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					        Goodwill Study
      Executive Summary
          State of Connecticut
Office of Ombudsman for Property Rights

      Public Act No.07-207, Section 3
      Robert S. Poliner, Ombudsman

                January 1, 2008
 Robert S. Poliner, Ombudsman for Property Rights
                      Advisory Committee Members
Richard Allen                   State of Connecticut, Department of Transportation
Norman Benedict Sr. MAI, CRE    Norman Benedict Associates
Maura M. Cochran, SIOR, CRE     Bartram & Cochran
Lester G. Finkle II             U.S. DOT, Federal Highway Administration
Rachel Goldberg, Esq.           Stamford Urban Redevelopment Commission
John J. Leary, MAI, CRE         Leary Consulting & Valuation, Inc.
Eugene A. Marconi, Esq.         Connecticut Association of Realtors, Inc.
Dwight H. Merriam, Esq., CRE    Robinson & Cole, LLP
Kenneth J. Pia, Jr., CPA, ABV   Meyers, Harrison & Pia, LLC
Edward F. Pratesi, CPA, ABV     Brentmore Advisors, LLC
Rob Simmons                     State of Connecticut, Business Advocate
Jeanne Webb                     East Hartford Development Department


“The Ombudsman for Property Rights shall study the
feasibility of calculating relocation assistance for
businesses displaced by eminent domain or
condemnation, pursuant to Chapter 132 or 588l of the
general statutes, on the basis of any loss or gain in
good will associated with the displacement of the

Public Act No. 07-207, Section 3(b)

 The possible methods for calculating such loss or
  gain in good will.

 The advantages and disadvantages of basing
  relocation assistance on any loss or gain in good will
  associated with relocation of the business.

 The experience of other states.

 Possible strategies for municipalities to achieve the
  fiscal capacity necessary to compensate property
  owners for lost good will associated with
  displacement of a business.

Public Act No. 07-207, Section 3(b)

 A diverse group of business and real estate valuation
  experts, public agency officials and experienced real
  estate lawyers were recruited by the Ombudsman to
  advise him in researching and preparing this report.

 Regular public monthly meetings occurred to discuss
  and analyze information obtained through research of
  committee members and other interested parties.
  The public was invited to speak at these meetings.

 The Ombudsman condensed the materials into a
  report containing 11 specific recommendations.

             Methodology (cont.)

 The draft report was circulated among committee
  members for comment.

 The report as submitted is the result of the research,
  analysis and writing of the Ombudsman and advisory
  committee members.

 The report was submitted to the joint standing
  committees of the General Assembly relating to the
  Judiciary and Planning and Development.

         Good Will or Goodwill

 The terms are interchangeably used in case law,
  statutes and legal treatises.

 Connecticut cases discussing business valuations use
  “goodwill,” as the goodwill of a business.

 Both Government Accounting Standards Board (GASB)
  and Financial Accounting Standards Board (FASB) use
  the term goodwill.

            Definition of Goodwill

 “Goodwill” consists of the benefits that accrue to a
  business as a result of its location, positive reputation
  for dependability, skill, or quality, and any other
  circumstances resulting in probable retention of old or
  acquisition of new patronage.
  Uniform Eminent Domain Code § 1016, California Civil Procedure Code § 1263.510(b) and
  Wyoming General Statutes § 1-26-713(b). (The word “positive” has been added.)

 Goodwill of a business is sometimes referred to as
  “enterprise goodwill.”

 Enterprise goodwill is a transferable and saleable
Methods of Calculating Goodwill
   Standard of Value – Fair Market Value defined as
    the price at which property would change hands
    between a willing buyer and willing seller under no
    compulsion to buy or sell.

   Determining goodwill first requires valuing the

   There are three generally accepted valuation
      • Asset-based approach
      • Earnings-based approach
      • Market-based approach

             Methods of
     Calculating Goodwill (cont.)
   There are two generally accepted methodologies for
    calculating goodwill:
      • Capitalized Excess Earnings Methods.
      • Residual Method.

   The value in excess of a business’s tangible and
    identifiable intangible assets is generally considered

        Process of Valuation
     and Calculation of Goodwill
   An independent valuation is performed by a qualified
    business appraiser.

   No one method of valuation is controlling in
    determining value of a business or goodwill.

