislative changes to Minnesota's eminent domain law. The Minnesota Legislature did enact a new law that severely restricts the use of eminent domain fox economic development and redevelopment purposes and provides greater compensation to property owners in all condemnation proceedings. Issue Stacie I{vilvang of Ehlers & Associates has been invited to provide an overview of the recent changes to the eminent domain law and how those changes will affect how the City, HRA and EDA undertakes economic development and redevelopment activities. S:\EDA\AGENDA\Year2006\9.11.06 Eminent Domain presentation.doc Focus on New Laws: Eminent domain Cities Bulletin ONLINE EDITION Focus on New Laws: Eminent domain Issue 21 By Laura. Harris Page 1 of 4 Published: August 9, 2006 The power of eminent domain has been under scrutiny since the U.S. Supreme Court rendered its decision in Kelo v. City of New London last summer. While this decision did not expand local government eminent domain powers, it raised awareness and sparked a vigorous public debate about the use of eminent domain, particularly for economic development and redevelopment purposes. In its decision, the court invited states to scrutinize their eminent domain laws, and state legislatures across the country responded with legislation to restrict the use of this tool. In the 2006 session, the Minnesota Legislature enacted a new law that severely restricts the use of eminent domain for economic development and redevelopment purposes and provides greater compensation to property owners in all condemnation proceedings. The bill was signed into law (MN Session Laws 2006, Chapter 214) on May 19, 2006. The key provisions of the new law are summarized below. Limits on eminent domain authority Under this new law, the purposes for which eminent domain may be used are narrowly defined. The public benefits of economic development, including an increase in tax base, tax revenues, employment or general economic health are not by themselves considered a public use or public purpose. However, in limited circumstances the use of eminent domain to mitigate a blighted area, remediate an environmentally contaminated area, reduce abandoned property, or remove a public nuisance constitutes a public purpose. These terms are defined as follows: Blighted area. Section 2, subd. 6 requires that the area be in urban use and that 50 percent of the buildings in the area are structurally substandard. Section 2, subd. 7 defines "structurally substandard" as a building: 1) that has been inspected and cited for enforceable housing, maintenance, or building code violations; 2) in which the building code violations involve specific structural aspects of the building; 3) in which cited violations have not been remedied after two notices to cure noncompliance; and 4) where the cost to cure the violations is more than 50 percent of the assessor's taxable market value for the building. Environmentally contaminated area. Section 2, subd. 8 defines "environmentally contaminated area" as an area where more than 50 percent of the parcels contain contamination and the estimated costs of clean-up are more than the assessor's estimated market value of the parcel. Abandoned property. Section 2, subd. 5 defines "abandoned property" as property that has been unoccupied or unused for at least one year; that has not been maintained; and for which taxes have not been paid for at least the previous two years. Public nuisance. Section 2, subd. 9 refers to Minnesota Statutes 609.74 as the definition of http://www.lmnc.org/bulletin/story.cfin?id=1227&title id=1 8/16/2006 Focus on New Laws: Eminent domain Page 2 of 4 "public nuisance" for eminent domain purposes. The new law also limits the ability of local governments to assemble property for redevelopment purposes. In particular, section 3 prohibits the taking ofnon-structurally substandard buildings and non- contaminatedparcels unless there is "no feasible alternative" in order to remediate blight or contamination in the area and all possible steps are taken to minimize the taking ofnon-structurally substandard buildings or non-contaminated parcels. Finally, section 8 of the new law provides that takings to mitigate a blighted area, remediate an environmentally contaminated azea, reduce abandoned property, or remove a public nuisance require a preponderance of evidence showing if challenged in court. A court order approving the public purpose, necessity, and authority for a taking is final unless an appeal is brought within 60 days. New compensation requirements Minnesota's new eminent domain law contains several provisions that will increase the cost of all eminent domain proceedings, including those for traditional public uses, such as roads and parks. These new provisions include the following: • Payment of attorney fees. Section 4 provides that the court may award reasonable attorney fees and costs if the final awazd is between 20 percent and 40 percent greater than the last written offer made by the condemning authority before filing a condemnation petition. If the award is more than 40 percent greater than the last written offer, then the court must award a property owner his or her attorney fees. This section prohibits an award of attorney fees if the final judgment or award is less than $25,000. It also specifies that, for the purposes of determining the entitlement to attorney fees, the final award does not include compensation for loss of going concern unless it was included in the last written offer made by the condemning