The study began with a literature review of previous relocation studies, including the 1996 Relocation Retrospective Study, the 2002 National Business Study, and the 2006 Government Accountability Office Report: "Eminent Domain: Information about Its Uses and Effects on Property Owners and Communities is Limited." ORC provided an Executive Summary of the review including key findings and recommendations. Following is a summary of the studies and report cited.
The purpose of the 1996 Retrospective Study, contracted by the FHWA, was to review existing relocation policy and practices to identify areas in the Uniform Act and the Surface Transportation and Uniform Relocation Assistance Act (STURAA) which might require change or review. This study focused on three areas: residential owners, residential tenants, and businesses. Consequently, the research team conducted interviews with residential owners, residential tenants and business owners in nine States covering a broad geographic area. Displaced persons from a transit project were also interviewed to provide an example of a non-highway relocation project.
Although the 1996 Study contained recommendations related to residential relocation, this review addressed the topics in the study associated with business relocation. The three basic categories of business relocation benefits that have maximum payment limitations are search expenses, reestablishment expenses, and fixed moving (in lieu of) payments. The 1996 study did not address the fixed moving payment limits in any great detail, but did review and make recommendations regarding limits and eligibility for reestablishment and search expenses.
The conclusion from the 1996 study regarding reestablishment expenses was that the $10,000 limit for reestablishment items was too low at that point in time to adequately compensate many displaced businesses. This study made two recommendations concerning reestablishment expenses:
Although there have not been any Federal legislative changes increasing the reestablishment expense payment, when the regulations at 49 CFR, Part 24 were subsequently amended in 2005, several of the cost items that previously were contained under the $10,000 ceiling were moved to a cost category that did not include a cap (§24.303). The effect of moving these items to this new category with no cap was to have fewer items classified under the $10,000 limitation; however, it is still unknown whether this amount is adequate to reimburse a business for its reestablishment expenses.
The FHWA did not implement the recommendation to allow states to set their own caps on reestablishment expenses by using something similar to the fixed residential moving payment schedule. In 2000, however, there was a regulatory change at 23 CFR Part 710 that allowed FHWA participation in any project expense that is required by state law. For those states that have passed legislation to increase reestablishment expenses above the URA limitation, this change allows the State DOT to claim Federal participation on highway projects.
Under the category of search expenses, the study discussed simplifying the method necessary to claim the maximum $1,000 eligibility for search expenses. Subsequent to this study, the limit for search expenses was raised to $2,500. The 1996 study also pointed out that the ability to utilize and pay for professional relocation services might provide for overall benefits to certain types of business relocations. In 2005, a new subsection of the Federal Regulations at 49 CFR 24.303 contained a provision for professional nonresidential relocation services that are reasonable and necessary, but without a maximum cost limitation.
The most recent and comprehensive business relocation study was issued in April 2002, as report No. FHWA-EP-02-030. This FHWA-commissioned study dealt solely with business relocation situations, and went into significant depth to evaluate the issues facing displaced businesses in the years immediately prior to 2002. The study included interviews with various relocation assistance personnel representing Federal, State and local acquiring agencies. The 2002 Business Study also went to great lengths to conduct both personal and telephone interviews of previously displaced business owners and operators in seven selected States. The effectiveness of a pilot business relocation program that was nearing its completion stage on a project adjacent to I-195 in Providence, RI was also evaluated as an element of this study.
This study occurred prior to the regulatory modifications made to the business relocation assistance program that became effective on February 3, 2005. Several of the recommendations that were contained in the 2002 study were ultimately incorporated in full, or in part, in the 2005 49 CFR Part 24 regulatory revisions. Listed below is a summary of the findings and recommendations that came out of the 2002 study.
Through personal or telephone interviews with 178 displaced business owners and operators who were displaced not more than two (2) years preceding the study in the respective selected State, the 2002 study found that while most agency relocation assistance personnel had the best of intentions, they were generally not equipped to provide meaningful assistance in locating replacement properties. Although the agency personnel were typically able to provide and explain the program mechanisms adequately, the business owners and operators generally had to search out and evaluate replacement locations on their own.
At the time of the 2002 study, search expense reimbursement had a cap of $1,000. Most agency personnel and virtually all of the business displacees that were interviewed tended to agree that it would provide some reasonable benefit to raise the cap, if for nothing else than as an inflation adjustment. Subsequent to this study, the reimbursement cap was raised to $2,500, which was within the range of limits that the study recommended.
