The 5-to-4 decision cleared the way for the City of New London, Conn., to proceed with a large-scale plan to replace a faded residential neighborhood with office space for research and development, a conference hotel, new residences and a pedestrian "riverwalk" along the Thames River.
The project, to be leased and built by private developers, is intended to derive maximum benefit for the city from a $350 million research center built nearby by the Pfizer pharmaceutical company.
New London, deemed a "distressed municipality" by the state 15 years ago, has a high unemployment rate and fewer residents today than it had in 1920.
The owners of 15 homes in the Fort Trumbull neighborhood, including one woman who was born in her house 87 years ago and has lived there since, had resisted the plan and refused the city's offer of compensation.
After the city condemned the properties in November 2000, the homeowners went to state court to argue that the taking would be unconstitutional. The Connecticut Supreme Court upheld the use of eminent domain in a ruling last year.
In affirming that decision, the majority opinion by Justice John Paul Stevens resolved a question that had surprisingly gone unanswered for all the myriad times that governments have used their power under the Fifth Amendment to take private property for public use. The question was the definition of "public use."
The homeowners, represented by a public-interest law firm, the Institute for Justice, which has conducted a national litigation campaign against what it calls eminent domain abuse, argued that taking property to enable private economic development, even development that would provide a public benefit by enhancing the tax base, could never be a "public use."
In its view, the only transfers of property that qualified were those that gave actual ownership or use to the public, like for a highway or a public utility.
But the majority concluded on Thursday that public use was properly defined more broadly as "public purpose." Justice Stevens noted that earlier Supreme Court decisions interpreting the public use clause of the Fifth Amendment had allowed the use of eminent domain to redevelop a blighted neighborhood in Washington, to redistribute land ownership in Hawaii and to assist a gold-mining company, in a decision by Justice Oliver Wendell Holmes in 1906.
"Promoting economic development is a traditional and long accepted function of government," Justice Stevens said, adding, "Clearly, there is no basis for exempting economic development from our traditionally broad understanding of public purpose."
In a dissenting opinion, Justice Sandra Day O'Connor objected that "the words 'for public use' do not realistically exclude any takings, and thus do not exert any constraint on the eminent domain power."
Justice O'Connor said, "Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded."
Justice Stevens, examining the New London plan in light of the majority's general analysis, said the plan "unquestionably serves a public purpose," even though it was intended to increase jobs and tax revenue rather than remove blight.
He described the plan as "carefully formulated" and comprehensive. Sounding a federalism note, Justice Stevens said that state legislatures and courts were best at "discerning local public needs" and that the judgment of the New London officials was "entitled to our deference."
Justices Stephen G. Breyer, Ruth Bader Ginsburg, Anthony M. Kennedy and David H. Souter joined the majority opinion in Kelo v. City of New London, No. 04-108. Justice Kennedy also wrote a separate concurring opinion to emphasize that while there was no suggestion in this instance that the plan was intended to favor any individual developer, "a court confronted with a plausible accusation of impermissible favoritism to private parties should treat the objection as a serious one and review the record to see it if has merit."
Justice O'Connor's dissenting opinion was joined by Chief Justice William H. Rehnquist and by Justices Antonin Scalia and Clarence Thomas. She wrote that rather than adhering to its precedents, the court had strayed from them by endorsing economic development as an appropriate public use.
"Who among us can say she already makes the most productive or attractive use of her property?" Justice O'Connor asked.
She added: "The specter of condemnation hangs over all property. Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall or any farm with a factory."
Both Justice O'Connor and Justice Thomas, who also filed his own dissent, said the decision's burden would fall on the less powerful and wealthy.
"The government now has license to transfer property from those with fewer resources to those with more," Justice O'Connor said. "The founders cannot have intended this perverse result."
Justice Thomas, who called the decision "far reaching and dangerous," cited several studies showing that those displaced by urban renewal and "slum clearance" over the years tended to be lower-income minority residents.
"The court has erased the Public Use Clause from our Constitution," he said.
In the majority opinion, Justice Stevens said, "The necessity and wisdom of using eminent domain power to promote economic development are certainly matters of legitimate public debate."
The court did not "minimize the hardship that condemnations may entail," he said, despite the fact that the homeowners will receive "just compensation."
Justice Stevens said that states remained free to place restrictions on their own use of eminent domain power through their own constitutions and laws, as many have; California, for example, has a law restricting to blighted areas the use of eminent domain for economic development.
Scott G. Bullock, the lawyer who argued the case for the New London homeowners, said in an interview that his organization, the Institute for Justice, would accept the court's invitation and "continue the fight in the state supreme courts." As a result of the decision, he said, "we are going to see more eminent domain abuse and a growing grass-roots rebellion against this type of government action."
Allan B. Taylor, a partner in the Hartford law firm Day, Berry & Howard who filed a brief on New London's behalf for the Connecticut Conference of Municipalities and organizations of cities in 31 other states, said an opposite outcome in this case would have ushered in an "extraordinary revolution."
If the court had not upheld the Connecticut Supreme Court, he said in an interview, "it would greatly limit what cities and towns all over the country could do." Mr. Taylor said he read the opinion not as a green light for the wholesale use of eminent domain, but as "a green light for continuing to do careful and responsible planning."
The decision was a clear defeat for the long-term effort by Chief Justice Rehnquist and Justice Scalia to limit government control over private property. Although a series of decisions from the mid-1980's through the early 90's had appeared to indicate a major shift in the court's traditional deference to government land-use policies, that effort has stalled in recent cases.
By the same token, the decision was the latest success for Justice Stevens, the 85-year-old senior associate justice, who appears to be having one of the most productive terms in his 30 years on the Supreme Court.
The New London case was among the final decisions the court was expected to make in this term. The court indicated that Monday would be the final day of the term.