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Wednesday, October 18, 2006 

Important New Trends in Property Rights

After the Kelo decision about eminent domain, many states have responded with ballot initiatives that would limit the broad powers of local governments to take private property. In Reason, Ronald Bailey takes a look at some interesting aspects of these initiatives. I wasn't aware of this, but some of the ballot initiatives would demand compensation for regulatory takings too. A regulatory taking happens when the government restricts what you can do on your land. Some people are unhappy about this, as Bailey points out...
Naturally, people who think they know best how other people should use their property are up in arms over the initiatives. The Washington Post characterizes property rights advocates as "trying to harness anger over the [Kelo] ruling in an effort to pass state initiatives in the West and federal legislation that could unravel a long-standing fabric of state and local land-use regulations. Among other things, the rules control growth, limit sprawl, ensure open space and protect the environment." Unmentioned by the Post is that the rules do all those good things without paying people who own the affected farms, ranches, forests and homes a dime for the lost value of their land.
There has always been a tension between property owners and interest groups about who gets to do what and where. Bailey seems to be saying that the restrictions are fine, but the land owners should be compensated. Interest groups, especially environmental groups, are against this.

Bailey points out a strange conflict here with the environmental groups...
The puzzle at the heart of the environmentalists' reluctance to compensate landowners for zoning restrictions comes into focus when you consider their attitudes toward conservation easements. A conservation easement is a voluntary legal arrangement in which a landowner agrees to protect the conservation values of a piece of land by permanently limiting its present and future uses. Landowners then donate the easement to qualified conservation organizations that make sure the land is managed in line with the restrictions established by the easement. For this land owners get substantial federal and state income tax breaks.
Conservation easements are increasingly popular. There was a presentation about them at this year's State Bar Environmental Law CLE. The philosophical, pro-environment effects coupled with the significant tax breaks make them very attractive to many people. Bailey shows just how attractive that they are...
Without bothering to go through the calculations here, one tax advisor notes that the combination of federal income and estate tax benefits can equal or exceed the cost of the easement itself, up to as much 146 percent of the cost of easement. In other words, voluntary land restrictions are compensated-—sometimes very well compensated-through the tax code.
Very attractive.

So you can chose to put a restriction on your property and get compensation, but property owners who have restrictions imposed upon them get nothing. Funny how that works. Bailey states that if we compensate voluntary land use restrictions, then we should especially pay for imposing involuntary land use restrictions. It's a matter of fairness.

Regulatory takings have been a prickly issue for property rights advocates specifically and conservatives in general for a long time. The Supreme Court said in the Lucas v South Carolina Coastal Council case that a regulation that takes 100% of the value of a property is a per se taking. The government must pay you for your property if some law or regulation takes all of the value from your property. In Lucas, this was an anti-erosion regulation that restricted development a certain distance from the shoreline. Mr. Lucas' property was completely within that restricted zone. The Court said that he had to be paid for his property.

Other than a 100% value destruction, there is no bright line rule for other regulatory takings. (EDIT: Whoops. I forgot the per se rule for any permanent physical occupation from the Loretto case.) The Penn Central v New York City case created one of those unpredictable Justice Brennan balancing tests. Basically, Brennan said that it is possible for a regulation to "go too far" and then it is a taking. Of course, that's not very clear. It's ad hoc. The Court will have to go through a very fact specific examination and then make a judgment about the severity of the regulation. The Court has never had 5 votes to say that any regulation is a taking.

I'm interested to see the language of some of these ballot initiatives. If they are as expansive as they sound, this could spark a major change in property regulation in this country. It's amazing that Kelo has had such far reaching effects. The decision has riled up every property rights advocate in the country. It's also caused us to rethink how we regulate property. Reexamination and revision of policy is a healthy thing. I'm interested to see how this all turns out in the end.

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