   The person charged with making an impartial
    decision as to value arrives at his/her opinion by
    employing the most appropriate method for
    determining gain or loss of goodwill.


1.   Businesses displaced by eminent domain that suffer
     a loss of goodwill associated with the displacement
     of the business should be compensated for the loss.

2.   Loss of goodwill should become an eligible category
     of payment under the Connecticut Uniform
     Relocation Act for established businesses with at
     least three years standing prior to the taking of the
     real property.


3.   The definition of goodwill should be consistent with
     definitions in the Uniform Eminent Domain Code
     and statutes of other states (including California).

4.   All recognized methods of determining the value of
     a business and calculating therefrom the loss or
     gain of goodwill should be allowed in accordance
     with the highest professional standards of business
     valuation appraising.


5.   Goodwill should be measured for businesses which
     do not move at the time of initiation of negotiations
     by the public agency or adoption of the resolution
     authorizing the plan of development showing the
     location of proposed development areas, whichever
     is earlier.

6.   Goodwill should be measured for businesses which
     move no earlier than one and no later than two
     years from the date of commencement of
     operations in the replacement location.


7.   The cap on allowable search and reestablishment
     expenses and fixed payments in lieu of moving
     expenses should be increased.

8.   Payment levels based on square footage, number of
     employees, manufacturing, gross volume of business
     or net earnings averaged over a period of years
     should become standards used to determine amounts
     of actual and reasonable search, reestablishment and
     in lieu fixed payments made to eligible businesses.


9.   A business operating in 10,000 sq. ft. or more or
     moving to a site that exceeds its current location by a
     factor of 1.25 but not less than 10,000 sq. ft. and
     employs 10 or more full and part time employees or
     is engaged in manufacturing or has a gross volume
     of business which exceeds $1,000,000 or an
     average net earnings over the last two years of at
     least $100,000 should be eligible to receive up to
     $25,000 in search expenses, $250,000 in
     reestablishment expenses and $250,000 fixed
     payments in lieu of moving expenses. (continued)


9.   All other businesses should be eligible to receive
     up to $10,000 in search expenses and $100,000 in
     reestablishment expenses and $100,000 in fixed

     The capped amounts should be indexed to the U.S.
     Department of Labor, Consumer Price Index and
     adjusted annually.


10. Municipalities should rethink the process through
    which development projects are conceived and
    carried out minimizing the need for use of eminent
    domain whenever possible.

11. Without regard to the stated public purpose or the
    chapter of Connecticut General Statutes under
    which property is acquired or condemned, state
    and local governments should be required to pay
    for loss of goodwill to a displaced business
    whenever a property is taken by eminent domain or
    acquired under a threat of eminent domain.
Relocation Assistance - Connecticut
   Connecticut Uniform Relocation Assistance Act
   currently allows for:

  Payment of actual, reasonable expenses of moving.
  Search expenses (capped at $500).
  A fixed payment in lieu of actual moving expenses
   equal to the average net earnings of the business for
   the last two years not less than $2,500 or greater than
  No payment for reestablishment expenses.
  Actual direct loss of tangible personal property as a
   result of moving or discontinuing a business.
  No payment is provided for loss of goodwill
 Relocation Assistance - Federal
  Federal Uniform Relocation and Real Property
  Assistance Act currently allows for:

 Payment of actual, reasonable expenses of moving.
 Search expenses (capped at $2,500).
 A fixed payment in lieu of actual moving expenses
  equal to the average net earnings of the business for
  the last two years not less than $1,000 or greater
  than $20,000.
 Reestablishment expenses (capped at $10,000).
 Actual direct loss of tangible personal property as a
  result of moving or discontinuing a business.
 No payment is provided for loss of goodwill.
     Recommended Changes to
     Relocation Assistance Act
 Add loss of goodwill as an eligible moving
  expense for all displaced businesses.

 For businesses operating in 10,000 sq. ft. of space
  and employing 10 or more people or manufacturing
  or gross volume of business more than 1 million
  dollars or two year average net income of $100,000.
   • Actual and reasonable search expenses should be
     increased to $25,000.
   • Payment of reestablishment expenses should be
     instituted and capped at $250,000.
   • Payment in lieu of actual moving expenses should
     be increased to $250,000.
     Recommended Changes to
     Connecticut’s Relocation
       Assistance Act (cont.)
 All other businesses – search expenses capped at
  $10,000, reestablishment expenses instituted and
  capped at $100,000 and fixed payment in lieu of actual
  moving expenses capped at $100,000.