authority before filing the petition. • Compensation for loss of going concern. Section 11, subd. 2 requires compensation for loss of going concem if a business is destroyed by a taking unless the condemning authority proves by a preponderance of evidence that the loss is not due to the taking, the loss could have been avoided with reasonable measures, or that going concern compensation would duplicate compensation otherwise being awarded. It defines "owner" to include lessees who operate a business on real property that is the subject of an eminent domain proceeding and requires an owner to give the condemning authority notice of intent to seek compensation for loss of going concern within 60 days of the first court hearing. • Minimum compensation. Section 12 provides that when an owner is required to relocate, the amount of damages payable must be sufficient to purchase a "comparable property" in the community, and not less than the condemning authority's quick take deposit. "Owner" is defined as the person or entity that holds fee title to the property. • Re-establishment reimbursement. Section 18 requires an acquiring authority to reimburse up to $50,000 in re-establishment expenses to displaced businesses. • Compensation for removal of a nonconforming use. Section 10 requires a local government to compensate the owner of a nonconforming use if the local government requires its removal as a condition of granting a permit, license, or other approval for a use, structure, development or activity. • Compensation for loss of driveway access. Section 11, subd. 4 requires compensation if a governmental entity permanently eliminates 51 percent or more of the driveway access to a business that results in a loss of revenues of 51 percent or more. Installation of a median does not constitute elimination of driveway access. http://www.lmnc.org/bulletin/story.cfin?id=1227&title id=1 8/16/2006 Focus on New Laws: Eminent domain Page 3 of 4 New procedural requirements The new law also contains several changes to the eminent domain process, including the following: . Appraisal and negotiation. Section 5 modifies the appraisal and negotiation requirements in Minn. Stat. 117.036 and applies these requirements to all acquisitions. It requires the exchange of appraisals and increases the appraisal reimbursement cap to $5,000 for non-residential property. It also provides that an appraisal must not be used or considered in a condemnation commissioners' hearing unless a copy of the appraiser's written report was provided to the opposing party at least five days before the hearing, and that documentation related to a loss of going concern claim must not be used or considered in a condemnation commissioners' hearing unless the documentation is provided to the opposing party at least 14 days before the hearing. . Public notice and hearing. Section 6 establishes new public hearing requirements for takings to mitigate a blighted area, remediate an environmentally contaminated area, reduce abandoned property, or remove a public nuisance. The law specifies certain notice and hearing requirements and requires approval by the local elected governing body at a subsequent meeting that is at least 30 days after the public hearing. It also requires the resolution authorizing eminent domain to identify the public costs and benefits known or expected from the project and address how the acquisition serves a public use and why the property is needed. . Right of first refusal. Section 15 specifies that if a condemning authority determines that property has not been used and is no longer needed for a public use, the authority must offer to sell the property back to the person from whom it was acquired at the original price or the current fair market value, whichever is lower. • Relocation assistance determination by ALJ. Section 19 requires relocation assistance to be determined by an administrative law judge under a contested case proceeding if the displaced person does not accept the condemning authority's offer. Public service corporations are exempted from many of the new provisions, including the new compensation requirements, increased appraisal reimbursement caps, new public notice and hearing requirements, and the use of administrative law judges for arbitrating relocation benefit disputes. Effective date and exemptions for existing projects The law is generally effective May 20, 2006, and applies to condemnation proceedings and eminent domain actions commenced on or after that date. For purposes of the law, an action is deemed commenced when service of the notice of the petition is made on the property owner. The law identifies exceptions for certain actions anticipated as part of a tax increment financing (TIF) plan, abatement project or a special law. Actions commenced between Feb. 1, 2006, and Feb. 1, 2008, that satisfy one of these conditions are grandfathered in and are not subject to any of the provisions of the new law. Actions commenced after Feb. 1, 2008, are not subject to the new public use requirements, but are subject to the compensation requirements and other procedural provisions of the new law. The law also provides an exception for actions to acquire property for highway projects that, by the day following final enactment, have been selected to receive federal funding and in which service of the notice of the petition is made on or before Jan. 15, 2007. Practical implications These changes to Minnesota's eminent domain law will significantly impact the ability of local governments