Ohio Public Law Update

    View Authors Summer 2006

    Ohio Supreme Court Strikes Down City's Use of Eminent Domain Solely for Economic Benefit

    In our Ohio Public Law Update from July 2005 (reporting on the U.S. Supreme Court decision in the Kelo v. New London case which upheld, under the U.S. Constitution, the use of eminent domain for economic development) we stated that the Ohio Supreme Court had not at that time addressed whether a city, under the Ohio Constitution, could use its eminent domain powers solely for economic development. On July 26, 2006, the Ohio Supreme Court issued its decision in Norwood v. Horney, ___ Ohio St. 3d ___, 2006-Ohio-3799, striking down, under the Ohio Constitution, the City of Norwood's use of eminent domain for a redevelopment project in a "deteriorating area" of that city.

    Norwood had entered into a redevelopment contract with a private developer in connection with that project and expected that the redeveloped area would result in nearly $2 million of annual revenue for Norwood. The trial court found that Norwood had abused its discretion in finding the area of the city to be redeveloped was a "slum, blighted or deteriorated area." This is a necessary finding under Ohio law in order to exercise urban renewal powers, see State ex. rel Bruestle v. Rich, 159 Ohio St. 13 (1953). However the trial court, deferring to legislative determinations by Norwood's City Council, also concluded that Norwood had not abused its discretion in finding that the area was a "deteriorating area" (as defined in Norwood's codified ordinances) and therefore upheld Norwood's use of its eminent domain power for that project. The Ohio Court of Appeals thereafter denied the property owners' petition to stay the rulings of the trial court pending an appeal of the lower court decisions, based on language contained in R.C. 163.19 effectively preventing appellate courts from entering such stays.

    The Ohio Supreme Court, in a unanimous decision, reversed the lower courts and found the taking to be unconstitutional under the Ohio Constitution. The Ohio Supreme Court made a number of holdings on the use of the eminent domain power by political subdivisions under the Ohio Constitution including:

    • The use of the term "deteriorating area" as a standard for a taking is void for vagueness and is unconstitutional because the term inherently incorporates speculation as to the future condition of the property to be appropriated rather than the condition of the property at the time of the taking.
    • The fact that the appropriation would provide an economic benefit to the government and community, standing alone, does not satisfy the public-use requirement of Section 19, Article I of the Ohio Constitution.
    • The courts are to apply heightened scrutiny when reviewing statutes (including ordinances and resolutions of political subdivisions) that regulate the use of eminent domain powers, and the void-for-vagueness doctrine applies to those statutes.
    • The portion of R.C. 163.19 that prohibits a court from issuing a stay of a taking while an appeal is pending violates the separation-of-powers doctrine and is therefore unconstitutional; that portion is severed from that statute while the rest of the statute remains in effect.

    It is worth noting that the Ohio Supreme Court stated that "[a]lmost all courts, including this one, have consistently upheld takings that seized slums and blighted or deteriorated private property for redevelopment, even when the property was then transferred to a private entity, and continue to do so."

    It is also worth noting that the Ohio Supreme Court stated, in a footnote, that "given our reaffirmation that the Ohio Constitution confers on the individual fundamental rights to property that may be violated only when a greater public need requires it, there are significant questions about the validity of the presumption in favor of the state that is set forth in R.C. 163.09(B), which provides that a resolution or ordinance of an agency declaring the necessity of an appropriation shall be prima facie evidence of necessity in the absence of a showing by the property owner of an abuse of discretion." The court in that footnote seemed to allude that a "clear and convincing standard of proof" might be more appropriate but indicated that it did not address that issue since it recognized that "the General Assembly is currently reviewing legislation in this area of law."

    Industrial Development Bond Capital Expenditure Limit to Double to $20 Million

    Effective January 1, 2007, the maximum permitted capital investment in a local jurisdiction for companies with manufacturing facilities financed with tax exempt bonds will double to $20 million from the existing $10 million limitation. The maximum size for the industrial development bond issue will remain at $10 million. The lower interest rates that accompany tax exempt bonds are attractive to both companies locating manufacturing facilities and municipalities and other political subdivisions seeking to attract those manufacturing facilities.