More important than the actual dollar reimbursement limit, the study found that many of the business owners and operators were not sufficiently advised of the availability of the search expense reimbursement category. This comment on the part of the relocated business community was widespread enough to apply some validity to the concern.
Although this was not a defined general area of inquiry for the 2002 study, both agency personnel and business owners and operators were questioned regarding the $20,000 limit for the fixed payment. This payment is meant to capture those small moves where reimbursement documentation is based on net business earnings rather than actual costs. If the cap were to be raised, then a greater percentage of the moves could be reimbursed on a more simplified basis. Based on the interviews conducted, there was general agreement that the fixed moving cost payment cap should be raised, again if only for inflationary reasons. The study did not go into any great depth as to how many documented or actual cost moves could be eliminated if the fixed cap were to be raised by any stated amount, however, raising the cap up to the $30,000 to $40,000 range seemed to fit in with the general consensus of those interviewed.
The study did not address the manner in which the average net earnings were calculated; nor did it address any recommendations as to how the eligibility for the fixed payment might be modified.
The most documented aspect of the 2002 Business Study was the adequacy of the reestablishment payment. Substantial analysis was made of both the flexibility and the $10,000 limit for this category of business move eligibility. At the time of the 2002 study, the reestablishment category of reimbursement had basically eleven (11) items of eligibility, which when combined together enabled the displaced business owner or operator to claim up to $10,000 in expense reimbursement. In interviews with both agency personnel and displaced business owners and operators, there was universal agreement that this $10,000 cap was too low for most business moves. There was also general agreement that the $10,000 reestablishment cap hindered many businesses in being able to make a successful transition move. Although there were numerous estimates of what limit would be reasonable (including unlimited reasonable and necessary), the study itself did make a recommendation. The study recommended increasing the reimbursement cap from $10,000 to $25,000 and providing for a 50% match for eligible expenses between $25,000 and up to $175,000, for a maximum agency payment of $100,000.
Although this recommendation was not adopted, when the regulations at 49 CFR, Part 24 were subsequently amended in 2005, several of the cost items that previously were contained under the $10,000 ceiling were moved to a cost category that did not include a cap (§24.303). The effect of moving these items to this new category with no cap was to have fewer items classified under the $10,000 limitation, which provided additional flexibility to businesses in claiming reimbursement for reestablishment expenses. One of the most common complaints made by impacted business owners and operators was that the reestablishment costs associated with making upgrades at the replacement site to account for building code and Americans with Disabilities Act (ADA) requirements were typically quite costly. As this item of reimbursement remains under the $10,000 reestablishment cap, this may continue to be a major concern for displaced businesses.
The 2002 Business Study also presented several common items for which business owners and operators felt they were due compensation, but are currently excluded from eligibility for reimbursement.
At the time of the 2002 study, the State of Rhode Island was in the final stages of a business relocation pilot program regarding the displacement of 76 businesses due to the realignment of I-195 in Providence, RI. While the pilot program did remove the cap of $1,000 on eligible search expenses, the centerpiece of the pilot program was providing an additional $75,000 of reimbursement cost for three eligible reestablishment items:
Additionally, a fourth item of "impact fees" was given its own $25,000 payment limitation. All other reestablishment items remained under the $10,000 payment limitation.
While the pilot program was not yet complete at the time of this 2002 Business Study, indications were that the added dollar availability created an environment which allowed for a significantly more successful relocation program than would have otherwise been expected. Most of the completed business relocations were able to legitimately claim most or all of the additional $75,000 in available benefits. Although the pilot program also allowed for increased mortgage interest payments, the historically low open market interest rate structure at the time did not lend itself to this category of payment being utilized to any great extent. While it is difficult to quantify, interviews indicated that the increased availability of dollar payments allowed businesses to relocate more easily, and in a timelier manner. An internal evaluation of the pilot program stated that "the state and its consultant believe the program made a stronger contribution towards successful relocation of all businesses."
One significant result of the pilot program was that the additional cost of the business pilot benefits raised the project business relocation costs to an estimated total of $7,350,000. About $3,064,000 (approximately 42%) of the total cost is attributable to the added pilot approved benefits. This information should be of some importance to those individuals who are responsible for estimating upcoming project costs with respect to transportation project planning.