to respond to community needs. The law goes well beyond addressing the concerns raised by the Kelo decision and includes several provisions that will affect all condemnation actions. http://www.Irnnc.org/bulletin/story.cfm?id=1227&title_id=1 8/16/2006 Focus on New Laws: Eminent domain Page 4 of 4 Local officials should be aware of the following impacts of this new law: All condemnation actions will cost more. The new law will add millions of taxpayer dollars to the costs of public projects, including acquisitions for traditional public uses such as roads and parks. The prospect of attorney fees will necessitate higher offers, and while property owners may settle in some cases, it's likely that attorney fees will be awarded in many circumstances. In addition, greater relocation benefits, higher reimbursement of property owners' appraisal fees, and compensation for loss of going concern will increase costs substantially. The process will take longer In addition to appraisers, local governments will now need to tap the expertise of real estate brokers, accountants and business valuation experts to help them determine the appropriate level of compensation due to a property owner. Local governments will also need to spend more time and effort documenting the public use and necessity for a taking. Redevelopment will be more difficult and costly. Tight definitions of "blight" and "environmental contamination" and the limited ability to assemble parcels will obstruct local redevelopment efforts. Local governments will need to keep written records of code violations in order to document "blight" and prove that there is "no feasible alternative" to remediate blight or contamination in an area in order to take non-blighted or uncontaminated property. These changes to the law will likely encourage holdouts. Finally, the new public notice and heazing requirements will also add time and expense when a local government seeks to acquire property for redevelopment purposes. Share your story It is important for local officials to talk with their legislators about the impacts of this new law on local projects. Cities should also notify the League about problems they encounter with the process and the cost of complying with these new requirements. Please contact Laura Harris, LMC, at (651) 281-1260 or 1_harris a~lmnc.org; or Tom Grundhoefer, LMC, at (651) 281-1266 or t~rundho _ lmnc.oxg with any questions about this new law. LMC Board Editor: Desiener: Executive Director: o_f_Drectors Erica Norris Perlman Stephanie_Thoe Jim Miller Copyright ©2006 Lea¢ue of Minnesota Cities 145 University Ave. West, St. Paul, MN 55103 Phone: 651-281-1200 ~ Toll Free: 1-800-925-1122 Fax: 651-281-1299 ~ TDD: 651-281-1290 Return to Home http://www.lmnc.org/bulletin/story.cfm?id=1227&title id=1 8/16/2006 THE SHOE FALLS: WHAT THE LEGISLATURE DID TO REDEVELOPMENT TAKINGS Presented by: Stephen J. Bubul Kennedy & Graven, Chartered June 16, 2006 THE SHOE FALLS: WHAT THE LEGISLATURE DID TO REDEVELOPMENT TAHINGS Stephen J. Bubul In Minnesota Laws 2006, Chapter 214 (Senate File 2750), the legislature adopted sweeping changes to the statutes governing eminent domain for economic development and redevelopment. This article summarizes the changes and discusses some of the potential impacts on the ability of local authorities to carry out development efforts. I. REDEVELOPMENT STATUTES SUPERSEDED. Section 1 of the bill creates a new Section 117.012, containing these provisions Subdivision 1. This provision consolidates all eminent domain powers for all political subdivisions in Chapter 117, "notwithstanding any charter provision, ordinance, statute or special law." While development and redevelopment statutes have refen•ed to Ch. 117 for eminent domain procedures, the powers that enable the use of eminent domain have historically been provided in various sections of Chapter 469. This preemption clause removes any doubt that powers of eminent domain for development purpose might still be found in other statutes. Subdivision 2. This clause states that eminent domain "may only be used for a public use or a public purpose." This would seem to be an obvious restatement of the law, but Ch. 214 later outlines precisely what the terms "public use" and "public purpose" mean, which sharply limits the scope of those concepts. Subdivision 3. This provision provides an exception to general rules described above, permitting continues use of eminent domain powers under other laws for certain drainage project, town roads and watershed districts. II. CRITERIA FOR EMINENT DOMAIN IN REDEVELOPMENT CONTEXT. Section 2 of the bill amends the existing definition section in Ch. 117, primarily to describe and limit the circumstances in which eminent domain may be used for development and redevelopment. The key definition is public use or public purpose, which terms are defined in Section 117.025, Subdivision 11 to mean exclusively: (1) The possession, occupation, ownership and enjoyment of the land by the general public, or by public agencies; III-1 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 (2) the creation or functioning of a public service corporation; or (3) mitigation of a blighted area, remediation of an environmentally contaminated area, reduction of abandoned property, or removal of a public nuisance. In case there were any doubt, the definition adds this statement in response to the Kelo v. City of New London decision: "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." Clause (3) describes the only circumstances when