Subsidy Fiasco: Millions Spent, Homes Destroyed for Nothing

Published December 15, 2009

One of the most-criticized U.S. Supreme Court decisions in recent history is now linked with one of the biggest economic development failures in history.

Pharmaceutical maker Pfizer is pulling out of New London, Connecticut, where local officials have spent more than $70 million to raze a neighborhood of middle-income homes and small businesses. The company moved to New London nine years ago after receiving more than $160 million in tax incentives and grants.

Pfizer promised more jobs and higher tax revenues if city officials would turn over to it the Fort Trumbull property, but the 90 acres stand empty.

Throwing salt into the wound is the further announcement Pfizer plans to close its New London research headquarters, moving nearly 1,500 jobs out of town.

‘Final Nail in Coffin’

“Pfizer pulling out is the final nail in the coffin of this whole sad story,” said Scott Bullock, an attorney with the Institute for Justice, which represented Suzette Kelo and other property owners in the case known as Kelo v. New London.

Pfizer had persuaded New London officials to use eminent domain to seize the Fort Trumbull neighborhood, adjacent to the company’s research facility. The company had plans for a new hotel, upscale condos, and offices on the property. Kelo led a group of property owners in fighting the city’s use of eminent domain. In 2005 the Supreme Court ruled 5-4 against the property owners.

‘Vast Wasteland’

“The place is now a vast wasteland filled with overgrown grass and feral cats,” said Bullock. “And now Pfizer is moving out of New London. The property is going to be abandoned.”

New London City Manager Martin Berliner did not return calls for comment. Pfizer spokesperson Kristen Neese also did not return calls.

The Kelo case garnered national attention because of its potentially wide-ranging implications. As then-Justice Sandra Day O’Connor wrote in her dissenting opinion, “The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more. The founders cannot have intended this perverse result.”

‘Public Purpose’ Enough

Despite O’Connor’s arguments, Justice John Paul Stevens wrote in the majority opinion, “promoting economic development is a traditional and long accepted function of government.” Under his ruling, property does not have to be abandoned or blighted to be seized. The ruling also states a “public purpose”–not a “public use,” the wording in the Constitution–is enough for government to justify taking private property and giving it to another private party.

The ruling upset so many people that most states have since revised their eminent domain laws to make property seizures more difficult.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.