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The Western Property Rights Wildfire

Western voters to decide whether to rein in government control of land use, eminent domain

Leonard Gilroy
August 9, 2006

The stakes are high for property owners this November, as voters in at least five Western states will decide on ballot measures designed to protect private property rights from the expanding reach of regulators.

Taking their cue from a similar initiative passed by Oregon voters in 2004, all of these measures aim to provide landowners relief from regulatory takings—the de facto "taking" of private property via restrictions on the ability of property owners to use their land in ways legal at the time they bought their property. In other words, regulatory takings occur when government changes the rules of the game, adopting regulations that prevent landowners from realizing the economic potential of their property investment.

Imagine if government were to pass a law that prevented citizens from accessing half of the 401K funds they've accumulated after years of work. The outrage would be swift and vociferous. Yet, states and local governments nationwide routinely enact land use regulations that artificially dampen private property values. The difference is that the impacts of land use regulation tend to go unnoticed unless your property happens to be one of the ones affected.


Oregon's Measure 37 Sparks a National Movement

Since the early 1970's, Oregon has aggressively used land use regulation as a means of preserving farm and forest land. By legislative fiat, thousands of rural property owners that bought their property as a nest egg or to split among family members were rendered unable to subdivide their property or use it for anything but agriculture or open space. And since government wasn't required to compensate landowners for the economic impacts of their regulations, the public-at-large essentially got to enjoy the benefits of open space and scenery on the regulated property owner's dime.

Fed up with Oregon's restrictive land use laws, voters passed Measure 37 in late 2004 to rebalance the equation and bring fairness to the implementation of land use regulation. Measure 37 requires that state or local governments either compensate landowners when land use restrictions reduce the value of their property or waive the restrictions, reinstating the rights owners had when they bought their land.

After surviving a constitutional challenge earlier this year, Measure 37 has become the model for addressing regulatory takings at the state level. At least five states—Arizona, California, Idaho, Montana, and Washington—will be voting on similar measures this November, and more may be on the way. A constitutional amendment requiring compensation for regulatory takings has qualified for Nevada's ballot but is currently the subject of a legal challenge. Also, proponents of a regulatory takings measure in Colorado have until August 7th to gather enough signatures to qualify their measure for the November ballot.


Breaking Down the Ballot Measures

While the state ballot measures share a common intention with Measure 37—protecting landowners from regulatory takings—each measure takes a unique approach (see Table 1 below):

Scope: Each of the ballot measures listed in Table 1 would address regulatory takings, but notably, all but Washington's Initiative 933 (I-933) also include provisions that would also prevent the use of eminent domain for economic development purposes. These measures are designed to capitalize on the tremendous public and political momentum generated in the aftermath of the U.S. Supreme Court's 2004 Kelo vs. New London decision, which gave local governments a green light to use eminent domain to condemn private property for the purpose of enhancing the local tax base.

These so-called "Kelo-Plus" measures offer a single vehicle to address eminent domain abuse and regulatory takings in one comprehensive set of property rights protections. However, they also carry an additional element of political risk, as vocal opposition to the regulatory takings component could jeopardize the measures' passage, despite the widespread public support for eminent domain reform. Of course, measure backers would counter the opposite�that the eminent domain provisions are likely to garner public support that a pure regulatory takings measure might not be able to generate on its own.

Choice of Remedy: Oregon governments have two options available for handling successful Measure 37 claims; governments can either (1) compensate landowners for the lost property value due to regulation, or (2) issue waivers that remove, modify, or fail to enforce the regulation in question. Allowing both compensation and waivers as remedies offers government a great deal of flexibility in how it addresses valid regulatory takings claims. Under Measure 37, cities and counties have chosen to issue waivers to settle nearly all of the claims processed to date, returning to property owners the rights they had when they originally bought their property, while simultaneously giving government an option to avoid monetary liability.