eminent domain may be used for acquisitions other than traditional public takings (under clause 1) or for public service corporations (under clause 2). Because eminent domain for development or redevelopment always results in the ultimate possession or ownership of acquired property by a private party, this power will now be available only if the conditions described in clause (3) may be found. The four conditions for redevelopment takings are summarized as follows: 1. Mitigation of a blighted area: This is the most significant change in the entire bill. For a frame of reference, consider the prior definition of a blighted area under Minnesota Statues, Section 469.002, subd. 1 I "Blighted area" means any area with buildings or improvements which, by reason of dilapidation, obsolescence, overcrowding, faulty arrangement or design, lack of ventilation, light and sanitary facilities, excessive land coverage, deleterious land use, or obsolete layout, or any combination of these or other factors, are detrimental to the safety, health, morals, or welfare of the community. Section 117.025, subd. 6 now defines "blighted area" as an area that is in "urban use," and where "more than 50 percent of the buildings are structurally substandard." Section 117.025, subd. 7 defines a "structurally substandard" building as one: (1) that was inspected by the appropriate local government and cited for one or more enforceable housing, maintenance, or building code violations; Comment: The inclusion of housing and maintenance codes is broader than in the House version of the bill, which limited this definition to building codes only. This addition provides some leeway for cities to determine their own standards of upkeep, which in turn could result in more buildings being III-2 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 found to be substandard. Nevertheless, this requirement will eliminate the various other conditions that justified eminent domain for redevelopment in the past, which turned not on the physical condition of the buildings but the overall land use patterns. Moreover, it differs sharply from the definition of "structurally substandard" under the TIFAct, which includes a building code analysis as a component, but does not require code violations. (2) in which the cited building code violations involve one or more of the following: (i) a roof and roof framing element; (ii) support walls, beams, and headers; (iii) foundation, footings, and subgrade conditions; (iv) light and ventilation; (v) fire protection, including egress; (vi) internal utilities, including electricity, gas, and water; (vii) flooring and flooring elements; or (viii) walls, insulation, and exterior envelope; Comment: This list only applies to building code violations. Presumably, violations of housing and maintenance codes may involve other elements than those listed under this clause. (3) in which the cited housing, maintenance, or building code violations have not been remedied after two notices to cure the noncompliance; and Comment: This condition has been quite rare in the past. Whether that will change in light of the new statute, and the inclusion of housing and maintenance codes, remains to be seen. (4) has uncured housing, maintenance, and building code violations, satisfaction of which would cost more than 50 percent of the assessor's taxable market value for the building, excluding land value, as determined under section 273.1 I for property taxes payable in the year in which the condemnation is commenced. Comment: This is a severe test, which largely undercuts the inclusion of housing and maintenance codes in the mix along with building codes. Compare this language to the existing test under the TIFAct, where in order to qualify as a substandard building the city must find that the cost of bringing a building up to current codes (whether or not those codes actually apply to the building in question) is at least I S percent of the cost to construct a similar building at that site (essentially, replacement cost). 111_3 Kennedy & Graven 200 south Sixth Street, Suite 470 Minneapolis, MN 55402 This section of law also authorizes a local government to seek an administrative warrant from a judge or magistrate to gain access to inspect a specific building in a proposed development or redevelopment area upon showing of probable cause that a specific code violation has occurred and that the violation has not been cured, and that the owner has denied the local government access to the property. 2. Remediation of an environmentally contaminated area. Section 117.025, Subdivision 8 defines "environmentally contaminated azea" as an area: (1) in which more than 50 percent of the parcels contain any substance defined, regulated, or listed as a hazardous substance, hazardous material, hazardous waste, toxic waste, pollutant, contaminant, or toxic substance, or identified as hazardous to human health or the environment under state or federal law or regulation; and Comment: This definition is fairly broad, and does not include a sguare- footage test as in earlier versions of the bill. However, given the rarity of "blighted areas, "this definition will provide the only basis for redevelopment takings in most cases. The 50% requirement will limit the scope of redevelopment efforts even where contamination is present. (2) for which the estimated costs of investigation, monitoring and testing, and remedial action or removal, as defined in section 115B.02, subdivisions 16 and 17, respectively, including any state costs of remedial actions, exceed 100 percent of the assessor's estimated market value for the contaminated parcel, as determined under section 73.11, for property taxes payable in the year in which the condemnation commenced, or for which a court of competent jurisdiction has issued an order under law or regulations adopted by Minnesota or the United States, that clean up or remediation of a contaminated site occur and the property owner has failed to comply with the court's order within a reasonable time. Comment: The cost test will limit the applicability of this definition to the most severely contaminated sites. There will be many sites with significant contamination that is costly enough to preclude redevelopment without public intervention, but costly not enough to satisfy this defnition. 