June 2005 Issue

Municipalities Are Starting To Hurt Small Businesses Where They Live

Before its term ends this summer, the Supreme Court is expected to decide a case that has significant impact on small businesses across the country.

At stake are millions of dollars involving local municipalities, developers and small firms caught in the middle.

In the last few years, local governments have increasingly thrown curves at small firms in situations across the country. These local governing bodies are using the power of eminent domain to take property from smaller companies, individual homeowners and property owners, and then handing the assembled parcels over to developers.

The case before the Supreme Court involves property owners in Bridgeport, CT but municipalities and small firms in New Jersey, Michigan and hundreds of other locales are watching the case with extreme interest.

In the Bridgeport case, the town is trying to move businesses and homeowners from a somewhat rundown area to make way for a major redevelopment.

In Ridgefield, NJ, much the same situation is occurring but in this instance, the properties are mainly long-established businesses that are able to continue in profitable commerce because of the location and low rents.

There are other similar situations across the country, with many cities also eying similar moves should the case go Bridgeport’s way.

Long Branch, NJ has been embroiled in a similar situation as it tries to return to its glory days as a resort and vacation spa. Included in this controversy was the famous Pony Bar, home to Bruce Springstein’s original band venue.

The problem facing many business owners caught in these controversies is that they are in locations where the rents or ownership are low. Often, these locations also have a low-income working force near at hand or easily accessible.

If forced out, these firms have few alternatives in terms of low-rents and worker availability.

Eminent domain was originally conceived to permit railroads and others to amass a right-of-way or for new municipal services to be constructed.

Recently, there has been a trend by large cities, now being followed by smaller local bodies, to use this process to assemble parcels for developers.

Municipal officials argue that the ratables to be obtained justify the exercise of municipal power.

Critics maintain that this is a “giveaway” to politically connected developers with most of the benefits going to private individuals.

Regardless of the these arguments, smaller firms are being hammered by this trend and the Supreme Court’s decision, expected before the close of this term, should have a powerful impact on this trend.

Court watchers have no clue as how the Justices will rule. Should they rule in favor of the city, many other municipalities are expected to rush to make deals with developers.

For smaller firms, this newest obstacle is looming as a very real threat to many companies.

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