"The big guy has no consideration for the small guy, and the state is letting them get away with it," says Joe Mollo.

04/27/2003

BY ANDREA L. STAPE
Journal Staff Writer

SMITHFIELD -- The state wants Joe Mollo's land.

He has little choice. He can either negotiate a price to sell the property and leave; or wage a costly court fight to try to head off his eviction.

Either way, the state has dictated his future.

The land-taking began last May when the state condemned Mollo's property, which includes the Breezy Hill Farm & Garden Center, his house and two buildings he rents.

The Rhode Island Economic Development Corporation took the action to lease the land to Fidelity Investments, the mutual fund giant that plans to expand its office complex here and hire more workers.

State officials say they are exercising the state's power of eminent domain to take Mollo's land for the benefit of the public, because Fidelity will create additional jobs that pay better than the garden center.

Mollo says he wants to stay on the land his grandmother bought 92 years ago, land he had planned to turn over to his sons one day.

"What about my income and my future," he says. "Look how much we have to lose."

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Mollo is among a growing number of landowners across the country whose property is being taken by eminent domain as part of a state strategy to develop local economies.

The states are transferring the private land to other private businesses, businesses the states say can create higher-paying jobs and pay more in taxes than the land's current owners.

"People in economic development say this is the only effective tool we have for bettering economic opportunity," says Matthew Harrington, assistant dean at George Washington University Law School. "But if public use really means . . . another person can put [your land] to a better economic use, then no one's property is really safe."

MOLLO and other landowners along once-rural Route 7 watched the state coax Fidelity to Rhode Island in 1996.

With the state bleeding traditional manufacturing jobs, Gov. Lincoln Almond set out to attract higher-paying jobs, specifically at finanical services and biotechnology companies.

Almond targeted Fidelity, the Boston-based company that was looking to expand its mutual fund business.

In 1996, Almond offered Fidelity a package of tax and land incentives. The company agreed to lease 350 acres from the state for $25 million and to build a new office in a campus setting.

Fidelity promised to create as many as 2,245 jobs in the state and invest $30 million in new buildings. Fidelity also hinted at future expansion plans -- plans that could create up to 5,000 jobs, and add up to $8.5 million a year in state income tax payments.

This was the first time the state had used its power of eminent domain specifically to take private land and to lease it to private companies for economic development.

All of the landowners agreed to be bought out by the state.

In 1999, Dow Chemical arrived in Smithfield. The corporate giant leased an existing bio-pharmaceutical manufacturing plant from the state -- in the same office park as Fidelity. Two years later, Dow unveiled a plan to build a new 200,000-square-foot drug manufacturing facility, right next to Fidelity's office buildings.

After working to entice the companies to Rhode Island, Almond was determined to keep both. When they started fighting in 2001 over where Dow was going to put its new plant and Fidelity threatened to cancel its expansion plans, the governor's office and EDC were eager to pacify them.

The result: 40 acres of private land owned by Mollo and other property owners were condemned and taken over by the state to separate the companies with a buffer zone and smooth over the feud. The state says it was done with the general public's welfare in mind -- Fidelity plans to put 1,774 new employees on the property and build a new $4-million public road into the corporate office park.

To the state, the exercise of eminent domain powers in Smithfield clearly benefits the public because Fidelity's expansion could add as much as $8.5 million to state coffers. And legally, the state argues, it has the right to take property if it needs the land for a public use, in return for just compensation.

Fidelity's expansion in Rhode Island was "a major coup," and will have a positive effect on the state's economic health, says John R. Gowell, the lawyer hired by the governor to broker the eminent domain land taking.

"We're not saying [Fidelity's] jobs are more important than other jobs," Gowell says, "there's just a lot more of them."

GOVERNMENTS have used the power of eminent domain to take property since the 1500s. Today, in the United States, it can be exercised by the federal government, states and municipalities. Technically, it is supposed to be used only to take someone's land for a public use. Traditionally, public uses have been highways, bridges, post offices and army bases, says Dale Thompson, visiting assistant professor of law at Roger Williams University in Bristol.

Lately, more states are using eminent domain to take land and give it to private businesses for development -- expanding the definition, and boundaries, of the term "public use," according to Dana Berliner, senior attorney for the Institute for Justice. The Washington, D.C.-based public interest law firm sues state and local governments on behalf of property owners that have had their land taken by eminent domain.

Property rights advocates say taking a citizen's land for another private entity does not fall under the definition of public use.

"When you are talking about economic development, is there any private land that wouldn't create more tax dollars as an office park? No," says Berliner. "It gives the state a boundless power. If you can take one person's land for jobs and taxes, you can take someone else's."

Expansion of the term "public use" started in the 1950s when states, towns and municipalities began condemning property for urban redevelopment or slum rehabilitation, according to Gideon Kanner, a professor of law emeritus at Loyola Law School in Los Angeles. He has defended property owners across the country in eminent domain cases.

The public purpose in these cases was removing blight from a community, he said.

To Kanner, this was the beginning of a fast slide down a slippery slope.

"With that, they fired a starting gun and sent an army of bulldozers rumbling through American cities," says Kanner.

Over the past few decades, states started looking past urban slums and began taking non-blighted property and giving it to private entities in the name of the public good, calling it economic development, according to Berliner, with the Institute for Justice.

While the U.S. Constitution protects property rights, there's no overarching law that states follow when exercising eminent domain power. Courts in each state must look to their own constitutions for guidance, says Berliner.

"Most states haven't ruled on whether it's legal or not," she says. "By my count less than 20 states have had a ruling on this issue, and the U.S. Supreme Court has not ruled on the issue."

BUT RECENTLY, more landowners are contesting the states' power, and more courts are starting to wade into the discussion.