3. Reduction of an abandoned property. Section 117.025, Subdivision 5 defines "abandoned property" as property that: (1) has been substantially unoccupied or unused for any commercial or residential purpose for at least one year by a person with a legal or equitable right to occupy the property; (2) has not been maintained; and BI-4 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 (3) for which taxes have not been paid for at least two previous years. Comment: The more common problem is vacant commercial structures that create blighting influences on their surrounding areas. Occasionally, these properties are also tax delinquent, but the universe of buildings that meet this entire definition is small. It is also signifcant that this definition authorizes condemnation only to "reduce" the properties that meets this definition; there is no concept of an area where some percentage of the buildings are abandoned. 4. Removal of a public nuisance. Section 117.025, subd. 9 defines the term to mean public nuisances under Minnesota Statutes, Section 609.74. That section is a criminal statute that requires intent to endanger the genera] public. As such, "public nuisances" are more rare than "blighted areas" and "environmentally contaminated areas," and therefore will have little relevance in the development and redevelopment context. III. EMINENT DOMAIN POWERS REPEALED. The effect of Sections 1 and 2 of the bill summarized above is to repeal the use of eminent domain for all other purposes not specified in those sections. Some of the purposes for eminent domain that were available under prior law include: • Acquisition of vacant parcels, where they were either an element of blight or exhibited inherent problems that impaired development. • Eminent domain to clear title problems (unless one of the new public purpose definitions is also met). • Acquisition of property by cities exercising powers in a municipal development district under Minnesota Statutes, Section 469.124 to 469.134 (which did not require findings of blight). • Acquisition to promote the development of housing for low and moderate income persons. IV. CONDEMNATION ON AN AREAWIDE BASIS. Under long-established Minnesota law, local authorities have been permitted to use eminent domain to acquire properties needed to carry out development or redevelopment efforts on an area wide basis. That is, once the findings have been made to carry out the various public purposes in the applicable development or redevelopment statute, eminent domain is authorized for all acquisitions needed to carry out that project, whether or not the parcel being condemned has characteristics of blight. 111-5 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 Section 3 of the bill reverses this rule of law. It creates a new Section 117.027 that describes which parcels an authority may condemn within a "blighted area" or an "environmentally contaminated area" as defined in Section 2. If an authority can make the findings fora "blighted area"-i.e., more than 50 percent of the buildings meet the structurally substandard test--the authority may not use eminent domain to acquire the non-substandard buildings in that area "unless there is no feasible alternative to the taking of the pacels on which the buildings are located in order to remediate the blight and all passible steps are taken to minimize the taking of buildings that are not structurally substandard:' (emphasis added.) Likewise, if the authority can find that an area meets the "environmentally contaminated area" test, an authority may not use eminent domain to acquire uncontaminated parcels "unless there is no feasible altemative to the taking of the uncontaminated pacels in order to complete remediation of the contaminated parcels and all possible steps are taken to minimize the taking of the uncontaminated parcels." (emphasis added) Moreover, if a developer "contributed to the blight or environmental contamination within the project area, the condition contributed by the developer must not be used in the determination of blight or environmental contamination." Comment 1: Prior versions of the bill imposed an "absolute necessity" test on these acquisitions, and the "no feasible alternative" provision was viewed as a compromise. Nevertheless, the standard is significantly different than current law, where the authority needed to show that the taking was reasonably necessary to carry out the underlying public purpose. What will an authority need to show in order to prove no feasible alternative? Will it be required show that no redevelopment effort would be economically feasible unless the other non-blighted or uncontaminated parcels are assembled for this purpose? But what evidence will show