Arizona's Prop 207, Montana's Initiative 154 (I-154), and Washington's I-933 would follow in Measure 37's footsteps by giving local governments the same options of compensation or waivers. By contrast, California's Prop 90 and Idaho's Prop 2 each provide that compensation is the only available remedy.

Retroactivity: In order to provide relief to landowners impacted by more than thirty years of heavy-handed land use regulation, Measure 37 was designed to be retroactive to the date at which the landowner (or landowner's family) acquired their property. Long-time landowners have thus been able to file claims to use their property in the ways legal at the time they bought their property.

Most of the current ballot measures differ from Measure 37 by being prospective-only measures; i.e., they will only apply to future regulations and will not allow property owners to submit compensation claims for regulations already on the books. This approach has three key advantages:

Washington's Initiative 933 (I-933) is the exception, as it would be retroactive to January 1, 1996. While most cities and counties had already completed their mandated planning and zoning under the state's Growth Management Act (GMA) at that point, I-933 drafters selected that date due to a perceived a rise in excessively burdensome land use regulation over the last 10 years.

Constitutional vs. Statutory: Like Measure 37, Arizona's Prop 207, Idaho's Prop 2, Montana's I-154, and Washington's I-933 involve changes to state statutes. By contrast, California's Prop 90 and Nevada's Property Owners Bill of Rights would both amend their state constitutions. While constitutional amendments are perceived to be more permanent legal constructs, they are also likely to be a more difficult sell to those voters skeptical of any attempt to alter a constitution, regardless of the underlying issue at stake.


Measure Opponents Share the Same Playbook

During the campaign for Measure 37, opponents' arguments largely fell into two main categories, and these arguments are being echoed in each of the states with measures on the fall ballot:

"The measures will harm the environment, destroy land use planning, and lead to endless land use conflicts": In every state with a regulatory takings measure on the fall ballot, opponents are voicing some variant of the same theme—that vital land use protections will be wiped out. Yet, nothing in these measures would prevent land use regulation or meaningful environmental protection. Rather, governments and activists would simply need to find a way to pay for the public benefits they desire. The measures would end the regulatory "free lunch" and restore the balance between private property rights and public action by ensuring that individual property owners are not forced to bear the costs of providing a public benefit by having their property rights severely restricted.

"The measures will be costly to implement": Measure opponents have been quick to try and frighten voters with exorbitant cost estimates and fiscal impacts that would result from passage. Oregon offers an illustrative example. Measure 37 opponents claimed that administrative costs alone could total upwards of $344 million per year statewide; while no rigorous analysis of the true state and local administrative costs has been conducted yet after the first year and a half of implementation, the Oregon legislature recently appropriated $3.9 million to administer Measure 37 and process claims. This indicates that the true administrative costs are far less than opponents have claimed, and given that Measure 37 specifies a two-year window for submitting retroactive claims, beyond which point administrative resource needs will presumably wane.

In addition, measure opponents in each state have pointed to the total value of the more than 2,000 Measure 37 claims submitted to date—$3.5 billion—as an example of the scale of impact that a regulatory takings measure could induce. However, the state and local governments have chosen to issue waivers, rather than compensate, landowners in the vast majority of successful Measure 37 claims. In those states with ballot measures that offer waivers as an alternative remedy to compensation—Arizona, Montana, and Washington—it would be reasonable to expect a similar outcome. Without the waiver option, funding for valid compensation claims would become a much bigger issue under California's Prop 90 and Idaho's Prop 2; however, given that these measures are prospective-only, the compensation component would likely compel local governments to become much more conscious of the true fiscal impacts associated with the adoption of future land use regulations.

And this is indeed one of the fundamental purposes of a regulatory takings measure—to provide a check on government power and ensure that it adequately considers the true costs and benefits associated with public action. Further, the costs associated with implementing a regulatory takings measure are not really "new"; they have just been hidden, as individual property owners—not the public-at-large—have been paying the price of providing the public benefits associated with land use regulation. In this way, the measures would simply be redirecting these costs in a more equitable manner that respects the American tradition of strong private property rights.