 Repairs and improvements to the replacement site and
  some increased costs of operation at the replacement
  site up to two years should be considered eligible as
  moving expenses.

 Caps should be indexed and adjusted annually.

      Relocation Assistance
Other States Recent Modifications

 Maine – Increased reestablishment expenses to $20,000 and
  fixed payment in lieu of moving expenses to $100,000.
 New Hampshire – Increased reestablishment expenses to
 Maryland – Increased reestablishment expenses and in lieu fixed
  payment to the greater of $60,000 or the authorized amount under
  the federal Uniform Relocation Assistance Act.
 Wisconsin – In addition to allowable reestablishment expenses
  $50,000 to owner occupied businesses and $30,000 to tenant
  occupied businesses.
 Ohio – Created a new category of compensation for loss of
  goodwill up to $10,000.

    Payment of Loss of Goodwill
        as Compensation
    By statute, California and Wyoming allow for
    recovery of loss of goodwill provided:
   The loss is caused by the taking of the property or
    the injury to the remainder (partial taking);
   The loss can not be reasonably prevented by a
    relocation or by taking steps a prudent person
    would take to preserve the goodwill;
   Compensation for the loss will not be included
    under the Uniform Relocation Act; and
   Compensation will not be duplicated in
    compensation otherwise awarded to the business
   CT does not pay compensation to businesses
    for loss of goodwill.                                 24
          Other States
Business Damages/Compensation

 Florida and Idaho compensate for damage or
  destruction of a business of more than five years
  standing in a limited number of situations.

 Vermont compensates “business damages resulting
  from the taking or use of the property.”

 Louisiana compensates owners of businesses to “the
  full extent of loss, including all costs of relocation,
  inconvenience and any other damages incurred.”

          Other States
Business Damages/Compensation
 Minnesota compensates a business owner for
  destruction of “going concern value” as a direct
  result of condemnation.

 South Dakota recognizes “the good will of a
  business” as property capable of “appropriation.”

 Georgia allows recovery of business losses as
  “just and adequate compensation.”
              Small Business

 “Small business” is defined under federal relocation
  regulations as “a business having not more than 500
  employees working at the site being acquired.”

 99.7% of Connecticut’s businesses have fewer than
  500 employees.

 Calculation of gain or loss of goodwill bears no
  relationship to the public purpose which necessitates
  the taking of property and forces relocation of a

   Scenarios for Qualification
or Payment for Loss of Goodwill
   The business is located in real estate that is the
    subject of a taking, partial or whole, and as a result
    of the taking the business is forced to move and

   In the case of a partial taking, the business does
    not move but is negatively impacted.

   The business is located in real estate that is subject
    to taking. The business closes down rather than

   Same as above, the business closes down but
    would have relocated to a suitable replacement
    location if one existed.
Period of Time Loss of Goodwill
 Should Be Measured and Paid
 Businesses need money to plan for and make a

 Businesses that do not move should be able to
  determine loss of goodwill at the earliest time

 If relocation payments are increased, businesses will
  have more money available at the time of moving.

 Gain or loss of goodwill can be determined after the
  move is made.

   Municipalities should rethink the process through
    which projects are conceived and carried out.
   Municipalities should:

      •   Minimize the use of eminent domain
          whenever possible.
      •   Seek to relocate businesses within the
          development area or close by.
      •   Allow property and business owners to
          participate in redevelopment of their own
          properties or as investors in the development.
      •   Make municipal land use regulations less

             Strategies (cont.)

 Municipalities engaging in eminent domain should:
   • Anticipate and budget for added costs.

   • Seek reimbursement from federal and state grants
     and loans.

   • Seek additional investment of private capital.

               Strategies (cont.)
 State of Connecticut should consider creation of a tax
  increment financing program:
   • For the benefit of “location-dependent businesses.”

   • For the sole purpose of goodwill development at the
     replacement location.

   • Financed through sales and business taxes collected
     at the replacement location.

   • Grants would not be considered compensation or
     relocation assistance for loss of goodwill.


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