that? What if some other redevelopment would be theoretically possible that involves only the blighted or contaminated parcels, but that redevelopment would be inconsistent with the community's needs and plans? These are questions that will only be answered by future case law, and in light of the higher evidentiary standard described in Part V below. Comment 2: The limitations on area-wide takings must also be viewed in light of the narrow way that "blighted areas" and "environmentally contaminated areas" are defined. Substandard buildings and contaminated parcels may not be combined in order to meet the test for a project area, as under current law. In other words, if an authority meets the definition of an environmentally contaminated area (more than 50% of the parcels contaminated), it would have no authority to condemn even substandard buildings in that area unless more than 50% of the buildings in that area also met the substandard test. Likewise, the III-6 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 presence of abandoned buildings (as defned do Section 2) in one of these areas will not add to the condemnation authority; the individual abandoned buildings may be taken, but they will not juste arty other takings to carry out redevelopment in the area as whole. V. NEW PROCEDURES; EVIDENTIARY STANDARD. Section 6 of the bill creates new Section 117.0412, laying out new procedures applicable only to takings for redevelopment i.e., to mitigate a blighted area, remediate an environmentally contaminated area, reduce abandoned property, or remove a public nuisance. The procedures include: • Written notice to the owner of property to be taken, and published and posted notice, at least 30 but not more than 60 days before the date of a public hearing. • The proceedings of the hearing must be recorded and available for public review and comment at reasonable times and a reasonable place. • At the next regular meeting of the local government (defined as the elected governing body) that is at least 30 days after the public hearing, the local government must vote on the question whether to authorize the taking. • In the approving resolution, the local government or local government agency (i.e., the relevant HRA, EDA or similar entity) must by resolution (I) identify the public costs and benefits expected to result from the program or project for which the property interest is proposed to be acquired; and (2) address how the taking serves one or more identified public uses or public purposes and why the acquisition of the property is needed to accomplish those uses or purposes. Comment: Public hearings have been required under the HRA Acf since 2002, with 10 days published notice. The major significance of this change is the extended time periods for notice and delay between hearing and action. Further, the vote to authorize the taking must be by the city council even if the taking will be performed by a separate HRA, EDA or port authority. Section 8 of the bill imposes a new evidentiary standard, again applicable only to the four types of redevelopment takings. The condemning authority must show the district court "by preponderance of the evidence that the taking is necessary and for the designated public use: ' Comment: Prior versions of the bill would have imposed the even higher "clear and convincing" evidence standard. Nevertheless, the preponderance standard may lead to closer scrutiny by courts, and leaves open to question the extent to which the traditional standards of deference to local Endings remain viable in the context of takings for redevelopment. This standard could be especially III-7 Kennedy & Greven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 sign cant in takings of non-blighted buildings and uncontaminated parcels, where the question of no feasible alternative to the taking will need to proven by this higher test. VI. EF'F'ECTIVE DATES. Under Section 22 of the bill, the general rule is that the act applies to eminent domain actions "commenced" on or after the day following final enactment, which was May 20, 2006. An action is commenced when service of the petition is made. However, Section 22 includes a series of exceptions that specifically address takings for development and redevelopment. The entire act does not apply to actions commenced on or before February 1, 2008 if the project satisfies one of these conditions: 1. The property was identified as "intended to be acquired" in a TIF Plan that was approved by the municipality by February 1, 2006, and either a. the developer has acquired property by May 1, 2006 in reliance on the authority's contractual obligation to condemn property; or b. by May 1, 2006, the condemning authority has issued, sold, or entered into a binding agreement to issue or sell bonds or other obligations to finance the cost of the tax increment financing plan and has commenced the action within two yeazs after the bonds were issued. 2. The TIF district was certified before February 1, 2006; a tax increment financing plan, adopted before February 1, 2006, identified the property as intended to be acquired; and the condemning authority has commenced the action within five years after certification of the district. 3. Creation of the TIF district was authorized under a special law that received local approval or became effective without local approval before February 1, 2006, and the condemning authority commences the action within the time period permitted under the applicable general or special law for making expenditures to comply with Minnesota Statutes, Section 469.1763, subdivision 3, but not to exceed aten-year period. 