Several years ago, Connecticut exercised its eminent domain power in New London to condemn 90 acres of residential housing to build a $200-million complex of offices, upscale housing and a hotel. The land -- close to a brand new $300-million Pfizer research complex -- was taken with the goal of creating jobs and increasing state tax revenue.

Several of the landowners sued, claiming that taking the land didn't truly benefit the public, and the case is now pending before the Connecticut Supreme Court.

Other states, such as Mississippi, New Jersey and Illinois, also have recently used economic development as a justification for exercising their power of eminent domain to give property to private entities. Lawsuits were filed by homeowners in all three states, and in some cases courts have sided with the landowners.

"In the last five or six years really, courts have realized that things have gotten desperately out of hand and have started to look more closely at condemnations that benefit private [companies]," says Berliner. "For years, people thought that they couldn't fight city hall. Now they are realizing that they can, and that they can win."

Some states, though, are using eminent domain in an attempt to resolve major binds with minimum pain, says Harrington, the assistant dean of the George Washington University Law School.

With budgets tight, states are looking for additional sources of revenue. At the same time, property owners are unhappy with high taxes. Corporate tenants, such as Dow and Fidelity, take some of the tax burden off residential property owners. Their employees generate state revenues by paying income taxes.

"This particular case raises all the ugly development issues present today," says Harrington. "On the one hand you have a constituency demanding that the state stop urban sprawl, on the other hand you have people saying 'create more jobs and increase the commercial tax base.' "

MOLLO'S property was once his family's cow farm. He turned it into a garden center 15 years ago when his father gave him the land.

Both of Mollo's sons worked at Breezy Hill. And Mollo, 58, was planning to pass the business to them in a few years and retire to his townhouse in Arizona.

Mollo says business at the garden center has picked up since Fidelity came to town in 1996.

This spring, he'd rather be spending his time tending the seedlings in his greenhouse than fighting with the state.

"Right now they've put me in a situation where my income is being harmed and my business is in jeopardy," says Mollo, pacing the 30-inch wood boards in the dining room of the home he and his wife built by hand 32 years ago.

The state took the title to Mollo's property last May, and issued him a license to remain on the land until May 1, this Thursday.

But Mollo hasn't moved to actively fight the state on the constitutional rights issue. Right now, he continues to wait for his lawyer, former Lt. Gov. Bernard Jackvony, to negotiate with the state.

"As far as I'm concerned they've offered me about one-third of what it's worth," says Mollo.

Jackvony plans to contest the state's offer of about $850,000, including relocation costs for the property of about 8.5 acres in four parcels. And while Mollo and Jackvony say the state's taking of the land is unconstitutional, they both say the right amount of money would be a powerful motivator.

"If the Mollos feel they are being offered enough money to reflect the fair market value of their property, and the risk of going to litigation is minimized significantly, then possibly we can come to an understanding," says Jackvony.

If the negotiations fall through and the state moves to evict Mollo on May 1 or soon after, Jackvony plans to take "judicial action" and actively start fighting the state on the constitutionality issue through the court system. It's a move that could put Mollo's eviction on hold until the dispute is resovled.

ALREADY, ONE of the other property owners along Route 7 has settled with the state.

Bar owner Gerald Porcaro, who had resisted the taking, settled with the state in February and vacated his one acre property April 1.

Porcaro, 65, agreed to take from the state an amount well in excess of the original appraised value of the bar, Tina's Pub. Settling was a difficult decision for Porcaro, who saw his paisley-carpeted bar as a viable piece of the state's economy.

"We service hundreds of people over the course of the year -- that's not a few people," says Porcaro, sitting at a banquet table in his bar -- formerly known as the Touch of Class Nightclub. "But, they really have me hog-tied. It's a tough world out there."

Getting the right price is another part of the difficulty eminent domain presents property owners. The state appraises the land at its current market rate, not taking into consideration its future use.

In this process, homeowners often do not get what they consider to be just compensation, said Kanner, the law professor at Loyola.

"Fair value doesn't often include the value of the business," he says. "You get money for the dirt and bricks. you don't get paid for the business, even though it's destroyed."

The fight over valuation is one of the abuses inherent in exercising eminent domain, according to Harrington at George Washington University. Rather than deal with individual landowners, and their payment demands, companies use economic development agencies to take the land at a much lower cost.

"What eminent domain in this fashion does is it allows well-connected people, or people who do not want to go through the open market, to gather land with a minimum amount of fuss and financial outlay," said Harrington.

In Rhode Island, the state's Economic Development Corporation issued $10 million worth of bonds to acquire the property for Fidelity.

The company will have to pay a yearly lease to the state to pay off the bonds, but if Fidelity hires 1,744 people to work on the property, the state will erase the debt -- and Fidelity gets to keep the land.

ON THE LAND Fidelity already owns, roads wind peacefully through the bucolic countryside. Split rail fences, stone walls and antique farm equipment dot the landscape.

It stands in stark contrast to the chaos of Mollo's land, where cats roam free, bones rest under the picnic table outside his front door, and random cars are scattered across the property.

Still, it's Mollo's land, and it's where his family has made a living for almost 100 years. Fidelity plans to turn it into an office building for 1,385 more employees and a parking garage.

"The big guy has no consideration for the small guy, and the state is letting them get away with it," says Mollo.

If the EDC decides property needs to be taken for "the acquisition, construction, or operation of a project" that it decides would further the state's economic welfare, "the property shall be deemed to be required for public use," according to state law.

So Mollo faces a deadline he didn't set.

He's hoping to get more money. He may get evicted.

"The state of Rhode Island and the town of Smithfield jump through hoops when they hear Fidelity," says Mollo. "What chance do I have?"