It does not appear that there was any other analysis of the Rhode Island pilot program subsequent to that contained in the 2002 National Business Study. It is also interesting to note that the apparent success of the pilot program did not lead to any changes to Rhode Island laws or regulations concerning business moving cost benefits, although it did contribute to the flexibility provided in the revised regulations at 49 CFR Part 24 effective February 2005. This pilot project was considered to be a success, and the decision to not increase business relocation benefits statewide is likely attributable to the unique "one time" aspect of the situation.
In November 2006, the Government Accountability Office (GAO) issued a report to the U.S. Congress titled "EMINENT DOMAIN: Information about Its Uses and Effect on Property Owners and Communities Is Limited". The purpose of this report was to provide an overview on the use of eminent domain in general, and to review the legislative changes that had occurred throughout the United States in the period between June 23, 2005 and July 31, 2006, in particular. The date of June 23, 2005 marks when the U.S. Supreme Court handed down the Court decision Kelo v. City of New London (Kelo decision), which affirmed the rights of municipalities to utilize eminent domain in conjunction with redevelopment activities, as long as these eminent domain actions were not in conflict with that particular state’s law. This 5-4 decision in favor of the City of New London was responsible for 29 States proceeding to enact new legislation which was primarily aimed at curbing eminent domain use in those States. Although other legislation may have occurred since July 31, 2006, this GAO report is only inclusive of actions up until July 31, 2006.
Although the focus of the GAO Report is on changes in state legislation in reaction to the Kelo decision in conjunction with municipal redevelopment actions, the Report does provide a variety of background information on general eminent domain procedures and property owner entitlements. At several discussion points within the report, statements are made which indicate that acquisition professionals believe that the business relocation statutory reimbursement limits are too low to adequately compensate displaced businesses in many situations. The GAO report also references the FHWA 2002 National Business Study on several occasions, as additional support for the contention that business move reimbursement limits may be inadequate.
Other than general observations, the report does not provide specific details regarding business relocation payment limitations. One of the most relevant comments in the report can be found on page 16. "However, local officials, and redevelopment officials from four of the five cities we visited believed that payment amounts allowable under the URA might not be adequate to cover costs. For example, we were told that a $10,000 cap on reestablishment costs for business relocation, unchanged since 1987, was too low."
There do not appear to be any additional articles or studies that add relevant information concerning business relocation issues from a nationwide perspective. A review of recent publications from the Appraisal Institute and the International Right of Way Association did not reveal any articles of interest.
At the time of the 2002 National Business Relocation Study, six (6) individual states were identified as providing enhanced monetary benefits applicable to business relocation situations, over and above those benefits contained in Federal Regulations. At the present time, at least fifteen (15) individual states have been initially identified that provide for additional business relocation benefits. Apparently, this expansion of State designated business relocation benefits is occurring via both state legislative action and state case law.
One example of this state activity is a 2004 Oklahoma Supreme Court decision, which had the effect of removing all caps from business relocation benefits. In this case (State Department of Transportation v. Little, No. 96,978), the business owner claimed relocation costs in conjunction with the eminent domain proceedings regarding market value of the acquired real property. The trial court ultimately awarded relocation costs, in addition to the market value determination. The Oklahoma DOT appealed the trial court decision based primarily on the Uniform Act provisions, and the case was eventually heard by the State Supreme Court, which essentially upheld the lower court decision. The Supreme Court determined that in Oklahoma, relocation expenses may be considered as part of an eminent domain action compensating a property owner for value of property taken, and for consequential damages. The court stated, "landowners were not required to proceed under the relocation assistance acts for the recovery of their moving and related expenses, such being an element of just compensation in an eminent domain proceeding". Based on this State Supreme Court ruling, the state now pays actual, reasonable, and necessary costs in business relocation situations.There is a nationwide trend of individual states increasing the availability of monetary benefits for business relocations, especially in the area of reestablishment expenses. This information suggests that the Federal reestablishment expense limitation is still considered inadequate, even though the regulatory revisions of 2005 had the effect of moving five of the eleven items of eligibility out from under the reestablishment limit category, and into an actual cost category. While one solution may be to allow individual states or jurisdictions to pass their own legislation to address the need for increased business relocation payments, this solution will not promote the uniformity and consistency of the relocation assistance program. Neither will it provide the Lead Agency the ability to offer solutions to the other Federal Agencies that can only participate in the amounts currently provided under the Uniform Act and its implementing regulations. Those state and local agencies that implement aviation and transit projects using federal funding, for example, must use local funding to reimburse reestablishment expenses, fixed nonresidential payments or search expenses that exceed the Federal limits.