4. The condemning authority commences the action before February 1, 2011, to complete land assembly for a project, financed in whole or in part with abatement under Minnesota Statutes, Sections 469.1813 to 469.1815, and the abatement resolution was adopted by one of the participating political subdivisions before February 1, 2006. III-8 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 If an action meets one of the above exceptions, it may be commenced afrer February 1, 2008 (and up until any other deadline specified in one of the exceptions), but any such later actions will be subject to all provisions of the act other than the definitions of public use and public purpose. In other words, qualifying actions have an approximately two-year grace period where they are entirely exempt from the act. After that period, the actions are subject to all the other provisions, including new rules on attorney fees, compensation and other matters (See Corrine Thomson article at Section IV of this book. for more details on the rest of the act.) III-9 Kennedy & Graven 200 South Sixth Street, Suite 470 Minneapolis, MN 55402 Eminent Domain & Redevelopment City of Elk River September 11, 2006 Topics To Cover ^ Changes in Eminent Domain Law ^ Difference between TIF Blight Test & New Eminent Domain Blight Test ^ How to Undertake Redevelopment Under the New Eminent Domain Law i Changes In Eminent Domain Law ^ Overview ^ Effective date for new law is May 20, 2006 ^ Minnesota Statutes Chapter 117 preempts all other laws that govern eminent domain proceedings • Except for authorized takings for drainage or town roads, or actions taken by watershed districts or drainage authorities Limited to Public Use or Public Purpose ^ Public Use is defined as: ^ Possession, occupation, ownership and enjoyment of the land by the general public or public agencies ^ Creation or functioning of a public service corporation (public utility, gas, electric, telephone, cable communications company, etc); or ^ Mitigation of a blight area, remediation of an environmentally contaminated area, reduction of abandoned property, or removal of a public nuisance 2 Changes In Eminent Domain Law ^ Provides that the public benefits of economic development, including an increase in tax base, tax revenues, employment or general economic health are not by themselves a public use or public purpose Blighted Area ^ Requires that the area be in urban use and that 50 percent of the buildings in the area are structurally substandard 3 Blighted Area ^ Structurally substandard is defined as a building: 1. That has been inspected and cited for enforceable housing, maintenance or building code violations; 2. In which the building code violations involve specific structural aspects of the building (I.e. roof, support walls and beams, foundation, internal utilities, etc); Blighted Area ^ Structurally substandard continued 3. In which cited violations have not been remedied after two notices to cure noncompliance; and 4. Where the cost to cure the violations is more than 50 percent of the assessor's taxable market value for the building (excluding land value). 4 Property That Couldn't Meet Today's Blight Test What it Looks Like Today Blight Test ^ Required Findings ~ Must have CODE violations ~ Violations must be structural in nature ~ Cost to cure violations must exceed 50% of the Assessor's market value ^ Apache Plaza ~ No commercial code in place to cite violations ~ No structural violations even though roof was leaking ~ Project barely met the 15% of Assessor's market value for TIF inspections Environmentally Contaminated Area ^ Defined as: ~ An area where more than 50 percent of the parcels contain contamination and the estimated costs of investigation, monitoring and testing, and remediation are more than the Assessors estimated market value of the parcel; or ~ In which the owner has not complied with a court order requiring cleanup or remediation within a reasonable time 8 Types of Uses Included: Old Foundries, Sand Blasting, Railroad Car Painting and Paint Removal 9 10 Types of Contamination ^ Foundry Waste (metals & others), Petroleum, Chlorinated Solvents, Dump Waste, etc ^ Total of 49,495 Cubic Yards ^ 2,750 Truck Loads Contamination Test ^ Required Findings 50% of Surface Area must be contaminated Cost of remediation must exceed 100% of Assessor's Market Value ^ Industrial Park ~ Does not meet test, highest percentage was 34.1 ~ No parcels met this test. Total cost of remediation was $1,641,010 & total market value was $2,539,300 11 Abandoned Property ^ Defined as: Property that has been unoccupied or unused for at least 1 year That has not been maintained; and ~ For which taxes have not been paid for at least the previous 2 years Public Nuisance ^ Applies MN Statutes, Section 609.74 ~ Maintains or permits a condition which unreasonably annoys, injures or endangers the public f Interferes with, obstructs or renders dangerous for passage any public highway, right of way or waters used by public; or ~ Is guilty of any other act or omission declared by law to be a public nuisance and for which no sentence is specifically provided 12 Assemblage Restrictions ^ Prohibits the taking of non-structurally substandard buildings and non- contaminated parcels unless there is "no feasible alternative" in order to remediate blight or contamination in the area and all possible steps are taken to minimize the taking of non-structurally substandard buildings or non- contaminated parcels. Assemblage Restrictions ^ Prohibits considering blight or environmental contamination caused by a developer involved in the redevelopment of a blighted or contaminated area in determining whether an area is blighted or contaminated. 