Conclusion

With the possibility of regulatory takings reform spreading to most states west of the Rockies, it is apparent that the effort to protect private property rights is strengthening and that citizens are becoming increasingly aware of the need to protect their property rights. Oregon's example shows that voters will respond to the message that it is only fair that property rights be restored when government crushes the realistic expectations that landowners make when they decide to invest in property. While each of the regulatory takings ballot measures on the November 2006 ballot takes on a different flavor, they share the common thread of attempting to curb government's expanding regulatory reach and enable average citizens and homeowners to protect the fruits of their labor.

Leonard Gilroy is a policy analyst at the Reason Foundation. He is the author of the new study Statewide Regulatory Takings Reform: Exporting Oregon's Measure 37 to Other States. An archive of Gilroy's research and commentary is here, and Reason Foundation's eminent domain research is available here.


Table 1. Summary of Regulatory Takings Ballot Measures

  Oregon Arizona California Idaho Montana Nevada Washington
Ballot Measure Measure 37 Proposition 207 ("Private Property Rights Protection Act") Proposition 90 ("Protect Our Homes Initiative") Proposition 2 ("Idaho Private Property Rights Protection Initiative") Initiative 154 ("Protect Private Property Rights") Nevada Property Owners Bill of Rights Initiative Initiative 933 ("Property Fairness Act")
Initiative Type Statutory Change Statutory Change Constitutional Amendment Statutory Change Statutory Change Constitutional Amendment Statutory Change
Status Passed Nov 2004 Accepted for Nov 2006 ballot Accepted for Nov 2006 ballot Accepted for Nov 2006 ballot Accepted for Nov 2006 ballot Accepted for Nov 2006 ballot; must pass in two consecutive elections; currently facing a legal challenge to keep it off of 2006 ballot Accepted for Nov 2006 ballot
Scope* RT RT/ED RT/ED RT/ED RT/ED RT/ED RT
Scope of Regulations Covered Retroactive; applies to regulations adopted subsequent to date owner (or owner's family) acquired property Prospective Prospective Prospective Prospective Prospective Retroactive; would apply to regulations imposed after January 1, 1996
Remedy Options Compensation & Regulatory Waiver Compensation & Regulatory Waiver Compensation only Compensation only Compensation & Regulatory Waiver Compensation only Compensation & Regulatory Waiver
Notes For regulations enacted before the effective date of Measure 37 (December 2, 2004), potential claimants may submit written compensation claims until: (1) December 2, 2006, or (2) two years after the date the government applies a land use regulation as an approval criteria to a development application, whichever is later. For regulations enacted after the effective date of Measure 37, landowners must submit compensation claims within two years after: (1) the regulation was enacted, or (2) the date the government applies a regulation as an approval criteria to a development application. Includes a provision clearly stating that waivers run with the land. Measure 37 did not include a transferrability of waivers provision, leaving the matter open to legal interpretation as to whether or not waivers are only valid for the current property owner. Expands the definition of "damage" to private property to include "government actions that result in substantial economic loss to private property."   Similar to Measure 37, written compensation claims may be submitted at any time from the enactment, up through a two year period from the initial enforcement of, a "damaging" regulation. The proposed Nevada amendment constitutes the most broad regulatory takings component of all of the ballot measures. It simply states that, "Government actions which result in substantial economic loss to private property shall require the payment of just compensation. Examples of such substantial economic loss include, but are not limited to, the down zoning of private property, the elimination of any access to private property, and limiting the use of private air space." Includes a provision requiring governments to analyze the impacts of proposed regulations on private property owners and consider nonregulatory alternatives, such as voluntary programs with willing property owners.

*RT = Regulatory takings (refers to devaluation of property due to imposition of government regulations, such as zoning)
ED = Eminent domain (refers to reforms to prevent use of eminent domain for economic development purposes


Leonard Gilroy is Director of Government Reform


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