    Generally, the requirements for financing a manufacturing facility with Small Issue Private Activity Bonds include:

    • At least 70 percent of the net bond proceeds must be used for "core manufacturing" facilities and equipment directly involved in producing or manufacturing a product.
    • The balance of the proceeds must be used for items "related" to "core manufacturing," such as loading docks or rails spurs, temporary storage areas for raw materials or finished products, testing facilities, most employee parking areas, restrooms, lunch rooms and locker rooms, and office space used solely for core manufacturing or related facilities. (Note: 2 percent can be used for issuance expense and 3 percent for items unrelated to core manufacturing.)

    There are also other forms of tax exempt financing that may be used in lieu of the manufacturing bonds discussed above, including "exempt facility" bonds in an unlimited amount (subject to availability of state "volume cap") for solid waste disposal or recycling facilities or for sewage facilities supporting manufacturing activities.

    It is not too soon to begin planning to take advantage of these additional financing opportunities available January 1, 2007. Please contact your Squire Sanders lawyer for more information about how Small Issue IDBs and other bonds or financing vehicles can benefit your company or community.

    Recent Legislation of Interest

    House Bill 294, which will be effective September 28, 2006, provides an expedited foreclosure procedure for property that is both unoccupied and has delinquent property taxes. The property may be offered for sale at a public auction in lieu of a judicial foreclosure action, and if the purchase at the public auction is for less than the sum of the liens and costs against the property, all of the liens for taxes due prior to transfer and liens subordinate to the tax liens will be deemed satisfied and discharged. Further, if the Board of Revision finds that the total delinquent taxes and related costs against the abandoned property are greater than the property's fair market value, the Board is authorized, without a public auction, to order the sheriff to execute a deed to a municipal corporation, county, township or community development organization or to a certificate holder of delinquent taxes and the liens against the property would be deemed foreclosed.

    If a public action is held but the property is not sold, the Board of Revision may, in its discretion, upon petition from a municipal corporation, county, township or community development corporation in which the land is located, order the sheriff to convey the land by sheriff's deed to that petitioner for the costs of the proceedings or such other amount agreed upon. In that instance, the petition must include a representation that the petitioner will commence basic exterior improvements that will protect the land from further deterioration within 30 days after receiving legal title. The County Treasurer may, but is not required to, waive all or a portion of the tax liens against the abandoned property if the Treasurer determines that the transfer of the abandoned property will result in the property being occupied.

    Recent Decisions of Interest

    "Record," as used in R.C. 149.351 and as defined in R.C. 149.011, may be a single document within a larger file of documents as well as a compilation of documents and can be any document, regardless of physical form or characteristic, whether in draft, compiled, raw, or refined form, that is created, received or used by public office or official in the activities of the office in the organization, functions, policies, decisions, procedures, operations, or other activities of that office, and "violation," as used in R.C. 149.351(B), means any attempted or actual removal, mutilation, destruction, or transfer of or damage to a public record that is not permitted by law. Kish v. Akron, 109 Ohio St. 3d 162

    Statute authorizing the Public Utilities Commission of Ohio to close a municipal railroad crossing did not unconstitutionally infringe on city's home rule powers; the "closing of railroad crossings is a matter of statewide concern and is not a power of local self-government reserved to municipalities under their Home Rule powers." Reading v. Pub. Util. Comm., 109 Ohio St.3d 193

    The Ohio Constitution restricts the expenditure of monies derived from the registration, operation, or use of vehicles on public highways and from fuels used to propel such vehicles to the specific highway purposes listed in Section 5a, Article XII of the Ohio Constitution, or to purposes directly connected thereto, and, therefore, payment of liability insurance from such monies is not permitted where the record before the court contains no evidence that those premiums were "directly connected" with highway purposes. Knox Cty. Bd. of Commrs. v. Knox Cty. Engineer, 109 Ohio St. 3d 353

    City was not entitled to assert immunity defense under R.C. 2744.03(A)(5) in an action by property owner against it for damages caused by sewage backup from sewer which city had known for many years was deteriorating. The appellate court stated that the "city has a duty to properly maintain the sewers and cannot shirk its duty by claiming that the decision to properly maintain the sewers involved discretion in allocating limited financial resources and personnel." Malone v. Chillicothe, 2006-Ohio-3268 (Ohio App. 4th Dist.)

    Pursuant to R.C. 321.44(A)(2), a court of common pleas may use monies in the county probation services fund to pay the compensation of county probation officers. 2006 Op. Att'y General No. 2006-024