13 Public Hearing & Notice ^ Prior Law ~ None Cities typically approved resolution to authorize condemnation and amount of just compensation to be submitted to the court ^ New Law r Requires public hearing to authorize eminent domain Requires ELECTED governing body to approve eminent domain at a subsequent meeting at least 30 days after the public hearing r Requires resolution to identify the public costs & benefits from project, how it serves a public use & why the property is needed Right of f=irst Refusal ^ Prior Law ^ New Law None r If condemning authority determines the property is not needed for a public use, the authority must offer to sell the property back to the prior owner at the original price or the current FMV, whichever is lower 14 Changes That Increase Costs ^ Attorney Fees ^ Appraisal ^ Relocation Reestablishment ^ Loss of Going Concern Compensation Attorney Fees ^ Prior Law Condemning authority not required to pay unless commence condemnation action and then decide not to purchase ^ New Law r Court's discretion to require condemning authority to pay reasonable attorney fees & other costs of litigation if final compensation is at least 20% but not more than 40% of last written offer prior to filing petition. Court must award attorney fees if exceeds more than 40% or if court determines taking is not for public use 15 Appraisal ^ Modified to apply standards that are currently required for transportation purposes to be utilized for all acquisitions Appraisal - Reimbursement ^ Prior Law ~ Condemning authority reimbursed owner for up to $500 for appraisal ^ New Law r Condemning authority reimburses 1 & 2 family residences & acquisitions under $10,000 up to 1 500 & all other acquisitions up to 5 000 Requires reimbursement within 30 days of getting copy of appraisal & reimbursement information 16 Appraisal -Use at Hearing ^ Prior Law ^ New Law ~ No Restriction ~ Can't be used nor can appraiser testify unless appraisal is provided to opposing side at least 55 davs before hearing ~ Documentation related to loss of going concern must be provided at least 14 davs before hearing in order to be considered in hearing Relocation ^ Prior Law Acquiring authority's discretion to pay reestablishment expense between $10.000 & 50 000 ~ Appeal of relocation benefits made to party selected by acquiring entity ^ New Law r Acquiring authority is required to pay UP TO 50 000 ~ Appeal of relocation benefits to be heard by administrative law judge & acquiring authority is required to pay costs of proceedings (does not include attorney fees) 17 Loss of Going Concern ^ Prior Law ~ Limited instances and need by owner to prove they could not relocate the business ^ New Law Requires acquiring authority to compensate for it unless they can show by preponderance of evidence that: 1) The loss is not caused by the taking of the property 2) That the loss can be reasonably prevented by relocating the business 3) Going concern compensation would duplicate compensation otherwise being awarded Owner must give authority notice of intent to seek compensation within 60 day of first court hearing (public purpose) Things No Longer Allowed ^ Condemning Tenant Leases ~ Unless property meets blight test ^ Friendly Condemnation ~ Why important 18 Condemnation VS. TIF Requirements ^ Blight findings is the confusion/concern ^ Different findings required Condemnation VS. TIF Requirements ^ Blight -TIF ^ Blight -Condemnation / More than 50% of the / Building has to be buildings must be structurally considered structurally substandard substandard to / Can utilize all codes & don't need to be codes that are enforceable Do not need to cite owner for violations / Building is substandard if cost to bring into compliance/construct today exceeds 15% of the current assessor's market value / Has to be inspected and cited for enforceable code violations that involve specific structural aspects / Need to cite owner for violations and owner has right to cure / Cost to cure the violations needs to be more than 50 percent of the assessor's taxable market value for the building only 19 How New Law Affects Redevelopment ^ Increased Costs /Compensation requirements in law (attorney fees, loss of going concern, relocation, etc) /Overall may need to pay more than FMV to "hold out" owner ^ Can no longer do ~~friendly" condemnation How New Law Affects Redevelopment ^ Redeveloping shopping/strip centers or office complexes will be nearly impossible even if there is a willing seller /If long-term leases, cannot require tenants to move unless you condemn leases and meeting blight test is required ao Things to Consider ^ There is a difference between HRA Statue requirements for redevelopment (blight findings) and Eminent Domain requirements for blight ~ HRA Statute 469.028 -ground characteristics, faulty planning, irregular form & shape, inadequate size or combination which prevents normal development by private enterprise Eminent Domain standards are more restrictive but remember...eminent domain is just a tool to implement redevelopment ^ Need planning process & financial planning/modeling to address property owners that may be unwilling to sell ^ Eminent Domain is NOT A TOOL that is readily available right now due to new blight finding requirements 21