Not that Kelo, and its question of whether governments ought to be able to take and pay for private property in order to turn the property over to another private party, needs to be linked to post-Katrina rebuilding to be relevant, but it is the case that New Orleans's urban renewal, with federal funds in the mix, will repeatedly raise the question of public/private use. The law seems to be that, subject to state constitutional and statutory constraints (of which there are now many), a government may take (with compensation) and transfer to a developer, say, in the interest of overcoming blight or pursuing another such easily asserted public purpose. But the popular reaction is currently to the contrary; Americans across the political spectrum are suddenly repelled by the idea that the government can force a sale on a property owner absent some emergency or plainly public good.
The popular reaction might seem puzzling because there is broad approval, except among libertarians, for environmental regulation and other government interventions that also force burdens on some property owners in order to benefit other, private citizens, albeit more than one at a time. It is tempting to say that the city in which Kelo unfolded, is a key element of the story. Some (local?) governments may simply be regarded with skepticism when they claim to have a plan to bring economic development to an area that they have long controlled. But I think there is more to the story.
In many of the cases, the beneficiary is a real estate developer. A big box store can buy a tract of land from a farmer on the outskirts of town or, as the city government hopes, build in a neighborhood with many smaller property owners, some of whom will hold out and demand very high prices from the developer. Similarly, a few owners may not sell at all, either because of their attachment to their places or because they hope to benefit as neighbors of the new economic development. But in a world where government can take and transfer, the developer can save a great deal of money by appealing to the government to act as intermediary. Citizens might be right to be skeptical. At times the taking is socially efficient, and beneficial to nearly everyone involved. But at times the plan is questionable and only economical with the government's intermediation -- not to mention tax breaks thrown into the package.
In the environmental and other settings, it is often the case that beneficiaries are dispersed and not at all well organized; they may be citizens who hope for a greenbelt or for cleaner air to breathe. In contrast,the burdened property owner is often a single developer or factory. And so there is a better explanation for the popular reaction to Kelo. Where the government operates on behalf of a party or interest group that is likely to be a political overachiever, suspicion attaches to the use of the takings power. And where the government takes from such a well-positioned interest group and transfers value, in one way or another, to dispersed interests that are normally though to have difficulty organizing, there is more sympathy for the use of eminent domain - and even for uncompensated regulatory takings. To be sure, the fact that the government acts at all means that these interests were not so powerless after all; nevertheless, if we keep our eye on the likely power of the interest groups that gain and lose from government takings, we can understand better the intuitive reaction that citizens have to practices and lawmaking in this area.
It remains to be seen how much judge-made law will track this idea. I think there is a hint of this sensitivity to public choice considerations in the case law, but it's not a clear cut matter. In any event, I suspect that large-scale rebuilding, including the redrawing of streets and other infrastructure in New Orleans, will give us new opportunities to evaluate judicial and legislative treatments of property owners.